UPDATE 4-Swiss demand banks help clean up tax-haven image
* Swiss govt to propose concrete measures by Sept 2012
* Wants foreign clients to declare tax obligations met
* Prefers witholding tax to automatic information exchange
* Social Democrats say plan is step in right direction
* Bank assn rejects "systematic duty of self-declaration"
BERNE, Feb 22 (Reuters) - Switzerland announced plans on Wednesday to force its secretive banks to do more to make sure foreign clients' money is taxed in an attempt to shake off its image as a haven for untaxed funds as it seeks to end a damaging U.S. tax probe.
Finance Minister Eveline Widmer-Schlumpf told a news conference the government would draw up requirements by September to enhance due diligence requirements for banks when accepting assets as well as introducing a demand for foreign clients to declare they have met their tax obligations.
"We're convinced that it's best for clients to keep privacy but also acknowledge countries' legitimate claims on taxing citizens. With this strategy we can fulfill both needs," she said.
A global crackdown on tax evasion by cash-strapped governments in recent years has chipped away Switzerland's cherished tradition of banking secrecy, which had helped it build up a $2 trillion offshore wealth management industry.
Under pressure in particular from U.S. and German tax investigations, Switzerland has already taken steps to make sure its bank clients pay their home country taxes, including plans to levy a withholding tax on foreign assets and more co-operation with authorities pursuing alleged tax dodgers.
Widmer-Schlumpf is walking a tightrope between satisfying left-wing politicians who want a tougher clampdown on banks and avoiding further howls from the right which has staunchly defended strict bank secrecy laws.
Widmer-Schlumpf said she hoped Wednesday's announcement would help the passage next week through parliament of a crucial proposal that would allow the government to meet U.S. demands for bank client data as it tries to settle a damaging dispute.
The Social Democrats (SP), whose support Widmer-Schlumpf will need in next week's vote, said the cabinet's plans were a step in the right direction.
"The SP welcomes the cabinet's willingness to give in. Against this background, the party will suggest ... accepting the double taxation agreement with the United States," it party said in a statement.
Peter V. Kunz, professor of law at the University of Berne, said the plan could help Switzerland improve its image abroad but that the details of the plan could still be watered down.
"I'm sure that as of tomorrow there will be strong lobbying against tougher due diligence requirements for the banks," he told the German-language late-evening news programme 10vor10.
The Swiss Bankers Association said it supported the outline in cases where there signs of people cheating on taxes but did not fully embrace the cabinet's plan.
"The SBA rejects a systematic duty of self-declaration as it has no credibility abroad, is unlikely to become an international standard, does not provide a solution for assets already deposed in Switzerland and casts suspicion over all clients," it said.
Switzerland has been lobbying for a year to end investigations by U.S. tax authorities into 11 banks, including Credit Suisse and Zuercher Kantonalbank (ZKB), in return for the payment of hefty fines and the transfer of names of thousands of U.S. bank clients.
At the news conference, Michael Ambuehl, state secretary for the finance ministry, declined to comment on how negotiations with Washington were progressing.
AUTOMATIC INFORMATION EXCHANGE
In a sign the U.S. Department of Justice is losing patience, earlier this month it indicted Switzerland's oldest bank, Wegelin, on charges that it helped wealthy Americans to evade taxes on at least $1.2 billion hidden in offshore bank accounts.
This tightening of the noose has rattled bankers, already jittery about travelling abroad for fear of being arrested.
Switzerland has struck deals with Germany and Britain to allow citizens to pay tax on secret accounts without revealing their identities, but these have faced resistance from the European Commission, which wants to force Switzerland to accept an automatic exchange of bank information.
Widmer-Schlumpf said other countries were interested in the withholding tax model and stuck to her opposition to automatic information exchange.
"If you have an automatic exchange of information you have lots of data you can't evaluate ... It's a completely inefficient system," she said.
As part of its push to shake off its reputation as a haven for ill-gotten gains, Switzerland has also seized the assets of numerous deposed dictators in recent years, including those of former Egyptian and Tunisian leaders and their entourages.
Some private banks still appear reluctant to give up the lucrative business of managing untaxed money. According to a recent study by KPMG, only a quarter of Swiss private banks want to switch to a clean money strategy within a year.
Daniel Lampart, chief economist of the Swiss Trade Union Federation, said ditching clients' undeclared assets could shave 0.2-0.3 percent off annual economic output in the next few years, putting 5,000 to 10,000 jobs at risk.
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