The Swiss cabinet on Wednesday said it needed to work out a new solution with the United States over its demand for account details on thousands of clients of bank UBS.
Justice Minister Eveline Widmer-Schlumpf said the country would “discuss with US authorities right away” the issue of providing information on clients of the Swiss bank suspected of tax evasion.
Switzerland’s Federal Administrative Court last week ruled that authorities were prohibited from handing over information on a majority of some 4,500 accounts sought by the US – data the Swiss said in August they would pass on.
Widmer-Schlumpf said the government would respect that ruling, and speaking at a media conference following the cabinet’s weekly meeting, she said the government wanted to present an “appropriate” agreement with the US to parliament for approval.
“I am convinced that we will come to a solution,” she said. UBS welcomed the decision.
The Swiss government had been in the unenviable situation of having to choose between breaking its own laws or breaking its word to the US.
“The cabinet is convinced that the continuing legal and sovereignty dispute with the US, with all its adverse consequences for the financial industry and the economy, can only be conclusively resolved through the implementation of an agreement regarding UBS,” the cabinet said in a written statement.
Handover and appeal
Switzerland had promised to hand over thousands of files on suspected tax cheats in return for an end to proceedings against UBS.
Last February, the financial regulator, the Financial Market and Supervisory Authority (Finma) ordered UBS to hand over the confidential data of around 285 UBS clients, an order that was on January 8 declared illegal by the Federal Administrative Court. Finma will appeal the decision.
But if the issue is not resolved in negotiations with the US, authorities there could restart civil proceedings against the Swiss bank and a court could order UBS to hand over information, cabinet warned.
Widmer-Schlumpf said that outcome would affect not just the future of UBS but "also the stability of the financial centre and the economic situation of Switzerland".
Officials also said on Wednesday that the director of the Federal Justice Office, Michael Leupold, had contacted the deputy US attorney general last Friday.
US authorities declined to immediately comment on the Swiss government's announcement.
The number of accounts sought by the US Internal Revenue Service (IRS) since March has dropped considerably. The IRS originally wanted information on 52,000 clients.
“Should not be left on its own”
The Swiss justice minister acknowledged that top UBS managers had made “serious errors” but argued the bank “should not be left on its own”.
The Swiss also want more information about how many UBS clients had voluntarily provided information to the US.
“We still have no data,” Widmer-Schlumpf said.
Within Switzerland, there has been the question over whether even parliament could legitimately hand over the information.
Widmer-Schlumpf said she believed it was not necessary to hold a referendum on the issue but added that that question would be decided by parliament.
She said legislators could “decide for political reasons” to put the issue on a national ballot.
Justin Häne and agencies, swissinfo.ch
Double taxation agreement
The current double taxation agreement (DTA) between Switzerland and the United States rules out the transfer of data in cases of tax evasion, which isn’t a crime in Switzerland. The Federal Administrative Court based its decision on this DTA,
In September 2009 Switzerland and the US signed a new DTA which conforms to Article 26 of the Model Tax Convention of the Organisation for Economic Co-operation and Development (OECD). This sees no difference between tax evasion and tax fraud and obliges countries to share relevant data.
In order for this DTA to enter into force, it must be ratified by parliament. Parliament would also decide whether to put it to a referendum.
If parliament were to ratify the DTA, the issue would most like go to a popular vote. The rightwing Swiss People’s Party has already said it would start collecting signatures.
In February 2009 Finma ordered UBS to hand over confidential data about 285 clients to the US authorities investigating cases of tax evasion.
In March the government decided to adopt OECD rules, effectively easing banking secrecy rules for foreign clients of Swiss banks.
A further 4,450 account holder details are to be divulged to the US authorities as part of a deal agreed between the Swiss and the US governments last August.
The Swiss had processed the first 600 files of suspected tax evasion by the end of 2009.
On January 8, 2010 the Swiss federal administrative court ruled that the handing over of confidential UBS bank details to US investigators by the Swiss authorities was illegal. It said Finma had abused its power when it ordered that details of 285 account holders suspected of tax evasion in the US be sent to Washington.