Switzerland Proposes Deal for Banks to Resolve U.S. Dispute
Switzerland proposed a bill that it says paves the way for the country’s banks, including Credit Suisse Group AG (CSGN) and Julius Baer Group Ltd. (BAER), to resolve a tax-evasion dispute with the U.S.
The bill authorizes Swiss banks to cooperate with U.S. authorities and transfer information while safeguarding their interests, the government said in a statement today. The Swiss Parliament will consider the bill as soon as next week and it could come into force on July 1.
“The sense of urgency is because preparations were being made for more banks to be made responsible,” Swiss Finance Minister Eveline Widmer-Schlumpf told reporters in Bern today.
Switzerland has been in talks with the U.S. for more than two years to resolve a Justice Department investigation of at least 14 financial firms that allegedly helped Americans hide money from the Internal Revenue Service. 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 bill will enable banks to pass on information on employees and third parties who worked with American clients, the Swiss government said.
“Switzerland appears to be appeasing the U.S. authorities to prevent further indictments,” said Jeffrey Morse, a private client attorney with Withers LLP in Geneva. “The U.S. may use the information to widen its probe to lawyers, trust companies, advisers and other middlemen who helped create the offshore structures used for tax evasion.”
The bill doesn’t allow for banks to transfer client data, which can only be passed on through administrative assistance procedures under a tax agreement with the U.S., the government said.
Julius Baer (BAER), Switzerland’s third-largest wealth manager, informed some American clients this month that their accounts meet the criteria of a U.S. request for data, the Zurich-based bank wrote in a letter obtained by Bloomberg News.
Raymond Baer, honorary chairman of Julius Baer, said in a presentation to the British-Swiss Chamber of Commerce in Geneva that the government’s proposal needs to be analyzed before making any comment.
“We welcome that there’s a solution on the table,” Andres Luther, a spokesman for Credit Suisse, said by telephone from Zurich.
Zuercher Kantonalbank (ZKAN), a Swiss cantonal bank that expects to pay a fine to U.S. authorities as part of a deferred prosecution agreement for its alleged role in helping Americans evade taxes, said it welcomed the legal framework proposed by the government. David Bruegger, a Zurich-based spokesman for HSBC Holdings Plc (HSBA)’s Swiss private bank, said the proposal could help resolve the U.S. matter.
Julius Baer fell 2.7 percent to 37.81 francs in Zurich trading, while Credit Suisse declined 2.8 percent to 27.84 francs. The 40-company Bloomberg Europe Banks and Financial Services Index dropped 1.5 percent.
The agreement may lead to total fines of as much as 10 billion Swiss francs ($10.3 billion), Tages-Anzeiger reported earlier today.
“We haven’t got an agreement about the level of a payment,” said Widmer-Schlumpf.
The size of the fine will be important for Switzerland’s financial centers, said the Basel-based Swiss Bankers Association, which represents more than 300 banks. The association said it was “astonished that no information was given on the program the U.S. will offer to Swiss banks.”
Two of the four biggest political parties in Parliament -- the Swiss People’s Party and the Socialist Party -- said they will oppose the deal, while the Christian Democratic Party said it will support the proposal. While welcoming a solution with the U.S., FDP.The Liberals questioned the decision to ask lawmakers to vote on the framework.
Asking for parliamentary approval “is unnecessary and dangerous” as a rejection would prevent a timely solution, the FDP said in an e-mailed statement, proposing that the proposal be returned to the government, which should “take responsibility” by approving the bill itself.
The Swiss Parliament’s economics committee will discuss the proposal on the first day of the summer session, which runs from June 3 to June 21, and again three days later. The full lower house will vote on the matter on June 18.
Credit Suisse, Switzerland’s second-biggest bank, set aside 295 million francs for U.S. tax matters in the third quarter of 2011. Julius Baer has said the cost of the investigation isn’t “reliably assessable.” HSBC Holdings Plc (HSBA)’s Swiss private bank said last year that fines and penalties relating to a tax-evasion probe by the U.S. “could be significant.”
“I am convinced that what at first glance seems to be painful for all is better than no solution,” Credit Suisse Chairman Urs Rohner said in an interview with Neue Zuercher Zeitung published yesterday. “To believe that one can just postpone this problem and that it will solve itself isn’t realistic.”
The Department of Justice is requesting delivery of generic data about closing of accounts and money transfers to help resolve matters, the bill said. Data on bank employees will only be passed on after the persons are informed about the scope and type of data that is being sent, the bill said.
The banks will set up a fund of 2.5 million francs to support affected employees in particularly harsh cases, the association of banking employees said in a separate statement.
Switzerland is trying to shed its image as a tax haven after attracting $2.1 trillion to cross-border accounts during an era of undeclared money that started to crumble after UBS AG avoided prosecution in 2009 by paying $780 million, admitting it fostered tax evasion and giving the IRS data on more than 250 accounts. The turnover by UBS of a further 4,450 names, in the face of Swiss laws barring most disclosures of client data, set a precedent for the current settlement.
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