Swiss politicians threaten to derail tax deal with Washington

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The Independent Online

The international deal that saved the Swiss bank UBS from investigation for aiding massive tax evasion in the US has been thrown into confusion after Switzerland's lower house of parliament rejected a plan to hand over thousands of customer details to American tax authorities.

The vote in the National Council threatens to delay the deal beyond the August deadline set by Washington, re-opening the possibility that UBS could find itself fighting a civil lawsuit in a US court and demands to disclose the names of 52,000 account-holders.

UBS has already paid $780m (£543m) and handed over details of hundreds of disputed client accounts in return for a deferred prosecution agreement, but a deal negotiated between the Swiss and US governments covered a further 4,450 suspicious accounts, details of which were disclosed by UBS to regulators in Berne but not to the US authorities.

Having discovered the widespread use by Americans of secret Swiss bank accounts at UBS to hide assets from tax inspectors, the US Internal Revenue Service (IRS) has been waging a campaign against the bank for more than three years. The issue moved into the realm of international diplomacy, however, because the US push came up against Swiss banking secrecy laws.

Swiss courts ruled in favour of protecting client information and even ruled against the country's banking regulator, saying it should not have ordered UBS to co-operate with the IRS. The Swiss government is now trying to change the law to make an exception so the deal with America can go ahead.

That effort passed the country's upper house of parliament last week, but succumbed to an alliance of politicians from the left and right in the National Council yesterday, where it was voted down by 104 to 76.

UBS shares fell by more than 2 per cent after the vote, as investors fretted that it could again be forced to contend with legal actions in the US.

The bank had no comment on the vote beyond saying that it was "taking note" of developments.

UBS was exposed as having routinely flouted its internal guidelines and agreements with the IRS in allowing American clients to hide assets in Switzerland. Bradley Birkenfeld, a private client banker who assisted the IRS investigation, is serving a 40-month prison term for his role in aiding Americans to evade taxes.

The IRS commissioner, Doug Shulman, said the agency would consider its legal options should Switzerland fail to comply with the agreement. The country is "working through its political process", he added.

It is still possible that the US-Swiss treaty will be given the green light by lawmakers in Berne. Some of the opposition to its approval stemmed from the government's refusal to tie in additional banking legislation on topics such as bankers' bonuses. The "no" vote prompted stern warnings from senior politicians that Switzerland was jeopardising the future of its banking industry.

Complicating the picture, the lower house additionally voted yesterday that, before the treaty can be allowed, it should be put to a referendum.

The length of time it would take to organise a national ballot would almost certainly mean that the August deadline cannot be met. The upper house of the Swiss parliament will vote again on the issue, perhaps as early as this week, before it returns for debate in the National Council.

The net tightens...

2008

19 June A former UBS banker pleads guilty to helping a billionaire hide $200m from US tax authorities, part of a broader tax evasion investigation of UBS.

12 November Raoul Weil, head of UBS's wealth management business, is charged with conspiring to help thousands of wealthy Americans hide $20bn of assets from US authorities.

2009

18 February The Swiss regulator Finma orders UBS to identify certain US clients to settle criminal fraud charges that it assisted rich Americans to evade taxes.

19 February US authorities say they are still pursuing a civil lawsuit seeking to access details of 52,000 UBS clients.

20 February UBS warns it could go out of business if it complies with an order to reveal the names of suspected US tax dodgers and that this would require it to violate Swiss law.

2 April US authorities arrest and charge an accountant in Florida in the first of what they say could be a series of tax evasion prosecutions of American clients of UBS.

10 July UBS CEO Oswald Grübel sends a memorandum to bank's top executives saying it could not comply with the US request to disclose the identity of the 52,000 account holders.

18 August Filing in US federal courts shows authorities criminally investigating more than 150 US clients of UBS.

19 August Switzerland says it will hand over details of about 4,450 bank accounts to the US.

2010

8 January Bradley Birkenfeld, former UBS banker, starts a 40-month prison term in Pennsylvania after attacking the government for the punishment in light of what he called his co-operation in helping expose thousands of US tax cheats.

8 January A Swiss court rules that the regulator Finma broke bank secrecy laws last year when it ordered UBS to hand over files of nearly 300 clients to US authorities.

22 January A UBS client wins a Swiss court appeal to prevent her account data from being given to US authorities.

24 February Switzerland will ask parliament to turn into law a deal with Washington that got UBS off the hook.

15 April Seven former US clients of UBS are charged with filing false tax returns.

3 June Switzerland's upper house backs a US tax deal.

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