Swiss parliament approves deal to hand tax cheat files to US, but obstacles remain

Swiss parliament approves US tax deal on 2nd try

GENEVA — The Swiss parliament on Tuesday approved a treaty with the United States that will hand thousands of files on suspected tax cheats to U.S. authorities, but obstacles remain that could delay the deal for several more months.

The government hopes the agreement will eventually end UBS AG’s three-year battle with U.S. tax authorities that culminated in revelations the bank had for years helped American clients hide millions of dollars in offshore accounts.

Under the treaty that was painstakingly crafted by Bern and Washington last year after months of negotiations, Switzerland has agreed to divulge the names of 4,450 UBS clients suspected of tax evasion.

Swiss authorities have already transmitted the names of about 400 UBS clients who signed waivers as part of the Internal Revenue Service’s voluntary disclosure program, according the Swiss Federal Tax Administration. A further 100 UBS clients gave their consent directly to Swiss authorities.

Lawmakers in Switzerland’s lower house voted 81 to 61 in favor of the government-backed deal, and 53 abstained.

The vote passed after the powerful Swiss People’s Party dropped its opposition. The nationalist party and the left-wing Social Democrats blocked a first attempt last week to have parliament approve the treaty, which has been portrayed by some as a nail in the coffin for Swiss banking secrecy.

But details remain to be ironed out that could yet hold up the deal.

Parliament’s lower house decided Tuesday that the treaty can be put to the Swiss public in a referendum before it finally becomes law. The upper house has yet to approve such a referendum and has until Friday to deliberate.

A popular ballot would make Switzerland miss a late August deadline to hand over all 4,450 names because the vote would be held in November at the earliest.

Frank Keith, a spokesman for the Internal Revenue Service, said the U.S. tax agency expects Switzerland to honor an agreement to divulge the names of UBS clients suspected of tax agency. He added that the U.S. is “prepared to use all available options, including the U.S. courts, should the present efforts fail.”

The deal is crucial to UBS, which has faced intense pressure from U.S. authorities since 2007. Last year the bank agreed to turn over hundreds of client files and pay a $780 million penalty in return for a deferred prosecution agreement. But Washington has signaled that unless UBS reveals the further 4,450 American names demanded in the U.S.-Swiss agreement, it may face a crippling civil investigation just at a time when the bank is recovering from the subprime crisis and seeking to rebuild its U.S. business.

UBS spokesman Jean-Raphael Fontannaz said the bank will not comment as long as the decision-making process in parliament is still ongoing.

Justice Minister Eveline Widmer-Schlumpf tried to disperse fears of some lawmakers that the treaty might open the door to the United States — or other countries — receiving client data from other Swiss banks.

“This is about a single agreement … on a clearly defined group of clients who allegedly committed tax fraud or tax evasion,” she told parliament, adding that it will have “no impact on future cases.”

Widmer-Schlumpf said she was confident that the United States would accept a delay in handing over the names if the Swiss people were asked to vote on the deal in a referendum.

But William Sharp, a tax lawyer who represents some American UBS clients, said he would be surprised if the U.S. passively accepted a further delay.

“The deferred prosecution agreement may be revisited in a more aggressive context, the settlement agreement may be deemed in breach, or the U.S. may seek to move Switzerland to ‘black list’ status, among other choices,” Sharp said.

Shares of UBS closed up 1.97 percent in trading Tuesday, reaching 15.51 Swiss francs ($13.6) on the Zurich exchange.

The Swiss business organization economiesuisse said Tuesday’s vote was an important step for Switzerland and showed it was living up to its commitments toward the U.S.

Business groups have warned that failure to ratify the deal risked losing thousands of jobs should Washington decide to retaliate.

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Associated Press Writer Frank Jordans contributed to this report.