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Switzerland and the US have agreed a disclosure deal to incentivise Swiss banks to admit tax evasionReuters

Swiss banks are hurriedly trawling through accounts data with legions of lawyers and auditors to meet a 31 December deadline set by the US Justice Department on an amnesty for institutions who admit to breaking America's tax laws.

Under the disclosure programme, Switzerland's banks who think they have broken US tax laws must show the US Internal Revenue Service (IRS) how they hid Americans' assets, hand over data on secret accounts, and pay financial penalties. In exchange, the US Justice Department will drop any potential prosecutions in its evasion probe.

"It's necessary for the banks to do a deep analysis of their clients and the history of those relationships," Swiss Bankers Association (SBA) spokeswoman Sindy Schmiegel told Bloomberg.

"That's really expensive, and that's why the program is at the limit of tolerability for the banks. It's really a painful program."

So far 33 Swiss banks said they would sign up. To avoid prosecution, banks must pay the IRS 20% of the value of undeclared accounts set up before 1 August, 2008. Those set up between then and February 2009 must pay a 30% penalty, which rises to 50% for the period after that to now.

Switzerland is thought to have attracted more than $2tn (£1.3tn, €1.5tn) in offshore deposits, according to certain estimates.

The Swiss government backs the US evasion scheme. It is encouraging banks to sign up and says the deal respects its legal system and sovereignty, and promotes cooperation between itself and the US.

"In addition to strengthening our partnership with the Swiss government, the program's requirement that Swiss banks provide detailed account information will improve our ability to bring tax dollars back to the US treasury from across the globe," US Attorney General Eric Holder said when launching the programme in August.

After locking horns with Switzerland over the tax evasion issue since 2009, the agreement is regarded as a major victory for the US in lifting the shroud of secrecy of the Swiss banking system.

Meanwhile, Swiss officials hope to protect the country's key banking sector amid a widening tax evasion probe from the US that could trouble or close more banks.