Swiss Seen Passing U.S. Bank-Tax Law to Avoid Worse Fate

Photographer: Gianluca Colla/Bloomberg

The Swiss government wants to prevent another bank being indicted after Wegelin & Co. pleaded guilty in a Manhattan federal court in January to conspiring to help conceal more than $1.2 billion from the IRS. Close

The Swiss government wants to prevent another bank being indicted after Wegelin & Co.... Read More

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Photographer: Gianluca Colla/Bloomberg

The Swiss government wants to prevent another bank being indicted after Wegelin & Co. pleaded guilty in a Manhattan federal court in January to conspiring to help conceal more than $1.2 billion from the IRS.

The Swiss parliament will probably pass a bill allowing banks to resolve a tax-evasion dispute with the U.S., dropping opposition for fear of leaving the country’s 300 institutions to a worse fate, according to academics including Peter V. Kunz of the University of Bern.

Members of the upper house’s economic committee will today start debating the law, which authorizes Swiss banks to cooperate with U.S. authorities. In a break with usual legislative procedure, it is set to be discussed by both chambers of parliament in the same session, which runs through June 21.

The country’s two biggest parties -- the Social Democrats SP and the Swiss People’s Party SVP -- have already voiced skepticism over the proposal. Still, the past has shown early opposition eventually dropped: In 2010 a law enabling UBS AG (UBSN) to hand over data on 4,450 accounts to the U.S. was approved after initially being rejected.

“It’s normal that everything is topsy turvy now, but as soon as the politicians reflect, they’ll give in, I’m optimistic,” said Kunz, a professor of business and comparative law at the University of Bern.

Wegelin Example

The upper house’s economics committee is expected to announce its decision on June 6, following discussions behind closed doors. The full upper house of parliament is scheduled to discuss and vote on it on June 12, with the plenary of the lower house giving its verdict on June 18, according to preliminary information given by Marie-Jose Portmann of the parliamentary services office.

Wegelin & Co., then the country’s oldest bank, closed its doors after it pleaded guilty in a Manhattan federal court in January to conspiring to help conceal more than $1.2 billion in assets from the Internal Revenue Service.

“If parliament doesn’t vote in favor of the agreement, Swiss banks would be in a significantly worse position for solving the tax dispute with the U.S.,” said Manuel Ammann, a professor of banking at the University of St. Gallen. “A no vote would lead to U.S. indictments. That would surely mean the end of several Swiss banks.”

Patrick Raaflaub, chief executive officer of financial market supervisor Finma, on May 30 warned of the risks to banks, were parliament to fail to pass the measure.

Spell of Uncertainty

Rejection is possible, according to Martin Janssen, a professor of banking and finance at the University of Zurich.

“I’d be surprised if the parliament agrees,” Janssen said in a telephone interview. “The matter will just drag on and on. It’s the beginning of a long spell of uncertainty for all Swiss banks.”

The SVP and its allies hold a total of 62 seats in parliament, with the SP at 57, the Christian Democrats, or CVP, 44 and the Free Democrats 41. There are also smaller parties. There are 246 seats in total. The matter cannot be put up for a referendum.

On the Swiss public broadcaster’s Arena debate show on May 31, politicians -- including former Justice Minister Christoph Blocher of the SVP and Green Liberal Party President Martin Baeumle -- voiced their anger over the bill.

“It’s a scandal,” Baeumle said. “The government has handed the hot potato back to parliament.”

American Way

“The Americans dictate all the terms,” the anti-immigrant SVP said on May 29. “It can’t be that parliament in such an unclear situation is forced via a cloak-and-dagger operation to surrender” without knowing the key elements of the program, it said.

The Swiss government is “convinced this is a solution that gets us to the goal and makes it possible for us to get back some room to manoeuvre,” Finance Minister Eveline Widmer-Schlumpf said on May 29, adding that any terms -- such as potential fines -- are confidential. “We believe that parliament will judge this like we do -- that there is no other reasonable, constitutional solution.”

Widmer-Schlumpf’s confidence in lawmakers’ approval can be drawn from June 2010, when Swiss parliament approved a U.S. tax treaty for UBS, the country’s biggest bank, ending a dispute that threatened the business of the bank, which two years before had been bailed out by the Swiss government.

More Palatable

The agreement’s signoff in parliament came after weeks of wrangling, in which lawmakers dropped a demand for it be put up for a nationwide referendum. At that time, both the SVP and the SP initially voiced opposition to the measure. The SVP then reversed course, saying the treaty was in the country’s higher interest.

In a bid to make the framework bill more palatable to parliamentarians, the finance ministry is planning to hold information sessions that will divulge details on what the banks may face, Der Bund newspaper reported on May 30, without saying where it got the information.

The CVP sounded optimistic on passing the law last week, saying that while they had not yet come to a final verdict they shared the view that “banks should solve the problems they caused themselves.”

Swiss lenders are in favor of the framework being approved. The chairman of Basler Kantonalbank (BSKP), Andreas Albrecht, said the plan should go ahead, as did the head of the Swiss Banking Association, which has 350 members, including UBS and Credit Suisse.

“We have no choice,” SBA CEO Claude-Alain Margelisch told Neue Zuercher Zeitung. “We’d be in a situation in which we wouldn’t be able to solve the tax dispute.”

The banking sector constitutes about 6 percent of the economy, with stability vital to their wealth management business. In the end, parliament won’t want to risk leaving them in limbo, said Michael Hermann, a political scientist at the University of Zurich.

“It is to be expected that in the end parliament bows due to the expediency of the matter” Hermann said.

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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