Swiss Tax Bill, 10-Year Bonus, EU Bank Losses: Compliance

June 20 (Bloomberg) -- Swiss parliament rejected a bill designed to resolve a dispute over undeclared bank accounts held by U.S. citizens, potentially setting the stage for American prosecution of the country’s banks.

Members of parliament’s lower house voted 123 to 63 against the bill, which would have allowed Swiss banks to cooperate with the U.S. and to settle a long-running dispute over wealthy American tax evaders. The government has said it has no plan B, in the event of the bill failing to pass.

Switzerland wants to prevent the indictment of another of the country’s banks. 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.

The bill, which the country’s banks supported, divided institutions into four categories based on the size of their American business and allowed them to hand over some information -- though not client names. Parliamentarians criticized it because the terms of the program, such as fines, were determined by the U.S. and hadn’t been made public.

U.S. Department of Justice spokeswoman Dena Iverson didn’t immediately return calls seeking comment.

“I see big difficulties after today’s decision,” Swiss Finance Minister Eveline Widmer-Schlumpf yesterday told Swiss public broadcaster SRF.

The Swiss Bankers Association regretted parliament’s decision, saying it was hard to gauge the consequences of the step for the banking sector and the economy.

Compliance Policy

U.K. Bankers Face Decade Bonus Delay and Criminal Sanctions

Senior employees at U.K. banks may face a 10-year wait for bonuses under proposals put forward by a committee investigating the failures of the industry, which also recommended making “reckless” management of lenders a crime.

A “substantial part” of variable compensation for the highest earners at banks including Barclays Plc and HSBC Holdings Plc should be deferred for as long as a decade to better align their interests with shareholders, the Parliamentary Commission on Banking Standards said in a statement yesterday. Its proposal to introduce a criminal offence for mismanagement, which could see executives of failed firms facing jail time, was endorsed by Prime Minister David Cameron.

Pay reform is part of a program of sweeping change proposed by the commission, a cross-party group of lawmakers set up last year by Chancellor of the Exchequer George Osborne after a series of scandals and five years of poor returns for the financial industry. The report also called on the government to introduce a register for bankers and consider breaking up Royal Bank of Scotland Group Plc.

The proposals go further than changes introduced by U.K. regulators after the financial crisis, which forced bankers to wait up to five years to get their bonuses.

While some lawyers yesterday criticized the potential criminal offense as unworkable in practice, Andrew Tyrie, the lawmaker who leads the committee, said the proposals are better than the plan adopted this year by the European Union over U.K. resistance. The EU aims to block banker bonuses of more than double fixed pay.

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EU Weighs Minimum Bank Rule for Loss-Absorbing Liabilities

European Union nations are weighing whether globally systemic banks should be forced to meet common minimum rules on issuing unsecured debt and other liabilities that could be written down by regulators in a crisis.

Representatives from the European Union’s 27 nations yesterday in Brussels discussed draft plans drawn up by Ireland, the holder of the EU’s rotating presidency, that would force globally systemically important banks to ensure that at least 6 percent of their total capital and liabilities would be in instruments that are eligible for forced losses, according to a document obtained by Bloomberg News. The total liabilities figure would be calculated in a way that doesn’t include the bank’s derivatives trades.

While the U.K., Netherlands and Finland have pushed for such a minimum rule to be included in a draft EU law on how regulators should handle bank crises, some other nations are opposed to the plan, according to an EU official. Finance ministers are set to seek a deal on the law at a meeting in Luxembourg tomorrow.

The Financial Stability Board, a global group bringing together regulators, central bankers, and finance ministry officials from the Group of 20 nations, has set criteria for determining if a bank is globally systemic. It publishes annual lists of which lenders have the designation.

Affected banks, such as Deutsche Bank AG, Barclays Plc and BNP Paribas SA, would be expected to comply by Dec. 31, 2016, according to the Irish document.

Compliance Action

U.K. OFT to Review Competition in Banking for Small Businesses

The U.K. Office of Fair Trading will review whether a lack of competition in banking is hampering lending and other services to small and medium-sized businesses.

The Competition and Markets Authority, a new regulator taking over from the OFT and the Competition Commission later this year, will use the study in deciding whether to start a full investigation by 2015, the antitrust agency said in a statement yesterday.

A parliamentary commission investigating banking failures yesterday published a report criticizing lenders for a culture of greed and pursuing short-term gains. It asked for the government to consider splitting Royal Bank of Scotland Group Plc to separate bad assets and focus its operations on retail and commercial banking.

The OFT said it welcomed the commission’s findings. It will work with the Financial Conduct Authority and the Prudential Regulation Authority, as well as the Bank of England, and has invited comments from small businesses.

Danske CEO Questions Bond Boom Prophecies After FSA’s Order

The head of Denmark’s biggest bank is questioning predictions that corporate bonds will replace traditional bank lending even as his own regulator adds to the cost of providing loans to businesses.

Danske Bank A/S Chief Executive Officer Eivind Kolding made the remarks in an interview in his office in Copenhagen.

Danske Bank is reaffirming its commitment to corporate lending after the Financial Supervisory Authority ordered it to adjust risk calculations in a step that will force the bank to add about 100 billion kroner ($18 billion) to its risk-weighted assets “over time,” according to a June 17 regulatory filing.

The move follows a campaign led by the Basel Committee on Banking Supervision to force lenders to review their risk models as global regulators work to prevent bank losses from hobbling economic growth. The Danish FSA’s risk-weight rule comes on top of additional capital demands linked to Danske’s too-big-to-fail status. Industry groups, including the Danish Chamber of Commerce, have warned that the FSA risks choking business growth by pushing measures it says restrict lending.

FSA Director General Ulrik Noedgaard said the risk-weight order will align Danske’s calculations with those used by banks elsewhere in Europe and the Nordic region.

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IRS Tea Party Inquiry Turns Away From Origins Toward Delays

Congressional investigators are focusing less on the origins of the Internal Revenue Service’s scrutiny of Tea Party groups and more on how flagging one application led to delays for hundreds of groups.

In the next phase of inquiries, U.S. lawmakers will seek to figure out why the applications of groups seeking tax-exempt status were stalled throughout 2011, who developed questions the agency later said were inappropriate and why senior IRS executives didn’t tell Congress what they knew.

“We still have many questions about why Tea Party applicants faced inappropriate questions, delays and scrutiny,” Representative Darrell Issa, chairman of the House Committee on Oversight and Government Reform, said in a statement. “There’s a litany of things that happened and a lot of unknowns, including why officials were denying targeting to Congress as it was happening.”

More than one month into the investigation of the IRS, the first round of hearings and transcripts show a bureaucratic attempt to flag potentially controversial issues and consolidate similar cases. The inquiries have turned up ample evidence of miscommunication and mismanagement at the agency and no proof of a political plot.

Many details bolster the IRS’s argument -- that front-line employees decided to start looking at Tea Party groups’ applications in 2010 and that the highest-ranking IRS executives had no idea what was happening until after lawmakers started complaining in 2012.

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Goldman Sachs Abandons Ebix Deal as U.S. Prosecutors Open Probe

Goldman Sachs Group Inc. terminated an agreement to acquire Ebix Inc. after the insurance software maker said it was told that federal prosecutors had opened an investigation. Ebix shares plunged 25 percent in late trading.

The U.S. Attorney in Atlanta wrote in a letter that it was probing allegations of intentional misconduct, Ebix said yesterday in a statement. The company previously disclosed that it faced shareholder class-action lawsuits and a U.S. Securities and Exchange Commission probe over the accuracy of the firm’s public statements to investors.

“The allegations in the class-action suits are without merit,” Ebix Chief Executive Officer Robin Raina said in the statement. “We want to thank Goldman Sachs for their interest in acquiring Ebix and we are naturally disappointed that we could not complete a transaction at this time.”

Ebix has been the target of anonymous short sellers citing accounting and other irregularities. In February, the company fell the most in almost 11 years in Nasdaq Stock Market trading following a report claiming it hid a $65.8 million related-party loan to its Singapore subsidiary from U.S. regulators.

Goldman Sachs, which had valued the purchase at $820 million, agreed to pay $20 a share for Atlanta-based Ebix, which traded for $19.72 at the close of regular trading yesterday in New York and fell to $14.75 in extended trading.

“Due to this recent development, we are unable to move forward with the proposed transaction,” Andrea Raphael, a spokeswoman for New York-based Goldman Sachs, said in an e-mailed statement.

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In the Courts

Ex-Goldman Trader Barred From Using Lawyers’ Advice Evidence

Ex-Goldman Sachs Group Inc. trader Fabrice Tourre lost a bid to present evidence that he “reasonably relied’ on the advice of lawyers when working on a transaction at the center of a fraud lawsuit filed by the U.S. Securities and Exchange Commission.

Allowing Tourre to use that defense without meeting legal requirements “would give the defendant all of the essential benefits of an advice of counsel defense without having to bear the burden of proving any of the elements of the defense,” U.S. District Judge Katherine Forrest in Manhattan ruled. Tourre’s trial is scheduled to begin July 15.

The SEC sued the London-based trader in April 2010, saying he defrauded investors by not disclosing that hedge fund Paulson & Co. had helped pick the underlying securities for a collateralized debt obligation, or CDO, called Abacus and planned to bet against them.

Tourre sought to offer evidence showing that: Paulson’s counsel reviewed or was copied on various documents; counsel for ACA reviewed certain transaction documents; and in-house or outside counsel for Goldman Sachs drafted or reviewed disclosure language, according to Forrest’s ruling issued June 18 and made public yesterday.

Forrest said Tourre could use the words “counsel,” “lawyer” and “attorney” and present evidence “tending to show that he was not the person primarily responsible for the transaction and that the transaction occurred in the context of a sophisticated financial institution.”

Pamela Rogers Chepiga, a lawyer for Tourre, declined to comment through Chris Kittredge, a spokesman for her at Sard Verbinnen & Co. in New York.

John Nester, a spokesman for the SEC, declined to comment on Forrest’s ruling.

The case is SEC v. Tourre, 10-03229, U.S. District Court, Southern District of New York (Manhattan).


OECD Says Stateless Income Growing Concern in Many Countries

The Organization for Economic Cooperation and Development Tax Chief Pascal Saint-Amans said double non-taxation, or stateless income, “has been a growing concern in many countries within the OECD and the EU.”

Saint-Amans made the remarks at an event in Dublin yesterday.

“This means that some income generation from activities” is untaxed anywhere,” Saint-Amans said. Coordinated action needed to save integrity of tax standards, according to the tax chief.

OECD standards aimed at avoiding double taxation “may have been too successful” as they create loopholes allowing double non-taxation, Saint-Amans said.

The tax chief said he sees no need for corporate tax harmonization. Closing down “low tax jurisdictions does not make any sense.” Instead, “let’s make sure that income derived from business is taxed at least once,” he said.

Rehn Says Euro Area Set to Agree on ESM Direct Bank Aid

European Economic and Monetary Affairs Commissioner Olli Rehn said euro-area finance ministers will probably agree today on the terms for allowing the European Stability Mechanism to recapitalize banks directly.

He spoke at the Brussels Economic Forum.

Bernanke Says Volcker Rule Probably Will Be Completed This Year

Fed Chairman Ben Bernanke said a “good bit of progress” is being made on the Volcker rule and he expects it to be completed this year.

Bernanke said some Dodd-Frank regulations, including the Volcker rule, have “taken time” in part because they are inherently complicated and regulators must do their “homework” and “get this right.”

He also said the Fed is “very close to completing Basel III,” referring to the accords based on work by the Basel Committee on Banking Supervision. The biggest banks are at or near the stage of being Basel III-compliant, he said.

The Securities and Exchange Commission, the Commodity, Futures Trading Commission, the Fed, and Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation are working to agree on a final rule, using the Treasury’s Financial Stability Oversight Council as a coordinator.

A final rule to ban proprietary trading at banks was due July 2012; a proposed rule was issued Oct. 2011.

To contact the reporters on this story: Carla Main in New Jersey at; Ellen Rosen in New York at

To contact the editor responsible for this report: Michael Hytha at

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