The lower house of the Swiss parliament nixed a bill Wednesday that was aimed at protecting Swiss banks from U.S. criminal charges for helping American clients evade taxes. After revelations that Swiss banks helped their U.S customers evade taxes, the United States has increasingly been putting pressure on Swiss banks to hand over information about their U.S. account holders or risk facing criminal charges.
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Switzerland’s banking secrecy laws don’t allow banks to hand over account information to any outside authority. The U.S. Senate passed a bill last week, that would have allowed many Swiss banks to sidestep the Alpine nation’s banking secrecy laws and hand over information to the U.S. Department of Justice. The U.S. was hoping Swiss Parliament would reciprocate by approving the cooperative measure. However, rejection of the bill may prompt the U.S. to indict Swiss banks and cease their operations in the U.S. market, says John Letzing of the Wall Street Journal.
The upper house of Swiss parliament voted 26-18 in favor of the proposal earlier Wednesday. But the lower house voted 123-63 against the bill. The lower house of the parliament raised concerns over specific terms of the bill, including the penalties determined by the United States and privacy issues. The bill also had a secret clause that requires Swiss banks to pay a collective sum of about $10 billion to compensate for lost tax revenue.
Swiss Parliament Puts Banks at Risk
The government of Switzerland has warned that rejection of the bill might prompt U.S. authorities to indict Swiss banks. The government can summon an executive order, allowing banks to hand over data of American account holders to avert charges. Wegelin & Co. has already faced indictment. In January, Wegelin pleaded guilty of assisting U.S. customers to hide assets from the IRS to avoid taxes. In 2009, UBS AG (NYSE:UBS) avoided prosecution by admitting that it helped U.S. customers evade taxes. UBS AG (NYSE:UBS) had to pay a hefty fine of $780 million and hand over client names to the Department of Justice.
Swiss Banks, However, Support the Bill
Swiss banks fully supported the bill. It divided the country’s banks into four categories using the size of their American business as a key parameter. The Swiss Banking Association said in a statement that it regrets parliament’s decision.
However, both houses of Swiss parliament agreed that they support a solution to the tax dispute. The government urged banks to cooperate under existing laws. Analysts believe that the government may come up with an alternative solution to resolve the issue.