Switzerland cleared the first hurdle towards ending a long-running US tax probe after one chamber of lawmakers voted to allow banks to sidestep strict secrecy laws to end the threat of criminal charges for helping wealthy Americans evade tax.
The draft law is set to face far tougher opposition in Switzerland’s lower house next week than in the upper chamber, which passed it by a decisive 24 votes to 15 on Wednesday.
The protection of client information has helped to make Switzerland the world’s biggest offshore financial centre, with US$2 trillion (HK$15.5 trillion) in assets. But that haven has come under fire as other countries have sought to plug budget deficits by clamping down on tax evasion, with authorities probing Swiss banks in Germany and France as well as the United States.
With some of its biggest institutions facing formal investigations and Switzerland’s oldest private bank already a prominent victim in the probe, the Swiss government is seeking a swift compromise with the United States to limit the damage to its vital finance industry.
Even backers of the bill said they did so grudgingly, while others chafed at what they described as US blackmail.
“Even if this bill violates our understanding of constitutional law, it is vital for our country. Switzerland’s reputation as a financial centre is at stake,” said Ivo Bischofberger of the Christian People’s Party, who voted in favour.
US investigators have lost patience with Swiss officials, who have struggled for months to find a way to bend secrecy rules to satisfy US demands and clean up past transgressions.
The bill would allow banks to hand over information and strike settlement deals with US prosecutors, which one lawmaker called a “choice between the plague and cholera.” Such deals would avert the threat of criminal prosecution, but are still expected to include heavy fines that could cost the industry as much as US$10 billion (HK$77.6 billion).
The vote follows last-minute lobbying in Bern from high-profile bankers including Credit Suisse chairman Urs Rohner, and lawmakers also heard from Swiss National Bank chairman Thomas Jordan, who insisted the central bank would not step in should Swiss banks be cut off from vital dollar-clearing lines by US officials.
US 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.
Switzerland’s biggest bank, UBS, was forced in 2009 to pay a fine of US$780 million (HK$6.1 billion) and deliver the names of more than 4,000 clients to avoid indictment, giving the US authorities information that allowed them to pursue other Swiss banks.
The legislation approved by the upper house would pave the way for Swiss banks to disclose their US 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’ behaviour that US 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. Lawmakers were swayed by concern US prosecutors could indict one of the state-backed cantonal banks in their constituency.
Wegelin & Co, Switzerland’s oldest private bank, shut its doors this year and paid US$58 million to US 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 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.
Several lawmakers called for Swiss regulators to sanction the Swiss bank executives who continued to pursue undeclared US client money after UBS’s troubles, though a parliamentary motion to do so failed.