Switzerland's Finance Minister Hans-Rudolf Merz and current Federal President, has launched a special task force to try to defend banking secrecy in the face of mounting international pressure as the US steps up pressure on Swiss banking giant UBS over taxes for an additional 35,000 accounts of American citizens, which hadn't been disclosed in an original investigation.

The official swissinfo news agency reports, that Merz will enlist the help of bankers, diplomats, economists and legal experts to help ward off attacks. Last week, Switzerland controversially handed over confidential client data to a United States tax evasion probe.

Banking secrecy is a fundamental pillar of the Swiss financial centre and has helped it corner nearly a third of the world's private banking business. But it also stands accused of helping wealthy foreigners dodge taxes in their own countries, according to swissinfo.

On Wednesday UBS, Switzerland's largest bank, paid $780 million (SFr915.8 million) in fines and agreed to hand over details of 250-300 customers to avert criminal proceedings relating to a tax evasion investigation.

Merz was heavily criticised for his part in the climb-down that sidestepped legal proceedings in Switzerland.

Merz has now responded to a cascade of recent international pressure. The US has demanded details of another 52,000 UBS clients, the European Union has waded into the debate and European leaders have vowed to launch a global crusade against tax havens at April's G20 summit in London.

"Pressure has been building up on an international level about the tax system. We need legal experts, those who know the situation in the US and in Switzerland. Also bankers, economists and people with diplomatic expertise,"Merz said on Wednesday.

"We have to take decisions on strategic issues in the next few days."

While UBS had admitted it had failed to properly withhold American taxes on 17,000 accounts held by wealthy Americans, the US authorities are now investigating how the bank and its intermediaries handled taxes for an additional 35,000 accounts, according to two people briefed on the investigation, according to the New York Times.

The NYT said: at issue is whether UBS withheld taxes, as required by American law, and, if so, where the money went, these people said. If UBS failed to collect taxes on all 35,000 accounts, the bank could owe the Treasury Department as much as $800 million in taxes, interest, fines and penalties, according to a tax lawyer briefed on the investigation, who spoke on the condition he not be named because he is representing UBS clients.

The NYT says there are two main parts of the federal investigation. The first concerns the individuals who may have used UBS accounts to evade taxes. The second involves whether the bank itself properly collected tax money and forwarded it to the Treasury Department. The US Internal Revenue Service is demanding that UBS divulge the names of 52,000 account holders as part of an investigation into individual tax evasion. The Justice Department is conducting a separate investigation.

Tax evasion a crime?

When asked if Switzerland would recognise tax evasion as a criminal offence – at present it is considered a civil offence – Finance Minister Merz hinted that the preferred route would be to update existing tax treaties with various countries.

Justice Minister Eveline Widmer-Schlumpf will raise the issue of banking secrecy during a trip to the US next week. Foreign Minister Micheline Calmy-Rey has also been drafted in to help with the task force.

Merz will travel to London next month to speak to international finance ministers before the G20 summit of advanced and emerging economies,begins. Switzerland's requests to attend the April summit have been rejected. Merz is likely to get a frosty reception.

Last week-end, European leaders met in Berlin, ahead of the summit, and called for new sanctions to punish “uncooperative” jurisdictions and tax havens, which member states plan to name in the coming weeks.

The Swiss Bankers Association (SBA) said the political initiative was a welcome move.

"We welcome the formation of this committee as a sign of leadership and also as a solid demonstration of the government's commitment to the Swiss financial centre,"SBA spokesman James Nason told swissinfo.

"False morality"

Other bankers are reported to have demonstrated a marked reluctance to engage in diplomacy with countries that are attacking Switzerland's banking secrecy. Konrad Hummler, president of the Swiss Private Bankers Association accused some countries of hypocrisy.

In a statement released earlier this week, Hummler highlighted offshore tax havens under British control and entities in the US states of Delaware and Florida that specialise in setting up opaque "shell" companies to help the wealthy avoid large tax bills.

Hummler also questioned the involvement of Silvio Berlusconi in the European initiative against tax havens, pointing out that the Italian prime minister's tax affairs have previously been called into question.

"Swiss politicians must therefore hold up a mirror to the US and the EU to counteract this false morality," Hummler stated.

It's a case of the biblical injunction: "Let he who has not sinned, cast the first stone," as the defence for international tax evasion.

Client assets at Swiss banks tumbled in 2008

The value of assets deposited in Swiss banks shrank by more than a quarter last year as the global financial crisis took hold.

Figures released by the Swiss National Bank (SNB) on Tuesday, show total deposits fell by SFr1.41 trillion ($1.21 trillion) to SFr3.82 trillion, the lowest level since August 2005.

Assets from foreign customers shrank by SFr882 billion, as pressure grew against Switzerland's offshore banking activities, while the value of domestic funds fell by SFr531 billion, according to the SNB's monthly statistical bulletin.

The statistics did not break down the figures by institution or differentiate between customer withdrawals and erosion of value due to volatile market conditions.

Foreign private customers saw the highest proportional drop in assets - 36 per cent - leaving SFr671 billion in Swiss vaults. That is the lowest deposit amount from foreign private customers since the end of 1998.

Assets held by foreign institutional customers dropped 23 per cent to SFr1.386 trillion.