Swiss upper house backs UBS tax deal with US (Roundup)

Jun 3, 2010, 13:57 GMT

Geneva - Switzerland's upper house of parliament approved Thursday a deal reached between Bern and Washington on the disclosure of UBS AG client data to tax authorities in the United States.

Voting in the smaller body, the Council of States, went smoothly for the government, and the house gave approval by 31 votes in favour to 12 against, the ATS news agency reported.

The next stage of parliamentary approval would take place Monday, when the 200-member National Council takes up the matter.

If passed, the deal reached by the two governments last year would see Switzerland hand over data on some 4,500 clients to the US government agencies, in the largest lifting of the bank secrecy veil since it was legislated in 1934.

UBS stock was up 1.11 per cent in mid afternoon trading on the Zurich exchange, at 15.49 Swiss francs (13.5 dollars).

A key parliamentary committee this week backed the deal, but added a caveat saying a public referendum might be needed.

However, in a separate vote, the upper house lawmakers in Bern said that the matter would not be subjected to the country's direct democracy polling, as it was a one-off piece of legislation and not a change to the core law.

Meanwhile, a parliamentary report released this week criticized how the government handled the UBS affair once it broke.

Three federal councilors - the local equivalent of ministers - who were most involved in the affair came under the heaviest scrutiny and criticism.

A parliamentary committee said they also failed to anticipate the problems that would arise from the bank's operations in the US, which quietly came under investigation there as early as 2007.

Starting in 2008, when UBS was first openly accused of helping wealthy US clients avoid paying taxes, Switzerland has been facing increased pressure on its prized bank secrecy rules.

As the financial and economic crisis deepened, G20 countries became even more interested in recovering lost tax revenues from so- called tax havens.

In February 2009, Swiss regulators handed over data on some 250 UBS clients to US authorities and UBS was fined 780 million dollars. The next day, Washington announced it was widening the investigation to thousands more wealthy customers of the bank.

A month later, the Federal Council - or executive branch of government - said it would relax bank secrecy to comply more closely with international rules on transparency, and began to renegotiate double taxation agreements with more than a dozen countries.

Several other key financial centres with privacy laws launched similar moves at the same time, fearing a backlash from the world's most important economies.

The deal on the 4,500 UBS accounts was reached last August as a kind of compromise meant to allow the Internal Revenue Service to crack bank secrecy but keep the bank away from litigation and in business in the US.

Despite the government's insistence on the importance of following through on the agreement with Washington, the deal remains tied up.

First, Swiss courts rejected the handing over of the data. Then the legislators stepped in, as various parties' support had to be secured, with some lawmakers wary of backing changes to the privacy rules and others demanding a crackdown on bankers' bonuses in return.

It remains unclear what will happen if the deal would collapse, but the Swiss government would likely face problems with the US, and UBS could see its position in America put in jeopardy.