Switzerland, which has amassed $2.2 trillion of wealth-management assets from outside the country, is trying to shake off its reputation as a tax haven. Although perhaps not trying too hard. On June 19 its Parliament rejected a bill that would have allowed Swiss banks to cooperate with the U.S. and settle a long-running dispute over wealthy American tax evaders. The bill had been supported by the banks.
The rejection may set the stage for the U.S. to prosecute the banks. After being indicted, Wegelin & Co.—Switzerland’s oldest bank—pleaded guilty in January to helping U.S. taxpayers hide assets from the IRS. The bank had taken over clients from UBS (UBS), which avoided prosecution in 2009 by admitting it aided tax evasion, paying $780 million, and handing over client names. Wegelin sold its non-U.S. business and closed its doors.
Credit Suisse Group (CS) and Julius Baer Group (BAER:VX), the largest of at least 12 Swiss banks embroiled in the U.S. tax-evasion investigation, are seeking individual agreements to avoid or defer prosecution. Both banks have said they expect to pay fines and provide client names to resolve the U.S. probes. They declined to comment on the details of a potential settlement. Swiss Finance Minister Eveline Widmer-Schlumpf, who had supported the bill, warned that its rejection could complicate negotiations with the U.S. “I see big difficulties after today’s decision,” she told Swiss public broadcaster SRF on June 19.
The bill, which came after two and a half years of negotiations between Swiss and U.S. officials, was aimed at helping banks not yet part of the U.S. probe avoid being charged. It would have divided institutions into four categories based on the size of their cross-border American business and allowed them to hand over some information—though not client names. Parliamentarians criticized it because the terms of the agreement, such as fines, were determined by the U.S. and not disclosed.
Switzerland is also facing pressure from the European Union to join a system in which nations would automatically share bank account data. A few days before the parliamentary rejection, Widmer-Schlumpf said the country will join the international push against tax dodgers and help develop global standards allowing banks to share customers’ details. The move would end the Swiss tradition of bank secrecy and could require a national referendum.
A group of Swiss academics and government officials appointed by the finance ministry recommended in a report released on June 14 that Switzerland immediately develop standards for exchanging data within the framework of the Organisation for Economic Co-operation and Development. The Swiss government will hold “detailed discussions” on the panel’s recommendations in coming months, said Widmer-Schlumpf, who earlier this year said there should be a level playing field among the world’s financial centers. If standards for sharing information are “recognized and introduced by other financial centers, we’re prepared to launch the political dialogue,” Widmer-Schlumpf said during a press conference in Bern. “The government has decided that we want to be part of the discussion. It’s going to happen whether we join it or not.”