March 13 (Bloomberg) -- Switzerland, Luxembourg and Austria said they will soften rules on banking secrecy, responding to growing international pressure to root out tax dodgers.

Switzerland, where banking secrecy has been enshrined in law for 75 years, will renegotiate its agreements with other nations and cooperate on cases of tax evasion as well as fraud, Finance Minister Hans-Rudolf Merz said. The nation doesn’t want to land on the Organization for Economic Cooperation and Development’s “black list” of tax havens, he said.

“This is a softening of absolute bank secrecy” and “it won’t be met with joy at all the banks,” Merz said at a press conference in Bern today. “If Switzerland were to wind up on a black list it wouldn’t only hurt the banking sector,” but also the whole economy, he added.

Nations are being pushed to loosen bank secrecy as the U.S. and Europe seek to protect tax revenue amid the worst financial crisis since the Great Depression. UBS AG, Switzerland’s largest bank, handed over the names of about 300 customers to the U.S. last month, the first time Swiss authorities bypassed secrecy laws introduced in 1934.

UBS rose 1.3 percent by 4:32 p.m. in Swiss trading. Credit Suisse Group AG, the nation’s second-largest bank, advanced 4.8 percent, and Bank Julius Baer Holding AG, Switzerland’s third- biggest wealth manager, climbed 8.5 percent.

End to ‘Criticism’

“This was a necessary step,” said Teodoro Cocca, a professor of wealth management at Johannes Kepler University in Linz, Austria. “It was the minimum they needed to offer in order to alleviate the pressure. They have to hope it’s enough.”

The Swiss banking association said it expects “an end to all improper international criticism of Switzerland and its legal system and also an end to threats to put Switzerland on a so- called ‘black list,’” the group said in a statement. Merz, 66, said he couldn’t say whether Switzerland is still in danger of being put on the OECD’s roster of uncooperative tax havens.

Credit Suisse, based in Zurich, welcomed the move. “This strengthens Switzerland’s position as a leading center for wealth management,” said spokesman Marc Dosch in an e-mail. UBS referred questions to the Swiss banking association.

‘Concrete Proof’

“The business model of wealth management per se is not broken,” said Dirk Hoffmann-Becking, a banking analyst at Sanford C. Bernstein Ltd. in London. “Offshore banking used to be a very profitable business and will be replaced by a business where it’s a bit harder to make money. Success of the banks will depend on how they manage this transition.”

UBS agreed on Feb. 18 to pay $780 million and disclose the 300 account holders to avoid U.S. criminal prosecution on a charge that it helped Americans evade taxes. The U.S. government sued the bank the next day to force disclosure on as many as 52,000 Americans who allegedly hid Swiss accounts.

Liechtenstein and Andorra, which are currently on the list of tax havens, said yesterday they would comply with OECD standards for transparency and information exchange.

Luxembourg will cooperate with foreign tax authorities seeking banking information in specific cases, and will seek bilateral tax agreements with other nations, Budget Minister Luc Frieden said in Luxembourg. The government agreed to “exchange information on request in specific cases and on the basis of concrete proof,” he said.

No ‘Automatic Exchange’

Austria will renegotiate agreements with countries including Germany to help fight tax fraud and evasion, according to Finance Minister Josef Proell. Austria’s laws in the past permitted banking secrecy to be lifted only when there was a criminal investigation on matters such as tax fraud. The government has now agreed to exchange information when there is “compelling suspicion” documented by foreign authorities, Proell said today.

“There won’t be an automatic exchange of information, but we will renegotiate a number of the 80 tax agreements that we have with other countries,” Proell said at the briefing in Vienna. “We have been fighting tax evasion and fraud in the past, and we will continue to do so.”

The nations don’t plan to abandon banking secrecy. Switzerland’s Merz said confidentiality will only be waived in individual cases where there is “concrete information,” including the name of the bank and the assets involved.

“I don’t have the feeling that today is the funeral” of banking secrecy, Merz said. “It’s not an open-door policy. It’s a relaxation to facilitate the contact between the two countries.”

‘Devil’ in Details

Switzerland, which manages 27 percent of the world’s offshore wealth, will still attract clients interested in keeping their assets in a politically stable country with its own currency, Merz said. No Swiss laws will be changed as a result of the plan to extend cooperation with other countries, he said.

The country also intends to negotiate amnesty for clients that currently have their money in Switzerland to allow them a period of time to legalize assets if needed, Merz said.

On Feb. 19, a day after UBS agreed to release the names of 300 clients, the U.S. government sued to force disclosure on as many as 52,000 Americans who allegedly hid Swiss accounts from tax authorities. The following weekend, European leaders said they will crack down on tax havens and threatened sanctions against “uncooperative jurisdictions.”

The nations’ pledge to cooperate may not go far enough for government leaders.

“The devil is in the details,” said French Finance Minister Christine Lagarde in Paris today. “We must go all the way and see if banking secrecy is sufficiently lifted.”

G-20 Meeting

European leaders have said they plan to crack down on tax havens as they prepare for a meeting of the Group of 20 nations. Finance ministers from G-20 nations will meet tomorrow in London, followed by heads on April 2.

The OECD said this week it had prepared a list of countries that don’t fully meet its standards of information disclosure on tax matters, including Austria, Luxembourg and Switzerland. The review was drawn up for the G-20 and presented to the U.K. government, which hosts the next meetings.

Switzerland enacted secrecy legislation in 1934. The law was amended in 1998 to stop banks from shielding the identities of those suspected of money laundering or tax fraud.

Most Swiss support banking secrecy, the Swiss Bankers Association said this week, citing a poll of 1,004 people. About 78 percent of those surveyed want to preserve the current client confidentiality regime, and 91 percent favor protecting their privacy in financial matters.

Offshore accounts in countries such as Switzerland cost the U.S. about $100 billion in taxes annually, according to estimates from Michigan Senator Carl Levin. The U.K. probably loses at least 4 billion pounds ($5.6 billion) a year in revenue, the London-based Trades Union Congress said March 1.

To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net; Joshua Gallu in Zurich at jgallu@bloomberg.net

Last Updated: March 13, 2009 11:44 EDT