LONDON -- You'd think the issue of international tax evasion was big enough to keep government officials talking for a lengthy amount of time. But American and Swiss authorities have a lot more than that to discuss as they seek an agreement over UBS handing over to the U.S.' Internal Revenue Service the names of several thousand clients who had previously been promised anonymity.  Talks between the two governments are reported to have stalled over when and how Switzerland will actually transfer the client account data, which is protected by strict bank secrecy laws. The Swiss cabinet held an extraordinary general meeting over the issue on Monday; the crucial complication is that while tax evasion is illegal in the U.S., breaching confidentiality is illegal in Switzerland.  Switzerland has already capitulated by, in theory, allowing UBS ( UBS - news - people ) to pass on the names--not surprising given the international pressure to stamp out tax evasion that was amplified at the G20 meeting in London in January. Though the IRS originally wanted UBS to hand over 52,000 client names who were suspected of tax evasion, recent reports say it is more likely that the bank will have to divulge 5,000 or possibly 10,000 names.  Even that amount will severely damage UBS' reputation as a haven for wealthy individuals who want to squirrel their money away from the eyes of American tax authorities. And the change in perception is already clear in the billions of dollars flowing out from its private banking division. (See "UBS: The Good Days Are Gone.")  But Switzerland also has some cards to play in multilateral discussions, particularly when it comes to foreign affairs. The country's diplomats, for instance, have been representing U.S. interests in Iran since 1980. They have most recently been playing an important role in trying to find out what happened to three Americans who were reportedly captured in Iran after wandering in from Iraq's northern Kurdish region.  There's also trade: The U.S. is the main destination for Swiss direct investment, and Swiss exports to the United States totaled close to $19 billion in 2008, according to Swissinfo.net. "It's not just a tax issue. There are greater complexities in the international relationship other than tax," said Richard Murphy, a director of the consultancy Tax Research.  Yet, in spite of the pressure to get information from Switzerland, it is probable that the IRS is not pushing the Swiss or UBS to hurry. Murphy points out that around 400 Americans who have bank accounts with UBS have already come forward to the IRS with their account details in one week.  The penalty of doing so is smaller than if the IRS pinpoints tax evasion via a full audit, suggesting many of UBS' private banking clients are facing a prisoner's dilemma. "The more who can be persuaded to confess, the better," said Murphy. "It's cheaper than a full IRS audit, even without the penalties. This is a game of psychology to get the information."
Tax talks between Switzerland and the U.S. hit a snag as the two sides discuss everything from trade to diplomacy.