U.S. Charges Loom for Swiss Banks as Chamber Rejects Bill

Swiss banks face the risk of further indictments for helping U.S. citizens evade taxes after Swiss lawmakers rejected a bill that would help resolve a tax dispute.

Unless legislators change their mind in a second vote later this week, there is a “real risk of escalation” from the U.S. side, Swiss Finance Minister Eveline Widmer-Schlumpf told parliament today. The Swiss government announced a July 1 deadline for the bill to take effect.

Switzerland wants to prevent the indictment of another Swiss bank. Wegelin & Co. was indicted last year and pleaded guilty in January to helping U.S. taxpayers hide assets from the Internal Revenue Service. The bank had taken over clients from UBS AG, which avoided prosecution in 2009 by admitting it aided tax evasion, paying $780 million and handing over client names.

“There’s a real risk of further banks being targeted,” Widmer-Schlumpf said in parliament in Bern today, warning of the consequences of a rejection. “Any bank with U.S. clients or which broke U.S. law could be affected.”

Department of Justice spokeswoman Dena Iverson declined to comment.

‘No Chance’

After almost three hours of deliberations, lawmakers in the lower house voted 126 to 67 against discussing the draft law, following recommendations of the economics committee. The proposal has proved controversial among parliamentarians, who called it a “black box,” because its terms were held secret.

Tomorrow morning, the upper house will vote on the proposal for a second time after passing it last week. If that chamber approves it again, the bill returns to the lower house for another vote tomorrow afternoon, according to the parliament’s services office. Should the lower house come to the same verdict as today, the law fails.

“At the moment I see no chance the lower house will approve the bill,” said Thomas Widmer, a political scientist at the University of Zurich.

The Swiss government proposed the bill three weeks ago in a bid to solve a long-running disagreement with the U.S. over Swiss banks that allegedly helped U.S. tax evaders. The government wants it to come into effect in July, though parliamentarians have voiced skepticism about the measure, saying its terms were set out by the U.S. and still remain secret.

‘Blank Check’

“I have a deep sense of unease about the law before us,” Jacques-Andre Maire, a lawmaker for the Social Democrats SP, said during the debate. “We’re being asked to sign a blank check for banks’ misdeeds.”

Still, parliamentarians have changed their vote in the past. In 2010, the UBS tax treaty for resolving a tax-evasion dispute between the U.S. and Switzerland’s biggest bank was approved by lawmakers in its three-week June session after initially being rejected by the lower house.

“More than a whole party will need to change course, and I think that’s difficult,” said Andreas Ladner, a professor of public administration at the University of Lausanne. “One is within the realm of speculation. Possibly there could be an indictment.”

Four Groups

The bill, which the country’s banks support, divides institutions into four categories based on the size of their American business and allows them to cooperate with the U.S. and hand over some information -- though not client names. Banks would have 120 days to decide whether to participate and to announce into which category they fall. They then have another 120 days to individually negotiate with the U.S. Department of Justice.

The program does not include at least 12 financial institutions, among them Credit Suisse Group AG and Julius Baer Group Ltd. and the state-backed Zuercher Kantonalbank and Basler Kantonalbank, which are already the subjects of a U.S. probe.

“At this stage it seems parliament is rejecting the bill,” said Paolo Dardanelli of the Swiss Politics Center at the U.K.’s University of Kent. “The government may have to act without parliamentary approval to authorize banks to cooperate with the U.S.”

While Swiss companies are usually prohibited from sending evidence to assist foreign legal proceedings, the country’s government authorized an exemption in April last year at the request of an undisclosed number of banks. Firms already under investigation including Credit Suisse and Julius Baer turned over employee names and information on cross-border business operations to the U.S. authorities.

Bank Defense

A Swiss court in April rejected an appeal by a former lawyer at HSBC’s Swiss private bank against the handover of his and other employee names to U.S. authorities.

“The government will have to deal with it and probably give some authorizations to the banks so that they can defend themselves in the proceedings they are involved in with the U.S.,” Michel Derobert, Geneva-based Secretary General of the Swiss Private Bankers Association by phone.

Still, Widmer-Schlumpf has stressed that the government won’t resort to emergency law, as it did with UBS, if the bill gets rejected.

Any decree the government would pass instead of a bill would have a smaller scope, she told Swiss public broadcaster SRF today.

“Within the framework of the law we will do what we can do via a decree, but we can of course not go as far as with a bill and there are parts of the program that you then can’t implement,” Widmer-Schlumpf said in a SRF interview.

The finance minister proposed the plan on May 29, saying it would give banks back legal certainty and draw a line under their U.S. business. Due to the urgency of the matter, the government is taking the unusual step of rushing it through parliament in the same session.

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