By DAVID JOLLY
BERN, Switzerland — In the view of Switzerland’s president, her country would sign a deal on banking secrecy with the United States “tomorrow” if not for an impasse created by Washington.
Martial Trezzini/European Pressphoto AgencyPresident Eveline Widmer-Schlumpf of Switzerland. |
“We are ready,” President Eveline Widmer-Schlumpf, who is also finance
minister, said here on Wednesday. “We’ve made a lot of constructive
proposals. We could sign it tomorrow if the United States wants to do
it.”
Relations between the United States and Switzerland have been troubled
by the question of tax evasion since 2008, when American authorities began pursuing UBS, the largest Swiss bank, for helping thousands hide money from the Internal Revenue Service. UBS later settled with the Justice Department, turning over details of 4,450 client accounts and paying a fine of $780 million in exchange for a deferred prosecution agreement.
With their financial sector under global scrutiny, Swiss officials have
been working to reach an agreement with Washington that would allow them
to retain something of their 1934 banking law, which makes the
disclosure of client identities a crime.
But American authorities have shown little interest in compromise, the
Swiss say, and are pursuing criminal investigations of 11 Swiss banks,
including Credit Suisse, the second largest.
In a sign of the tough approach Washington is taking, prosecutors in February indicted Wegelin & Company,
the oldest Swiss private bank, on charges that it had helped Americans
evade $1.2 billion in taxes. That prompted the bank, founded in 1741, to
say it was breaking up, raising fears among the Swiss that Washington
might pick off others.
The Swiss presidency rotates among the seven members of the country’s
executive body, the Federal Council, with a different member serving
each year. That makes Ms. Widmer-Schlumpf, 55 and a lawyer by training,
“first among equals” on the council and the face of Switzerland in many
international settings.
“We were very surprised by the Wegelin indictment,” Ms. Widmer-Schlumpf
said, “because we understood there to be an implicit agreement that they
would not do something like that during the negotiations.”
She said the countries had made “considerable progress” toward a global
deal in the last few months. An agreement will include deferred
prosecution deals against Swiss banks accused of helping American tax
evaders, fines and a “substantial” transfer of client data to the
Internal Revenue Service, she said.
Ms. Widmer-Schlumpf said that Switzerland, which accounts for more than
one-quarter of the world’s offshore wealth, was not prepared to abandon
banking secrecy altogether and that the data transfer “has to take place
within the existing legal procedures in both countries.”
“States have rights, and we have to respect that,” she said, expressing
hope that a deal would be reached soon. “I think it’s in the interest of
both sides to come to a solution now.”
Ms. Widmer-Schlumpf spoke after the Swiss Parliament on Monday approved a new double-taxation treaty
with the United States, under which American authorities will be able
to more easily track suspected tax cheats, even without naming names, by
asking for information on particular types of suspicious accounts.
Donald S. Beyer Jr., the American ambassador to Switzerland, told Swiss
radio this week that it was a “positive and useful step.”
Paul L. Behling, a partner at the law firm Withers Bergman in New Haven,
said that the Swiss Parliament’s approval “eliminates the legal
obstacle to a deal” between the banks and the I.R.S.
Switzerland’s banking secrecy law has complicated banks’ efforts to
resolve the conflict. Another source of friction is the distinction made
by the Swiss, and virtually no one else, between tax fraud, a crime
here, and tax evasion, which is not.
On the side of the United States, ratification of the double-taxation
treaty, signed by the two governments in September 2009, has stalled.
Senator Rand Paul, Republican of Kentucky, has balked at the treaty, arguing that it gives the I.R.S. too much power to intrude without grounds for suspicion of financial crimes.
Mr. Paul’s office did not respond to requests for comment. The Treasury and State Departments declined to comment.
“We have a very good relationship with the U.S.A.,” Ms. Widmer-Schlumpf
said, noting, for example, that Switzerland represents American
interests in Iran and is one of America’s largest investors.
“The problem we have now, you shouldn’t hang the whole relationship on
it,” she added. “I believe that’s why we can find a solution to this
problem.”
Ms. Widmer-Schlumpf said that Switzerland was working to improve its reputation with a “clean-money strategy” announced in February. The strategy is based on three main elements: new international withholding tax agreements with other countries, improved administrative assistance in international tax cases, and a requirement that Swiss banks scrutinize accounts more closely.
First, she said, the Swiss have to overcome their past sins, settling
with the Americans and other governments and persuading doubters of
their sincerity.
“Our problem is that we have not been taken seriously,” she said, though
for several years “we’ve been doing more than other countries.” That
includes efforts to fight money laundering and insider trading, more
than 40 double-taxation agreements with other countries, and the
adoption of tough capital standards at too-big-to-fail institutions like
Credit Suisse and UBS.
Ms. Widmer-Schlumpf said the Swiss financial sector — which contributes
about 11 percent of the country’s gross domestic product and accounts
for about 200,000 jobs in a country of fewer than eight million people —
might struggle in the first few years of a more transparent era.
“But in the long term,” she said, “we’ll gain clients because of the Swiss quality.”
A deal with the United States may not be the model for others, as the
United States has a stick — the threat of denying Swiss banks access to
its vast markets — that others lack. The Swiss-preferred models are the
withholding tax deals reached last year with Britain and Germany, which
will ensure that taxes are paid without divulging client data.
But those deals have been challenged by the European Commission because,
the commission argues, they undermine its efforts to set up deals for
automatic information exchange with Switzerland, which does not belong
to the European Union. The German Parliament is also threatening to
block any bilateral agreement on fairness grounds.
In any case, the writing is on the wall for American tax cheats in
Switzerland. Some Swiss banks have been warning American clients that
they should either prove they are in compliance with American law or
have their accounts closed. They are also recommending that any clients
not in compliance should hire a lawyer and enter the I.R.S.’s voluntary
disclosure program.
“I tell my clients if they have an undeclared offshore account that it’s
in their best interest to come back into compliance,” said Kevin E.
Thorn, a tax lawyer in Washington who has helped people navigate the
voluntary disclosure program. In practice, he said, that means paying a
penalty, now 27.5 percent of the value of the undeclared account, and
bringing their records up to date.
“Because if they don’t, and the government opens a criminal
investigation, they’re going to pay a lot more,” he said, perhaps 50
percent or more of the undeclared account with the cost of fighting a
felony charge of tax evasion to boot.
Martin Naville, chief executive of the Swiss-American Chamber of
Commerce in Zurich, said the hope for Switzerland was that after a deal
was reached, “there will still be some kind of confidentiality or data
protection.”
“But protection for tax evaders, I think that part is really gone,” he added.
Mr. Naville said he was skeptical that a Swiss deal would do much to stop Americans from trying to beat the taxman.
“They’ll go to the Channel Islands; they’ll go to Singapore,” he said. “But no Swiss bank will touch them.”
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