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How the U.S. cracked open secret vaults at UBS

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The U.S. Department of Justice Tax Division Attorney had been investigating UBS since the middle of 2008After the collapse of Lehman Brothers in September 2008, Switzerland's largest bank was teetering. UBS, which was more than three times bigger than Lehman in terms of assets, had to write down some $50 billion during that tumultuous period.

Investors the world over breathed a sigh of relief on October 16 when the Swiss government rescued UBS. But unbeknownst to them at the time, the bank faced a potentially devastating crisis on a very different front.

One day after the bailout, top executives from UBS and Swiss regulators were summoned to a closed-door meeting in New York by U.S. officials who were conducting a wide-ranging tax fraud investigation that centered on the bank.

The UBS delegation, led by newly-appointed Group General Counsel Markus Diethelm, arrived armed with the results of an internal report highlighting instances of tax fraud within the bank, insiders told Reuters. The plan was simple: admit guilt, settle the case quickly and move on.

But Kevin Downing, the U.S. Department of Justice Tax Division Attorney who had been investigating UBS since the middle of 2008, chose that meeting to drop a bombshell: he wanted the bank to disclose names of U.S. tax evaders as a condition for a settlement.

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