Swiss parliament votes to shield UBS data from U.S.
By David S. Hilzenrath
Washington Post Staff Writer
Wednesday, June 9, 2010
Almost a year after the U.S. government declared a historic victory in its campaign to penetrate Swiss bank secrecy and unmask American tax dodgers, the agonizingly negotiated August 2009 deal with the Swiss government was on the verge of collapse Tuesday.
The lower house of Switzerland's parliament voted to prevent the country from making good on its pledge to turn over the names and financial secrets of as many as 4,450 Americans who held undeclared accounts at Swiss banking giant UBS.
A Swiss court had already ruled that commitment illegal, and the Swiss Federal Council had sought the parliament's retroactive endorsement in a creative effort to salvage the deal.
"We expect that the Swiss government will continue to honor the terms of the agreement," IRS spokesman Frank Keith said in a written statement. "We continue to monitor the events in Switzerland, and we stand ready to pursue all legal options available to us should the Swiss fail to provide the required information."
If the Swiss fail to comply with the deal by the deadline in August, the U.S. government will face difficult choices. Should it reopen a legal battle, or should it renegotiate with Switzerland and settle for less?
For Switzerland, UBS and the United States, the imperiled agreement was a diplomatic way out of a high-stakes showdown.
Early last year, UBS admitted that it helped U.S. clients hide money from the IRS, and it agreed to pay $780 million to avert U.S. criminal prosecution.
Separately, the U.S. government sued UBS in federal court, demanding that the bank turn over information about an estimated 52,000 secret accounts held by Americans. It appeared to be the unusual case that the U.S. government was afraid to win: Victory in court could have led to crippling sanctions against Switzerland's largest bank, which has a major presence in the United States. In addition, it could have damaged relations between the United States and Switzerland, which helps the U.S. government in international affairs.
"Once a court order would be secured and UBS not comply with it, all parties understood that UBS would be held in contempt, at which point the [Federal Reserve] would probably be in a position to be required to yank UBS's license," Justice Department lawyer Kevin Downing said in court last year, adding that the two governments settled "to avoid such a situation."
The Swiss parliament's lower chamber could take up the question again after further consideration by the upper house. But lawmakers also voted to submit the question to a public referendum, making it less likely that Switzerland will meet the August deadline.
"The United States should reject any further attempts by the Swiss to delay the UBS case," Sen. Carl M. Levin (D-Mich.), who led a Senate probe of UBS, said in a statement Tuesday. "It is time to move forward with the summons in court and force UBS to provide the names and account information for all 52,000 suspected U.S. tax cheats."
Sen. Charles E. Grassley (R-Iowa), ranking Republican on the Finance Committee, said he was concerned the IRS was "doing next to nothing" to expose the UBS account holders while waiting for the Swiss to deliver.
Three years ago, former UBS banker Bradley Birkenfeld gave the U.S. government investigative leads that might enable the government to trace account holders on its own, Grassley wrote to the heads of the IRS and Treasury Department. The leads included cellphone numbers of UBS bankers.
Birkenfeld, whose whistleblowing set in motion the U.S. actions against UBS but also led to his incarceration, said it was a mistake for the U.S. government to place its faith in the deal. "The Swiss are making fools out of the" Justice Department, he said in an interview Tuesday from prison.
A UBS spokesman would not say what the bank would do if a second vote goes against it. "We wait for the vote, let parliament decide, and then we will see further," Serge Steiner told AP
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