Swiss upper house backs U.S. tax deal to protect banks

By Katharina Bart

ZURICH (Reuters) - Switzerland's upper house of parliament has given its backing to a bill that would allow the country's banks to sidestep strict secrecy laws to end the threat of criminal charges for helping wealthy Americans to evade tax.

The protection of client information has helped to make Switzerland the world's biggest offshore financial center, with $2 trillion in assets. But that tradition has come under fire as other countries have sought to ease budget deficits by clamping down on tax evasion.

After U.S. action led to the closure of Switzerland's oldest private bank this year, and with some of its biggest institutions facing formal investigations, the Swiss government is seeking a swift compromise to limit the damage to such a vital industry.

"Even if this bill violates our understanding of constitutional law, it is vital for our country. Switzerland's reputation as a financial center is at stake," said Ivo Bischofberger, of the Christian People's Party, after voting in favor.

The bill, which goes to the lower chamber next week, would allow banks to hand over information and strike settlement deals with U.S. prosecutors. Though such deals would avert the threat of criminal prosecution, they are expected to include heavy fines that could cost the industry as much as $10 billion.

The upper house passed the draft law by 24 votes to 15, but opposition to the bill has been vocal from left to right as lawmakers chafe at what some describe as U.S. blackmail. It is likely to face far tougher debate in the lower house.

INVESTIGATIONS

Switzerland'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 pursue other Swiss banks.

More than a dozen banks are under formal investigation by the United States, 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.

The legislation approved by the upper house would pave the way for Swiss banks to disclose their U.S. dealings, including names of bank staff and third parties such as accountants and tax lawyers who helped Americans to evade taxes.

Banks will still not be allowed to hand over client names - protected by the Swiss secrecy law of 1934 - but the proposal, valid for a year only, would allow banks to hand over so much information on customers' behavior that U.S. officials should be able to identify American tax dodgers.

The Swiss government has warned that the United States could indict another bank, a move seen as the death knell for virtually any business.

Wegelin & Co, Switzerland's oldest private bank, shut its doors this year and paid $58 million to U.S. authorities after pleading guilty to helping wealthy Americans evade taxes through secret accounts.

If the lower house were to reject the bill, the Swiss government could still take matters into its own hands and approve the data transfer with an executive order, though circumventing a hostile parliament is seen as a risky gamble.

Any deal not backed by parliament could still be held up or even knocked down by Swiss courts if bank clients, staff or third parties such as tax lawyers and custodians follow through with threatened legal action.

(Editing by Emma Thomasson and David Goodman)

Source: http://news.yahoo.com/swiss-us-tax-deal-clears-first-hurdle-upper-115403722.html

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