Swiss Government Proposal Would Let Bank Employee, Third Party Information Be Transferred to U.S. Government

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By a BNA Special Correspondent.

GENEVA--The Swiss government announced May 29, 2013, that it will propose a legal framework allowing a dozen Swiss banks under investigation by the U.S. Department of Justice for allegedly helping U.S. clients evade taxes to negotiate individual settlement terms with DOJ, settlements expected to cost the banks billions of dollars in fines.

The Federal Council, the Swiss government’s executive arm, said it will send a proposal to the country’s parliament for its June 3-21, 2013, summer session allowing the banks to reach deals with DOJ to “put the past to rest.”


 

The proposal would authorize the transfer of information to conclude agreements with DOJ. However, the transfer of bank client data, including individual account information, is not covered.

 

 

 


“With the new legal basis, all banks that wish to resolve their relationship with the U.S. authorities will be able to cooperate with the [DOJ] based on a framework specified by the DOJ,” the Federal Council said.

Roland Meier, spokesman for the Swiss Federal Department of Finance, said that, without the legal assurances provided through the government’s proposal, Swiss banks could not reach settlements with DOJ without violating Swiss banking secrecy rules.

“If banks were not authorized to cooperate with the U.S. authorities, the initiation of further criminal investigations or charges concerning [Swiss] banking institutions could not be ruled out,” the Federal Council added. “The uncertainty for the [Swiss] financial center would continue to exist.”

DOJ has been insisting on the transfer of aggregate information regarding the closure of Swiss bank accounts, and the transfer of the account funds to other Swiss banks or to institutions abroad as part of a final settlement. Providing such information, however, would violate Article 271(1) of the Swiss penal code.

The Federal Council proposal would authorize the transfer of such information to conclude deferred prosecution or non-prosecution agreements with DOJ. However, the transfer of bank client data, including individual account information, is not covered by the authorization.

Information on Bank Employees, Trustees, Asset Managers, Lawyers Included

The proposal would also authorize the transfer of information on the names and positions of Swiss bank employees who were directly or indirectly involved in the organization, monitoring, and supervision of cross-border business with U.S. clients, as well as information on third parties with similar business relationships with U.S. clients. Such third parties include trustees, asset managers, and lawyers who played an active role in the establishment of these business relationships.

Banks that elect to cooperate with DOJ “will be obliged by law to provide maximum protection for their employees,” the Federal Council insisted, including the obligation to inform affected bank employees in advance of any information exchange, the safeguarding of employees’ rights to information, the obligation to provide for employees’ welfare under Swiss labor law, and protection against discrimination and dismissal.

The banks will be required by law to conclude an agreement with the relevant employee associations that satisfies these minimum requirements, the Federal Council said.

'Pragmatic' Solution

Swiss Finance Minister Eveline Widmer-Schlumpf insisted the proposal is a “pragmatic” solution to a problem Swiss negotiators have tried and failed to resolve with their U.S. counterparts over the past two years. Switzerland had been seeking a comprehensive settlement under which a fine would be paid for all Swiss banks in exchange for shielding the banks from further legal proceedings in the United States.

Nevertheless, the deal is likely to put Swiss banks in a weaker position vis-à-vis DOJ, since they would no longer have the Swiss government negotiating on their collective behalf, and would have to settle under a framework determined by DOJ.

Walter Boss, a tax law specialist with the Zurich-based law firm of Poledna Boss Kurer, said the Federal Council’s proposal is “very bad news for the bank employees, but at least as far as the exchange of bank client information is concerned, the rule of law seems to prevail for the time being.”

The exchange of client information is still subject to the 1996 U.S.-Swiss double taxation agreement, which limits any exchanges to cases of “tax fraud and the like.” A revised double taxation agreement concluded in 2009, which would extend cooperation to cases of tax evasion, is still being held up in the U.S. Senate by Senator Rand Paul (Republican-Kentucky) over privacy concerns.

“Of course, the crucial question will be the amount of the penalty that each bank concerned will be asked to pay,” Boss said.

Widmer-Schlumpf declined to say how much the targeted Swiss banks would be expected to pay out as part of the settlements, or to confirm reports that the final bill could be as high as U.S.$10 billion.

She insisted, however, that Swiss taxpayers would not be footing any part of the bill, and that the final amount will depend on what the individual banks negotiate with DOJ.

Swiss Bankers Association Has Concerns

The Swiss Bankers Association (SBA), the country’s largest banking industry group, welcomed the fact that the Federal Council proposal would give Swiss banks the opportunity to settle their tax-related issues in a “legal and definitive manner.”

“The SBA is concerned, however, about the fact that no information whatsoever regarding the scheme that the U.S. will offer the Swiss banks is available,” the group said. SBA added that the size of the fines the banks could eventually be required to pay was an “important criteria” for the banking industry.

“We firmly repeat our demand that the Swiss Federal Council must continue to make every effort to find a solution that stands in proportion to the transgressions being alleged,” the group added.

Goal is Quick Approval

The legislative proposal--the Federal Act on Measures to Facilitate the Resolution of the Tax Dispute between Swiss Banks and the United States--is being proposed to the Swiss parliament under special legislative procedures allowing for quick approval.

The goal is to secure approval so that the proposal can enter into force July 1, 2013. The act would remain in effect for one year, allowing the Swiss government to bypass procedures that would otherwise subject the measures to a possible national referendum.

“The urgency is due to the fact that the United States is unprepared to wait any longer” to reach a settlement, the Federal Council said.

The Swiss banks thought to be targeted by the DOJ investigations are Credit Suisse, HSBC Private Bank, Julius Baer, Pictet & Cie., Bank Frey, Zurcher Kantonalbank, Basler Kantonalbank, Neue Zurcher Bank, Bank Hapoalim (Switzerland), Leumi Private Bank, United Mizrahi Bank Switzerland, and Liechtensteinische Landesbank (Switzerland).