UBS is shutting hidden offshore accounts of its wealthy US clients, potentially allowing their secrets to emerge as the US federal investigation into the Swiss bank’s role in allegedly helping people evade US taxes continues, according to the New York Times.

In a step that would have once been unthinkable in Swiss banking, UBS will shut about 19,000 accounts that prosecutors suspect have gone undeclared to the Internal Revenue Service, the paper said.

The story underscores how the US authorities are tightening the screws on banks and offshore financial services. President-elect Barack Obama, who takes up office later this month, has made a crackdown on offshore tax havens a feature of his economic programme.

UBS will transfer the assets to other banks or other divisions within UBS, or will mail funds directly to the account holders, creating paper trails for federal prosecutors who are examining whether UBS clients used such accounts to evade taxes.

The clients now face stark choices: they can cash their cheques, and thereby alert the authorities to any potential wrongdoing, or not cash them, effectively losing their money.

Or they can transfer the money to new banks, a procedure which, in the case of foreign banks, requires depositors of more than $10,000 to report the new account to the Treasury Department.

“You can either take that check and throw it in the woods, or deposit it somewhere and get busted,” a UBS client was quoted by the newspaper as saying on condition of anonymity. “There’s nowhere to hide.”

US citizens can use offshore accounts, provided they disclose them and pay taxes on their holdings. UBS said in July that it would stop offering to US clients offshore private banking services that are not declared to the IRS. Prosecutors contend that UBS helped wealthy Americans hide about $18 billion, thereby evading taxes of $300 million each year.

UBS clients who open new accounts at other foreign banks must disclose those accounts’ assets to the Treasury Department.

UBS is struggling to maintain its centuries-old tradition of Swiss banking secrecy amid mounting legal pressure from the Justice Department to turn over client records.

A UBS spokeswoman declined to comment yesterday on whether UBS would turn over facsimiles of documents recording transfers. “UBS is progressing with the closings in an orderly fashion,” she said.