Swiss Parliament Backs UBS Pact

Published on July 19, 2010

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Swiss Parliament Backs UBS Pact

ZURICH-Swiss legislators approved a law that clears the way for the government to hand over the names of thousands of alleged U.S. tax evaders to the Internal Revenue Service, dodging the risk that the U.S. would reopen a bruising tax case against Swiss bank UBS AG.

Final passage of the law had been hung earlier this week when the lower house of Switzerland’s parliament included a provision that would have subjected the bill to a popular referendum-a process that would have prevented the hand over of the names until after an August deadline set by the U.S. After tough negotiations in recent days, the lower house dropped the referendum provision.

The vote allows Bern to fulfill its obligations under a deal Switzerland reached last August with the U.S. to resolve an aggressive tax case brought against UBS, Switzerland’s largest bank. The U.S. Department of Justice charged that UBS helped thousands of Americans evade taxes on as much as $20 billion of income by setting up secret offshore bank accounts. As part of the settlement, UBS admitted widespread wrongdoing and agreed to provide the IRS with the names of 4,450 American account holders. Swiss tax authorities must hand over those names by August.

That settlement hit a snag in January when a Swiss court ruled the agreement violated domestic law. In April, the Swiss government presented a bill aimed at laying the legal groundwork to follow through on the settlement. However, the bill soon became the subject of rancorous debate, with some parties accusing the government of capitulating to American demands and compromising the country’s cherished bank secrecy.

Last week, Switzerland’s lower house rejected the bill. Earlier this week, it reversed that decision and approved it, but attached the condition that the law be subject to a referendum. Because citizens are allowed 100 days to gather the necessary signatures to launch a referendum in Switzerland, the government would have missed the August deadline to hand over the names.

After heated negotiations among the nation’s leading parties, the lower house approved the bill on Thursday without the referendum. The Swiss Senate had already approved the legislation without a referendum. As a result, the new law can’t be subject to a popular vote.

If Switzerland had failed to fulfill its obligations under the settlement, the IRS was prepared to reopen the case, a spokesman said this week.

In a statement Thursday, UBS welcomed the vote. The conclusion of the bitter tax battle with the U.S. has been critical to restoring the banking giant’s image and helping it repair its large private-banking business. In morning trading in Zurich, UBS shares were 2.2% higher.

UBS’s private bank, with 1.7 trillion Swiss francs ($1.505 trillion) under management, is the second-largest in the world, but has hemorrhaged bankers and clients in the wake of the scandal. The U.S. case also emboldened other governments, particularly in Europe, to pressure Switzerland into watering down its bank secrecy laws, thus weakening its status as a leading tax haven. As a result, many clients who used Swiss bank accounts to hide from the taxman at home have come clean over the last two years.

With the passage of the law, Swiss tax officials, who had suspended processing the 4,450 names, are ready to hand over data on 1,200 accounts, according to a government spokeswoman. So far, the Swiss have sent 500 names of clients who consented to the immediate transfer of their details to the IRS.

June 17, 2010
By: Deborah Ball

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