From SwissInfo

UBS settlement deal blocked in parliament

swissinfo.ch and agencies
Jun 8, 2010 - 12:41


The House of Representatives has rejected a deal with the United States that would have enabled the handover of data on thousands of customers of the Swiss bank UBS.

Parliamentarians on Tuesday voted 104 to 76 against the controversial settlement deal on sharing banking data that was signed last August between the US and Switzerland. There were 16 abstentions.

The decision is not final however and the issue will now go back to the Senate for review.

The issue was hotly debated until late on Monday night and rejected on Tuesday by the Social Democrats who failed to obtain guarantees of restrictions for “too big to fail” banks, and by the Swiss People’s Party who were against caps on managers’ bonuses.

Under the terms of the deal, Switzerland has until August 20 to process a US request for administrative help concerning 4,450 accounts held by US citizens at UBS. The Internal Revenue Service believes those accounts could contain taxable but undeclared assets.

The Senate approved the deal on Thursday but the green light is needed from both chambers of parliament.

The deal is expected to be approved once again by the Senate, where it is backed by the majority parties, but a second rejection by the House of Representatives would effectively bury the accord.

The situation was further complicated by an earlier vote in which the People's Party and the Social Democrats joined forces to ensure that the agreement, if accepted by parliament, would be put to a referendum. The timing involved in holding a nationwide vote would prevent Switzerland from meeting the August deadline laid out in the UBS settlement deal.

Also tied into the debate is a roadmap by the cabinet which outlines a timetable of supporting measures designed to prevent a future crisis with "too big to fail" banks. This was rejected by parliamentarians on Monday.

Last week senators also voted against debating the planning of those measures, which include questions regulating banker bonuses, liquidity and how risks are distributed.


Whistleblower

The Swiss government was forced to seek parliamentary approval for the UBS settlement deal after the Federal Administrative Court ruled in January that it was illegal.

The deal was drawn up in an effort to protect UBS from legal action after the US sued the bank for information on around 52,000 clients.

It followed allegations that UBS had worked to help rich Americans stash portions of their wealth away from US tax collectors.

Former UBS employee Bradley Birkenfeld acted as a whistleblower, alerting US authorities about the bank’s activities and resulting in American justice authorities fining UBS $780 million and the deal to disclose the details of 4,450 clients.


Evasion or fraud?

The deal signed in August 2009 was widely regarded as the first breakdown in Switzerland’s 75-year-old tradition of banking secrecy.

The government has said failure to pass the deal would damage Switzerland’s reputation as a reliable partner that follows through on its commitments.

But in its January’s ruling the Federal Administrative Court stated that the handing over of confidential UBS client details to US investigators by the Swiss authorities was not fully enforceable because it gave too broad a definition of tax fraud.

Under a current treaty in place with the US, Switzerland can help foreign investigators only in cases of tax fraud unless parliament says otherwise. The US request for UBS information was based on tax evasion, which Switzerland considers a civil matter.

A new agreement with the US that does away with the distinction between tax fraud and tax evasion has been signed but not yet put into force.

This is the deal.

The Swiss parliament (Senate and House of Representatives -- the Swiss parliament is organized quite similarly to that of the U.S.) needs to sign off on the agreement that our Federal Council (the executive branch of government) signed with the U.S.

The Senate already passed a version of the agreement, and in recent weeks, it was now up to the House to discuss the Senate version.

The centrist parties all support the Federal Council, stating that Switzerland is in a bad bind. Unless we sign off on that agreement, the U.S. will go after the Swiss banks, which would damage badly the Swiss economy as a whole.

However, all of the centrist parties together only garner 45% of the votes. 30% of the votes are controlled by the right-wing Swiss Peoples' Party (SVP: the strongest fraction in our government), and 25% of the votes are controlled by the left-wing Social-Democratic Party (SP: the second strongest fraction).

These two parties said no to the agreement, and they recognized that, although their reasons for rejecting the agreement are quite opposite, together they can blackmail the Swiss government.

The SVP claimed (not entirely incorrectly) that the Federal Council has not acted in the best interest of Switzerland. They didn't show enough spine and gave in to demands under pressure that are unacceptable. They want to preserve the banking secrecy under all circumstances.

The SVP agreed to support the agreement under three conditions:

1. this agreement is not to be considered a precedence for similar agreements with other countries in the future;
2. the Federal Council agrees to never again sign such an agreement without consulting the parliament first; and
3. the agreement would be placed under the referendum rules, i.e., the Swiss voters would have the last say.

The center parties and the Federal Council agreed to demands #1 and #2, but not to demand #3, because they knew perfectly well that this would be the kiss of death for the agreement. The Swiss voters, if asked, will never agree with this deal.

The SVP finally softened their demand #3. They would allow their members to vote anyway they wanted, rather than requesting a strict no vote.

The SP demanded stronger regulation of the banking sector. The too-big-to-fail problem should never reoccur. They want government supervision of the Swiss banks, and they want a downsizing of the biggest banks. They demanded that the parliament and the Federal Council agree to pass a law to stronger regulate the Swiss banking system latest by September.

This is a demand that the center parties don't want and the right-wing SVP strictly rejects. They however agreed to "form a commission to study the possibilities of stronger banking regulations," but without giving any guarantees that this would actually result in stronger banking regulations, which it clearly never would.

Finally, the SP gave in last week and said that they would accept the commission "compromise" if, in addition, the parliament and Federal Council would agree to immediately create a new tax taxing the bonuses made by the top bank managers, which are currently tax-free.

The center parties agreed to this demand, but the SVP countered by now making the demand that the parliament and the Federal Council would need to agree to never ever tax the bankers' bonuses. Otherwise they would back off from backing the agreement.

... and then they ran out of time.

The end result is that both SP and SVP voted against the agreement, and the agreement is now sent back to the Senate for further negotiations.

As a reaction to these news, the value of the Swiss Franc just rose by 1% relative to the U.S. Dollar, the Euro, and the British Pound ...

From SwissInfo

Media cry foul over UBS vote

Jessica Dacey
swissinfo.ch
Jun 9, 2010 - 09:58


After concerns by economists, it was the turn of Swiss newspapers to chastise politicians over Tuesday’s no vote to a UBS settlement deal with the United States.

The deal was blocked in parliament after wrangling by two parties over banking regulation and capping managers’ bonuses. Economists immediately implored politicians to accept the deal for the good of the country. It was a theme picked up by the Tribune de Genève.

“There is something pathetic about hearing economic circles begging the elected representatives to ‘use wisdom’ and heed ‘national interests’ rather than ‘personal interests’,” noted the paper's Judith Mayencourt.

“The sensational rejection of the accord with the United States illustrates the scale of the political tensions arising from the UBS crisis. The wrong turns of government… now follow the wrong turns of a parliament on the brink, unable to sign an agreement that – in effect – everyone believes is questionable but necessary.”

The accord is a settlement reached between the US and Switzerland last year requiring the handover of confidential client data to save the Swiss bank UBS from legal action. The US had sued the bank after allegations it helped rich Americans stash portions of their wealth away from US tax collectors.

After being rejected by the House of Representatives, the deal was approved for the second time by the Senate on Wednesday. It will now return to the House of Representatives, where a final no vote would effectively bury it for good.

“The UBS deal is inevitably a bad deal, a bad deal to a bad situation. But it is too late to go back. And it is illusory to believe that it will be possible for the Swiss negotiators to go back to their American negotiating partners in the hope of finding a better solution,” wrote Le Temps’s Bernard Wuthrich.

“The spectacle provided by the House of Representatives is disconcerting. It feels like a schoolyard, despite the political and economic stakes being considerable.”

He notes that there is still time to find a way out of the impasse, but the centre-right parties need to play a part. “Perhaps it is not too late to negotiate one last time and, through unpleasant bartering, convince 20 to 30 parliamentarians to change their position.”


“Chaotic party landscape”

For the Neue Zürcher Zeitung, “Swiss politics has reached a low point”.

“On Tuesday the 'no-voters” both on the left and on the right swept the country's interests back into the broom closet,” wrote René Zeller.

“The pirouettes, intrigue, blackmail, U-turns and other follies of the past few weeks go far beyond standard party wrangling. The UBS deal embodies a chaotic party landscape, whose exponents act uncompromisingly on the margins and always have one eye on the voters.”

Like other media observers, the NZZ urged politicians to set aside their differences and back the deal. “From an economic perspective the UBS deal is too important. And whoever plays with fire is foolhardy and certainly not doing so in the nation’s interest.”

“It is clear that there is an incalculable risk to the country and the economy,” noted the tabloid Blick newspaper. “The Social Democrats and People’s Party will decide next week whether to take that risk.”

Blick’s Henry Habegger said it was “potentially fatal for a so-called business party” like the People’s Party not to back it.


High stakes

“The stakes are high,” wrote the Tages-Anzeiger. “First, the relationship to the US superpower. Secondly, the question of how much a state of law can buckle under pressure…”

“Perhaps the people’s representatives should take a quiet moment to think about what their job is, namely to solve the problems of the country to the best of their ability and in accordance with their conscience.”

But after the “undignified bustle” by the Social Democrats and the Swiss People’s Party to turn the vote to their advantage, both were making sounds that they were having second thoughts, it said.

“It can’t be excluded that the Social Democrats and the People’s Party will give in after all, to avert a greater harm. For the good of the country.”


Cliffhanger

Abroad, the Financial Times reported that “Switzerland and the US were on a collision course over tax evasion” after the vote.

“The issue has turned into a cliffhanger, with a final vote only likely on June 18, the last day of the current session of parliament,” it said.

“If the agreement was killed in parliament, Washington would almost certainly restart the civil case against UBS that was frozen when last year’s deal was struck. Analysts warned this would leave the bank open to uncertainty at a time when it needs stability and possibly cause further disquiet in jittery world financial markets.”

The New York Times noted: “Without the approval of parliament, the government cannot implement the agreement, and the data cannot be handed over - a possibility some say could be disastrous for UBS in the United States.”

Ashby Jones, a law blogger for the Wall Street Journal, summed up the general astonishment over the outcome: “Huh? What? Where’d this come from?”

“It’s been a while since we’ve written about the situation between UBS and the IRS. But given Tuesday’s news, it could be that we start writing about it a bit more all over again. It appears the vote was largely the result of, well, politics,” Jones added.

From SwissInfo

House approves UBS-IRS deal with big caveat

Tim Neville
swissinfo.ch and agencies
Jun 15, 2010 - 15:45


In a make-or-break vote, Switzerland’s House of Representatives has approved a deal for big bank UBS to share confidential client data with the United States.

Parliamentarians on Tuesday voted 81-61 to approve the controversial treaty with 53 abstentions and one sizeable hiccup: they also voted 106-80 to allow a possible referendum on the matter.

The House’s decision was critical, as a “no” would have sunk the whole deal, which the government says is crucial toward maintaining a healthy economic position with one of Switzerland’s biggest trading partners.

The treaty, which was earlier rejected by the House but passed by the Senate, aims to give US authorities bank data on some 4,450 accounts held by Americans. The US Internal Revenue Service (IRS) believes those accounts hold assets deliberately hidden away from US tax collectors.

Both chambers of parliament now have until Friday to reconcile differences over whether the matter should go to a nationwide vote. A green light from both the Senate and the House of Representatives is needed to put the contract into force and hand over the information.


Politics at play

After months of lobbying against the deal, Switzerland’s largest political party, the rightwing Swiss People’s Party, signalled its support after having received assurances from centre-right parliamentarians that they would vote against proposed new taxes and measures for banks and other large companies.

The Senate has already approved two motions to limit banker bonuses but parliament buried a government-proposed roadmap billed as a way to prevent banks that are “too big to fail” from needing bailouts in the future.

UBS needed a rescue package after suffering massive losses in the US subprime mortgage crisis. Proposed steps included a tax on “excessive” banker bonuses of SFr2 million ($1.75 million) or more, as well as new rules on how banks allocate risks and maintain cash reserves.

Lawmakers instead bit back at ministers and voted to limit how much the government can agree to do in international treaties.


Far from over

Rightwing support for an optional referendum on the treaty with the US could give the party some bargaining chips with the Senate, which voted to approve the treaty as is on June 3.

However, the People's Party says a nationwide vote is not vital.

"We want to prevent a new tax on bonus payments for bankers and we want to make sure that the government cannot similar treaties in the future," parliamentarian Hans Fehr told swissinfo.ch.

The Social Democratic Party for its part warns it will stand by its rejection of the treaty if the other parties don't agree to impose measures on the banks.

The party refuses to be impressed by outside pressure to accept the accord.

"The US will continue to bring pressure to bear on Swiss banks whatever the parliament decides," Margret Kiener Nellen told swissinfo.ch.

From a business perspective, the possibility of a national vote on the issue is particularly worrisome because holding a vote would mean Switzerland missing the August deadline to hand over the information as set out in the treaty, a legally binding document under international law.

An optional referendum would force the government to wait 100 days while groups work to collect the required 50,000 signatures needed to bring the issue to a vote. It could be months after that before voters would actually head to the polls.

The Swiss Bankers Association has called for unconditional approval of the accord. It warns that a referendum could be seen by Washington as an outright refusal of the agreement. It might also delay the enforcement of the accord.

Meanwhile, the US authorities say they “expect” Switzerland to uphold its end of the deal and provide the information on time. Otherwise, they say they are ready to pursue all legal options to get the information they say is rightfully theirs.

Centre-right parties including the Radicals are keenly aware of the negative impacts that missing the deadline could incur. They reminded fellow lawmakers of a recent decision in Brazil to place Switzerland on a tax haven blacklist.


Legal minefield

The treaty was signed by Swiss government authorities in August 2009, in an effort to protect UBS from potentially crippling legal action in the US. Under the agreement, Switzerland had one year – until August 20, 2010 – to provide the IRS with client data.

The issue came about after allegations that UBS had worked to help rich Americans stash portions of their wealth away from US tax collectors. UBS paid a fine and handed over some information but has never admitted to breaking any laws.

Such an agreement stirred up a legal hornet’s nest at home because Switzerland’s banking secrecy laws forbid the revealing of such information. Swiss authorities consider the UBS-IRS case one of possible tax evasion, not fraud. That’s a crucial distinction since current treaties in place with the US only require Switzerland to help foreign investigators in cases of suspected fraud.

A new treaty with the US that does away with that distinction has been signed but not yet put into force.

In morning trading on the Swiss exchange, UBS shares reacted warmly to news of the House’s approval of the deal. Stocks rose as much as 2.7 per cent 30 minutes after markets had opened. By noon shares were up two per cent against opening prices at SFr15.60 a share.

I wonder if the people whose data is passed on (if it is) will be able to sue.

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This is the deal.

The parties at the center who are eager to pass the agreement with the U.S. recognized that, this time around, the vote of the House of Representatives was serious, because it was final. Had the House once again voted the agreement down, that would have been the end of it.

Hence they chose to give the right-wing SVP everything they wanted. They agreed that there will not be any new taxes on banker bonuses and that there won't be additional regulation of the banking sector.

This, of course, made the left-wing SP even more obstinate, but alone, they could not block the vote. Hence this time around, the agreement was approved by the House, and since the Senate had already approved the agreement, this should be the end of it ... if our direct democracy wouldn't get in the way.

The House voted a caveat that would place the measure under the referendum rules. Hence the Senate and the House now need to reconcile their versions. If the referendum rules are applied, Switzerland will definitely miss the deadline of August 20, 2010 that the agreement set for handing the UBS bank data over to the IRS, because in that case, our rules make it necessary to allow 50 days to collect signatures for the referendum, and if the necessary number of signatures is obtained, months will pass, before the people of Switzerland get to vote on the measure, and until this happens, no data can be transferred.

Hence the deal isn't locked in yet, and the center parties will probably need to give in to even more blackmailing by the SVP in order for them to vote against the referendum rule, which if they go along with it, will cost the SVP votes in the next elections.

Dirty politics at its best!

Originally Posted by Zichao

I wonder if the people whose data is passed on (if it is) will be able to sue.

Good question. Our government assured us that everyone on that list will be informed sufficiently in advance and will be given an opportunity to file a complaint against the handing over of his or her data to the IRS within the Swiss court system. Until the Swiss courts ruled on these complaints, the data of those people couldn't be handed over to the IRS either ... but of course, the IRS would at least know the names of those people due to their complaints, which are public.

Yet, I wonder whether there will be enough time in the end to inform everyone and give them a fair chance to file a suit, or whether the government will simply run out of time and break their promise.

The Swiss Franc has been rising again by 1% as a reaction to the newest development in the UBS saga.

Evidently, it hadn't been the former rejection of the agreement that had driven the value of the Swiss Franc up, but rather the removal of uncertainty associated with not knowing how the pendulum will swing.

From SwissInfo

American citizens contest reporting rules

swissinfo.ch
Jun 16, 2010 - 12:06


The Geneva-based American Citizens Abroad has demanded that the United States rethink regulations being drafted to monitor assets held in foreign banks.

According to the ACA, the legislation, called the Foreign Account Tax Compliance Act (FATCA) will have a severe, negative impact on American citizens living and working around the world.

This week the ACA sent a 13-page letter outlining its concerns to the Internal Revenue Service (IRS), members of Congress and other key figures, including President Obama.

Congress has created a “reporting monster”, the ACA believes, referring to how foreign banks and overseas US citizens will have to declare their assets. Some banks would be required to withhold 30 per cent of a client’s US source income as a guarantee.

"US citizens residing abroad are absolutely enraged by the FATCA legislation," said Jackie Bugnion, member of the ACA Executive Committee, "not only because of the compliance costs and discrimination, but also because the law de facto treats us like criminals, simply because we reside overseas."

Established 30 years ago, the ACA is a non-partisan, non-profit association.