Swiss Struggle to Solve Tax Evasion Spat with US

March 6, 2009 - 4:36 PM
The Swiss government on Friday failed to come up with a plan of action for solving an international tax dispute with the United States despite mounting pressure on its cherished tradition of banking secrecy.

Swiss Federal President Hans-Rudolf Merz, head of the Federal Department of Finance, announces during a press conference in Bern, Switzerland, Friday, March 6, 2009, that the Swiss government will look for ways to improve its cooperation with countries such as the United States on investigating tax evasion, while ensuring its guidelines of banking secrecy. (AP Photo/Keystone, Peter Schneider)

Bern, Switzerland (AP) - The Swiss government on Friday failed to come up with a plan of action for solving an international tax dispute with the United States despite mounting pressure on its cherished tradition of banking secrecy.
 
In a highly anticipated news conference, Swiss President Hans-Rudolf Merz said the Federal Council has assigned an expert commission to examine strategies for preserving banking confidentiality while satisfying the demands of the United States, France, Germany and other foreign governments looking to crack down on tax evaders.
 
Switzerland "wants to improve cooperation with other countries in the area of tax offenses," Merz said after a meeting of the seven-member executive branch.
 
But he offered no concrete steps the government was ready to take.
 
It was further proof that Switzerland remains paralyzed on the issues of banking secrecy and international tax evasion probes, even as much of the country and its business sector has been bracing for a monumental change.
 
The largest Swiss bank UBS AG is in a showdown with Washington over wealthy American tax evaders. It has provided the bank details of up to 300 wealthy Americans suspected of tax fraud, but refuses to identify about 50,000 more U.S. account holders Washington wants.
 
Neighbors in Europe, too, are applying pressure and threatening to blacklist Switzerland when 20 of the world's leading economies meet in London in April.
 
But Switzerland has yet to respond beyond forceful defenses of banking secrecy as a fundamental part of Swiss identity and tradition - not to mention the economy, which has benefited greatly under the system over the last seven decades. The current rules allow for international cooperation in cases of tax fraud but strictly prohibit assistance in matters of tax evasion - an unclear distinction that will now be re-examined by the expert commission.
 
"Banking secrecy shall be guaranteed in the future," Merz said, defiantly rejecting foreign criticism of how Swiss banks work. "Protecting the private sphere against unjustified government encroachment is deeply rooted."
 
Meanwhile, Switzerland's foreign minister said she told U.S. Secretary of State Hillary Rodham Clinton at a meeting Friday in Geneva that the two countries should avoid escalating the issue as UBS provides 30,000 jobs in the United States and much more in Switzerland.
 
"It is not easy for Switzerland to accept the pressure put on UBS and, indirectly, on the Swiss authorities to obtain banking information, which is counter to Swiss law," Micheline Calmy-Rey said she told Clinton.
 
The Swiss government's position recalls its slow reaction to the uproar in the 1990s over Jewish accounts left unclaimed after World War II. Eventually, Swiss banks were forced into a $1.25 billion out-of-court settlement with the descendants of Holocaust survivors.
 
On Wednesday, a U.S. Senate committee criticized UBS for evasive answers on about 50,000 American-held accounts Washington is interested in, and the Swiss government did not even attend.
 
UBS says cooperation would put employees at "serious risk" of criminal prosecution under Swiss law, but even the bank's new chief says those rules may now have to be amended to ease the pressure being put on this small Alpine nation.
 
"It's questionable whether we can continue to hide tax evaders behind banking secrecy," Oswald Gruebel, a widely respected banker who came out of retirement last week, told the newspaper Finanz und Wirtschaft in an interview published on the weekend.
 
Switzerland passed its banking secrecy laws in 1934 during a worldwide depression and under the threat of espionage by France and Nazi Germany, which aggressively courted Swiss bank employees to divulge the names and data of customers. Strict penalties were imposed for violating bank confidentiality.
 
Still, secrecy rules have eroded. Swiss officials have retooled the rules over the past two decades to allow cooperation with governments trying to reclaim assets stashed in Switzerland by despots before they were deposed.
 
But expanding the changes to deal with all foreign tax evaders would be much more sweeping.
 
Justice Minister Eveline Widmer-Schlumpf visited Washington earlier this week and has shown some softening of the national position. She said the government would consider helping foreign authorities investigating "gross tax evasion" - a new distinction that has not previously existed.
 
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Associated Press writer Eliane Engeler in Geneva contributed to this report.