Switzerland frees banks to settle U.S. tax evasion cases

ZURICH Wed May 29, 2013 11:25am EDT

1 of 3. Swiss Finance Minister Eveline Widmer-Schlumpf gestures during a news conference in Bern May 29, 2013.

Credit: Reuters/Arnd Wiegmann

Related Topics

ZURICH (Reuters) - Switzerland aims to save its banks from heavier punishment in the United States for helping wealthy tax cheats by sidestepping its own famed secrecy laws to let bankers disclose data to U.S. prosecutors.

A government bill put to parliament on Wednesday would let Swiss banks hand over internal information to U.S. authorities in the hope of avoiding threatened criminal charges - though the banks still face fines likely to total billions of dollars.

Bankers welcomed the prospect of an exit from years of legal wrangling that has already cost them dear and driven one bank out of business but were disappointed ministers failed to win more clarity from Washington on what settlements they might now expect. Opposition in parliament could yet block the measure.

Five months after U.S. action over tax evasion led to the closure of the country's oldest private bank, and with formal investigations under way into some of its biggest institutions, the Swiss government urgently wants a compromise to end threats of criminal charges that have hurt a vital national industry.

It insists banks will still not be allowed to hand over client names - protected by its treasured secrecy law of 1934.

But the new proposal, valid for a year only, would allow them to hand over so much information on customers' behavior that U.S. officials should be able to identify Americans who have used Swiss bank accounts to evade their taxes.

"If banks were not authorized to cooperate with the U.S. authorities, the initiation of further criminal investigations or charges concerning banking institutions could not be ruled out," the Swiss finance department said in a statement.

Swiss analysts were divided: some called it a sensible way out of a problem that meant banks, which are mostly now pulling out of the U.S. private client business, found themselves barred by Swiss law from cooperating with U.S. prosecutors; others condemned the blow to secrecy as "blackmail" by Washington.

The country's biggest bank UBS was forced in 2009 to pay a fine of $780 million and deliver the names of more than 4,000 clients to avoid indictment, giving the U.S. authorities information that allowed them to then pursue other Swiss banks.

Switzerland's tradition of bank secrecy has helped make it the world's biggest offshore financial center, with $2 trillion in assets. But that tradition has come under heavy fire since the financial crisis as cash-strapped governments around the world have clamped down on tax evasion, with authorities probing Swiss banks in Germany and France as well as the United States.

Banks under formal U.S. investigation include Credit Suisse, Julius Baer, British bank HSBC's Swiss arm, privately held Pictet in Geneva and smaller players such as LLB's Swiss arm and local government-backed Zuercher Kantonalbank and Basler Kantonalbank.

A Credit Suisse spokesman welcomed the legal framework, but declined to comment on when it might reach a settlement with U.S. authorities.

UMBRELLA DEAL ABANDONED

Finance Minister Eveline Widmer-Schlumpf said the government wanted to rush the legislation through parliament in June for fear that U.S. authorities could bring criminal charges against large banks and open new investigations into many more banks.

She said the U.S. Department of Justice would only start offering individual settlements with banks once the Swiss parliament had approved the legal framework.

The biggest party in parliament, the right-wing Swiss People's Party (SVP), said it would reject the proposal, as did the left-wing Social Democrats (SP). However, that does not mean that the legislation will not ultimately pass in some form.

The government has been negotiating with U.S. authorities for two years to try to resolve the tax dispute, but has abandoned an attempt to reach an umbrella settlement deal for the whole financial industry due to secrecy laws as well as squabbling among the country's banks as to who should pay what.

The Swiss Bankers Association said it welcomed a deal to clean up the historic problem in the United States but was "alienated" by the lack of detail offered by the Swiss government on what penalties they will face if they now hand over information to negotiate settlements with U.S. prosecutors.

Reaction among banking experts were divided.

Peter V. Kunz, a professor at Berne University said the deal was good for Switzerland and for its banks.

But others were much less positive: "In my opinion it's just pure blackmailing by the U.S. government," said Martin Janssen, professor of finance at Zurich University.

"You cannot even estimate what the costs will be," he said. "The U.S. government will just try and find out what the willingness is of the Swiss banks to pay."

Sources have said fines for the industry might amount to $10 billion but minister Widmer-Schlumpf said the government had not discussed a total sum for fines and would not offer financial assistance for banks as they seek individual settlements.

The finance department said the bill proposed by the cabinet on Wednesday would allow banks to hand over information about asset transfers, such as when accounts were closed and where money was transferred, as well as details of third parties who had business relationships with U.S. clients, such as tax lawyers.

Widmer-Schlumpf said that for the United States to get at more client names, the U.S. Senate must now ratify a new, wider double-taxation agreement that Switzerland agreed in 2009 but which has languished in Washington.

Switzerland's oldest private bank, Wegelin & Co, said in January it was closing down after pleading guilty to helping Americans evade taxes. It was fined nearly $58 million.

($1 = 0.9760 Swiss francs)

(Additional reporting by Caroline Copley; Writing by Emma Thomasson)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (9)
SentientOne wrote:
When I worked for America’s largest printing company, I learned quite inadvertently of an offshore shadow company by the same name, domiciled in Bermuda, which apparently did business with the financial division clients where I worked. My department boss asked me about my discovery within a few days, and within a few weeks I was fired with prejudice that is denied to this day, but which nonetheless consigns me to no rehire, no good reference, failure to return my property to me, and inability to work in my field. MBD thanks RRD profusely.

May 29, 2013 6:12am EDT  --  Report as abuse
BlueOkie wrote:
No Place to Hide!!! Pay up rich folks

May 29, 2013 9:24am EDT  --  Report as abuse
Swiss national sovereignty has been impugned and the banks have broken their own code of ethics in sharing private information. The successful among us are not the enemy and fleecing them is not the solution to other people’s lack of discipline and motivation.

May 29, 2013 12:28pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.