BERNE Swiss lawmakers dealt a death blow on Wednesday to a draft law which aimed to protect the country's banks from criminal charges in the United States for helping wealthy Americans evade tax.
The Swiss government has warned that the bill's failure could prompt impatient U.S. prosecutors to indict banks, though it could still use an executive order to allow them to hand over data to try to avoid criminal charges.
The bill, which lawmakers from both the center-left and right opposed for widely differing reasons, was designed to let banks sidestep Swiss secrecy laws by disclosing their U.S. dealings so they could avoid prosecution. With or without the law, they will still seek out of court settlements with U.S. authorities that could cost the industry as much as $10 billion.
Parliament's lower house voted 123 to 63 against debating the legislation, effectively killing the law, even though the upper house had confirmed its support earlier in the day.
Switzerland's banking lobby expressed regret about the vote and urged the government to do everything possible to help banks reach settlements under a U.S. Department of Justice program.
"Switzerland must not take the risk of a further indictment of a bank lightly," the Swiss Bankers Association said in a statement.
Finance Minister Eveline Widmer-Schlumpf said the government would do everything in its power but its options were limited without the bill.
The protection of client information has helped to make Switzerland the world's biggest offshore financial center, with $2 trillion in assets. But the haven has come under fire as other countries have tried to plug budget deficits by clamping down on tax evasion, with authorities investigating Swiss banks in Germany and France as well as the United States.
Experts were divided over the threat posed to Swiss banks by parliament's decision to oppose the law.
"The Americans will get the data they want. They will not stop until they have it," said Martin Naville, head of the Swiss-American Chamber of Commerce. "It is taxing the patience of our American friends. When their patience is over, there will be indictments, perhaps just one or two, but it will be more than enough to create chaos."
No one was immediately available for comment at the U.S. Department of Justice.
Earlier this year a U.S. indictment felled Switzerland's oldest private bank, Wegelin & Co. It paid a $58 million fine and closed its doors for good after pleading guilty to helping wealthy Americans evade taxes through secret accounts.
Shares in Basler Kantonalbank, one of the banks under U.S. investigation seen at immediate risk, closed down 2.5 percent, compared with broadly positive Swiss stocks.
But Peter V. Kunz, professor for business law at Berne University, was more sanguine.
"I think bankers will be indicted, but I don't really see banks getting indicted... as there may not be enough evidence to accuse them of systematically violating U.S. law," he said.
"Wegelin was indicted and settled but in my view this was a singular case. I don't see it as a model case for Swiss banks."
The government's attempt to fast-track the legislation through parliament to meet a U.S. ultimatum angered many lawmakers in the fiercely independent country.
Right-wing lawmakers opposed the bill on the grounds that it could set a precedent that might prompt other countries to seek concessions from Switzerland. The center-left also rejected it for different reasons, believing Swiss banks should be forced to face the music for aiding tax evasion.
Lawmakers from both the lower and upper house endorsed a statement saying they supported a solution to the long-running tax dispute despite the defeat, and called on the government to allow banks to cooperate under existing laws.
Switzerland's biggest bank, UBS, was forced to pay a $780 million fine in 2009 and deliver the names of more than 4,000 clients to avoid indictment, giving the U.S. authorities information that allowed them to pursue other banks.
Since then, the government has tried to reach a settlement for the whole financial industry, but has been hamstrung by Swiss secrecy laws and bickering among banks over who should pay the heavy fines.
U.S. authorities have more than a dozen banks under formal investigation, including Credit Suisse, Julius Baer, the Swiss arm of Britain's HSBC, privately held Pictet in Geneva and local government-backed Zuercher Kantonalbank and Basler Kantonalbank.
(Additional reporting by Katharina Bart, Emma Thomasson and Martin de Sa'Pinto in Zurich; Editing by Will Waterman and David Stamp)