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U.S. looks to turn the screw in Swiss banks talks

By Martin de Sa'Pinto, Katharina Bart and Patrick Temple-West

ZURICH/WASHINGTON (Reuters) - The United States is pushing Switzerland for a deal to settle a long-running dispute over banks that shelter tax evaders, a Swiss government source said on Thursday, ratcheting up the pressure after parliament rejected an accord in June.

With many Swiss banks under U.S. investigation for helping American clients dodge taxes, the government is anxious to secure an agreement that satisfies U.S. demands for data to help catch the tax cheats but also wants to preserve at least some elements of its cherished tradition of banking secrecy, which has long been a key part of the Alpine nation's allure for depositors.

Two months ago the Swiss parliament voted down a law that would have eased the transfer of client data for the entire industry, angering the United States and raising fears in Switzerland of further indictments.

The United States has since tightened its negotiating terms, the Swiss government source said. He declined to give details except to say that the stiffer terms did not include higher fines for culpable banks.

A spokesman for the Department of Justice in Washington declined to comment.

Roughly a dozen banks are under U.S. investigation, including Credit Suisse , Julius Baer , the Swiss arm of Britain's HSBC , privately held Pictet and state-backed regional banks Zuercher Kantonalbank and Basler Kantonalbank .

The Swiss government has said it will grant these banks permission to hand over data to the U.S. that will allow them to avoid charges as they cut individual deals.

But as the two governments wrangle over the terms of an over-arching accord, Swiss banks not yet under investigation find themselves in a legal limbo, prolonging a scandal that has already cost the sector billions of francs in withdrawals.

Swiss banks are keen to cooperate with U.S. prosecutors to avoid an indictment of the kind that felled Switzerland's oldest private bank, Wegelin, earlier this year, but they are unsure what information they can hand over.

"What's unfolding is almost like a game of chess," said one U.S.-based lawyer with knowledge of the discussions.

"The U.S. Department of Justice (DoJ) has a lot of active investigations going, and ... they have plenty of time. Conversely, the Swiss don't want one-by-one investigations over the next several years; everyone is sick of it."

DOJ ON STEROIDS

The U.S. Justice Department has valuable tools to squeeze Swiss banks into complying with settlements, said Jeffrey Neiman, a former federal prosecutor involved in other Swiss bank investigations who is now in private law practice in Fort Lauderdale, Florida.

He cited three such tools: a database of voluntary disclosures from U.S. taxpayers; a relationship with Liechtenstein to obtain information; and a lucrative whistleblower program to entice Swiss bankers, he said.

"You're dealing with a Justice Department on steroids compared to what it was like in 2008 and 2009," Neiman said. "They have so much information."

Even so, while U.S. prosecutors have greater powers to root out U.S. citizens with untaxed money in Swiss accounts, the lack of a defined framework is limiting the banks' cooperation.

Until the United States and Switzerland agree a framework and restitution to settle the dispute, the scandal will continue to weigh on the industry, which is bracing for up to 200 billion francs in withdrawals in the four years to 2016, out of 789 billion francs of untaxed assets in Swiss banks, according to consultancy Zeb/Rolfes Schierenbeck Associates.

UBS, Switzerland's biggest bank, has said it could see client money outflows of 12 billion Swiss francs ($13 billion) in Europe as a result of a crackdown on tax evasion there, while rival Credit Suisse said clients in western Europe could withdraw up to $37 billion in the next few years.

The sector is unsure how much an eventual settlement with the United States will cost them, but total fines are likely to run into billions of dollars.

UBS paid a fine of $780 million in 2009 and delivered the names of more than 4,000 clients to avoid indictment, giving the U.S. authorities information that allowed them to pursue other Swiss banks.

A source at one of the banks targeted said talks between the banks under investigation and the DoJ are at a standstill because the DoJ cannot conclude an agreement without a legal framework for the entire Swiss banking industry.

In the meantime, up to 100 others of Switzerland's 300 or so banks are suspected of having tax evaders among their clients. They have no clear guidance on what data they will need to send.

"It's a complex task to go through thousands of emails that might or might not be relevant. Now it's not the 11 or 13 banks that are on the list that have a problem, it's the other 90 or so who don't really know what to do," said another Swiss banking source who asked not to be named.

($1 = 0.9205 Swiss francs)

(Additional reporting by Albert Schmieder and Oliver Hirt; Editing by Carmel Crimmins and Will Waterman)

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