NEW YORK (MarketWatch) -- Let me let you in on a little secret: the Swiss banking ruse is over -- and it's about time.

Historically, Switzerland's neutrality has been an esteemed philosophical island in a world full of bitter cultural animosity and politics. But its banking rules, which were liberalized to help Jews hide assets from the Nazis, emphasize secrecy over law and have become less-than admired and more controversial around the world.

That's about to change with the culmination of an aggressive U.S. Internal Revenue Service effort, led by attorney John McDougal to gain the identities on 52,000 Swiss bank accounts held by UBS AG. UBS, +1.31% See full story.

IRS attorney John McDougal, who is leading efforts to identify Swiss bank account holders. Service to America Medals

Switzerland's seven-member cabinet met Monday to discuss the IRS's demand, and several analysts believe the meeting is the first step in what ultimately will be capitulation by the Swiss to allow access to banking records in tax-evasion cases.

The fight between the IRS and the Swiss government is complicated, but it ultimately comes down to two sovereign laws at odds in the international realm.

The Swiss have offered legal banking secrecy to anyone and for the last 75 years, unveiling account holders' identities has been a criminal offense. The IRS, in its pursuit of tax dodgers who have used overseas accounts to hide funds, is seeking the names as part of a sweeping probe.

Swiss movement

The U.S. effort has put a lot of its goodwill with Switzerland, not to mention a treaty protecting secret bank accounts, at risk with the move. The Swiss sometimes reveal account holders' identities when there's strong evidence accounts are being used to hide proceeds from activities including drug trafficking, organized crime and more recently, terrorism.

Some argue that the U.S. is violating its own search-and-seizure protections by aiming to reveal account holders' identities without specific evidence.

Probable cause is a nifty argument, except that in this case it's a fallacy. Probable cause does not mean that someone has to be guilty; it means there's a likelihood that evidence of a crime exists in the place to be searched.

Take a look at the nature of Swiss bank accounts and, though it may not fit a tidy legal definition, it's fairly obvious that the only reason an American would want to deposit their funds there and maintain secrecy is to hide something.

The Swiss tax all interest earned on the accounts at a rate of about 35%. That penalty can be waived if you can prove you're not a Swiss citizen and to do that you must agree to reveal your identity.

Americans with Swiss accounts do so for many reasons that aren't necessarily nefarious. UBS and Credit Suisse CS, +1.37% have substantial holdings in the U.S. banking market. Having a Swiss account gives international travelers options that their small local banks may not offer. The Swiss franc is a relatively stable currency.

But there are other reasons -- if not illegal then questionable -- for having a Swiss account. Hiding assets in a divorce is one; tax evasion is another. And even though the Swiss will lift secrecy when there's evidence of illegal activity, it doesn't happen very often.

Not that there has been a shortage of corrupt officials opening up accounts in Switzerland. Former Phillipine president Ferdinand Marcos, ex-Nigerian president Sani Abacha and Vladimir Montesinos, the one-time head of Peru's intelligence agency, all had numbered accounts with Swiss banks.

A slippery slope

The so-called benefits of banking secrecy have made Swiss banks the top holders of offshore accounts globally -- with 35% of all assets -- and created supersized wealth for the nation. The tiny country ranks among the top 40 in gross domestic product, per capita income is 17th in the world and a 3% unemployment rate as of December, according to the U.S. State Department.

With so much of Switzerland's wealth at stake, it's no surprise the banks and Swiss government want to retain their competitive edge. But that's true with anyone who serves people or entities shunned by the rest of the world. Switzerland is, in a financial sense, an arms dealer with a secret client list, legal but unsavory.

The Swiss may have a perfectly legal right to offer such services. The U.S. also has a right to chase down tax dodgers and criminals. If that means barring U.S. citizens from opening secret accounts or renegotiating a treaty to force more openness, then our government can play hardball, too.

So far, U.S. pressure has already paid off. In January, UBS closed 19,000 accounts believed to have been used for evading taxes. And the IRS said it has received a record response to a clemency program for tax evaders using offshore accounts.

The squeeze is the reason true banking secrecy is on its way out, whether it's the Swiss providing more information about its banking clients or our government taking those clients away.