Swiss Parliament Pushes Back on U.S. Banks Deal

Plan for Swiss Banks to Hand Over Data on American Clients Is Sent Back to Upper House

By

John Letzing

Updated June 19, 2013 10:11 a.m. ET

ZURICH—Swiss lawmakers dealt a serious blow Tuesday to a plan that could enable the country's banks to avoid the threat of prosecution in the U.S. by collectively coming clean about their dealings with suspected American tax evaders.

The vote sends the measure back to the upper house, which had approved it last week, for further debate and another show of hands as early as Wednesday. A reversal there would mean the legislation's demise—and could lead to severe legal complications for Swiss banks in U.S. courts. Approval would send it back to the lower house.

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The Swiss cabinet introduced the plan last month. Critics called it a violation of Swiss sovereignty.

Lawmakers raised concerns that it could unfairly expose local advisers and attorneys to legal prosecution in the U.S. The Swiss Bankers Association, an industry lobby, has said it lacks important details on the potential size of fines for the banks that agree to participate.

A spokesman for the Swiss Department of Finance said enough time remains for the measure to be passed before Parliament's current session ends Friday. The autumn session begins Sept. 9.

But
Peter V. Kunz,
a professor of business law at the University of Bern, said chances weren't good. "I think the deal is dead," he said, adding that the immediate repercussion will be continued uncertainty for the country's flagship financial sector.

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The Swiss cabinet had urged Parliament to act swiftly, implying that if more of the country's roughly 300 banks don't start coming forward soon, U.S. authorities may come down hard on them with indictments and heavy fines.

A spokeswoman for the U.S. Justice Department declined to comment on the Swiss vote.

Wegelin & Co., Switzerland's oldest bank, was hit with a U.S. indictment last year and is now defunct.
UBS
AG
, the country's biggest bank, resolved its issues with a deferred prosecution agreement in 2009, under which it admitted to helping Americans use Swiss accounts to evade taxes and paid a $780 million fine.

U.S. authorities have already opened investigations into about a dozen other banks, including
Credit Suisse Group
AG
and
Julius Baer Group
AG
, which have begun handing over information as part of the U.S. crackdown on tax evasion.

Credit Suisse has already set aside 295 million Swiss francs ($320 million) to deal with the investigation. Julius Baer hasn't made a specific provision, but analysts generally estimate the Zurich-based bank could be hit with fines ranging from 200 million francs to 500 million francs.

Although important details weren't made public, the plan would allow banks to start giving information to the Justice Department about their past relationships with American clients.

The information wouldn't include client names or individual account details, but it would provide U.S. authorities with statistical data to help them uncover secret accounts. In particular, say experts, it would help the U.S. find assets that people moved out of larger Swiss banks into smaller ones after the UBS case.

The right-wing Swiss People's Party has said U.S. authorities are unfairly pressing Swiss officials to do their bidding, while the left-leaning Social Democrats have said banks should be left to resolve their legal issues on their own.

The Swiss People's Party said that Tuesday's vote is "a clear signal in favor of the rule of law." The party urged the upper house to follow suit and vote against the plan.

Though they haven't been given specific details about the fines in store for banks participating in the plan, lawmakers have estimated penalties will amount to as much as 10 billion francs.

The potential legal impact of the plan on independent Swiss advisers and lawyers who have dealt with American clients has also remained a mystery.

"It is kind of a black box," said
Urs Furrer,
an official with the Swiss Institute of Certified Accountants and Tax Experts.

Even if Swiss lawmakers ultimately reject the plan, the issue won't go away, said
Scott Michel,
a tax attorney at Caplin & Drysdale in Washington.

"Ultimately the U.S. will get the information it wants, although it will come more slowly unless the Swiss parliament reconsiders," he said.

—Laura Saunders in New York contributed to this article.

Corrections & Amplifications Part of the name of the law firm Caplin & Drysdale was misspelled in an earlier version of this article as Capelin.

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