Swiss lawmakers move closer on approving UBS tax deal with United States

Eveline Widmer-Schlumpf, head of the Swiss department of justice and police, speaks during the floor debate in Bern on Tuesday.
Eveline Widmer-Schlumpf, head of the Swiss department of justice and police, speaks during the floor debate in Bern on Tuesday. (Lukas Lemann/associated Press)
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By David S. Hilzenrath
Wednesday, June 16, 2010

Swiss lawmakers on Tuesday took a step back from the brink of a renewed confrontation with the United States over bank secrecy.

In a reversal, the lower house of the Swiss parliament endorsed an August 2009 agreement under which Switzerland promised to help the U.S. government pursue thousands of Americans who used accounts at Swiss banking giant UBS to hide money from the IRS.

Last week, the lower house rejected the agreement, risking the possibility that the United States could revive potentially devastating civil and criminal proceedings against the bank.

Tuesday's vote does not assure that the agreement will be ratified. The two houses still have differences to bridge before their legislative session ends Friday. The main question is whether to put the issue to a national referendum, which could delay any resolution until next year.

After the vote, the U.S. government kept up the pressure.

"While we look forward to a positive resolution of this matter, we remain prepared to use all available options, including the U.S. courts, should the present efforts fail," IRS spokesman Frank Keith said in a statement.

Last year, UBS admitted to helping U.S. residents cheat the IRS out of tax payments, and the bank agreed to pay the United States a $780 million penalty to avert criminal prosecution conditionally. On a parallel track, the United States sued UBS, trying to force it to disclose the names of 52,000 U.S. account holders.

The dispute pitted the U.S. government's interest in tax enforcement against the Swiss government's desire to protect the secrecy that is one of the underpinnings of its banking industry.

The civil case led to tortuous negotiations between the two governments and prompted the August settlement, under which the Swiss government agreed to process a U.S. request for information on 4,450 accounts using a more accommodating interpretation of its bank secrecy standard.

That solution was left in jeopardy this year when a Swiss court said the executive branch had exceeded its authority. The executive then asked parliament to solve the problem by ratifying the agreement.

Both houses of parliament have now endorsed the deal, but the lower house has called for an optional referendum. Under that procedure, citizens would be given 100 days to gather 50,000 signatures in favor of such a vote. If they fell short, the agreement would be approved. If they gathered enough signatures, the question would be put to a popular vote. Swiss Justice Department spokesman Folco Galli said the public vote could not take place until early next year.

The 2009 agreement leaves room for disagreement about Switzerland's obligations.

In its statement Tuesday, the IRS said the deal calls for the Swiss government to provide the names of the account holders. Taken literally, the document only requires the Swiss to consider turning over those names.

The agreement also sets an August 2010 deadline, but that does not necessarily mean Switzerland must turn over the information by then. As Galli noted Tuesday, the document says the Swiss Federal Tax Authority was given until August to decide which information to turn over.

"We expect that the Swiss government will honor the agreement it signed and will do so within the agreed upon time frames," the IRS said.

In trading in Zurich on Tuesday, shares of UBS closed up nearly 2 percent, reaching 15.51 Swiss francs ($13.69).

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