‘Lex USA’ bank accord clears Swiss senate

Switzerland's upper house of parliament voted Wednesday in favour of a secretive deal between Bern and Washington to settle a legal battle over Swiss banks' alleged complicity in tax evasion by Americans.

'Lex USA' bank accord clears Swiss senate
Parliament building in Bern. Photo:

Twenty-four members of the senate, or Council of States, voted in favour of the so-called "Lex USA" deal, while 15 were opposed and two abstained.

To come into force, the controversial accord must now clear Switzerland's lower house, or National Council, which is expected to vote next Tuesday.

At the end of May, the Swiss government accepted the take-it-or-leave-it deal proposed by Washington, sparking anger across the Alpine country's political spectrum.

The National Council had been due to debate the deal last week, but with lawmakers up in arms after failing to receive information about Washington's conditions, the house voted to hold off on making a decision.

The US side aims to have the deal in force by July 1, and pledges to publish details thereafter, but officials and Swiss media have said it involves massive fines in proportion to the banks' alleged wrongdoing.

Swiss banks are believed to hold accounts worth billions of dollars belonging to American citizens that are not declared to US tax authorities.

The banking sector has expressed support for the deal, saying that it wants to draw a line under an issue which has poisoned ties with the United States.

But without parliamentary approval, the banks risk falling afoul of Switzerland's banking secrecy laws if they hand over client information.

With the global economic crisis having put tax havens into sharp focus, Switzerland has fought to defend its long-cherished principle of secrecy by giving ground in some areas but declining to allow the automatic handover of account details.

If it comes into force, the deal would bring legal closure for Swiss banks after a legal assault by US authorities which has put their American and global operations at risk.

The battle began in 2009 after Swiss banking giant UBS was fined in the United States for complicity in tax evasion, and wealthy Americans began looking for other places to stash their cash.

Despite warnings from Switzerland's banking association, other players in the country sought to snatch former UBS clients and their undeclared holdings.

Fourteen Swiss banks have found themselves in US investigators' sights for doing so.

Two of them are cantonal banks — run by the Swiss equivalent of US states — and the threat of legal action raised the spectre of a massive bill for taxpayers if they were found guilty and needed state support to deal with the consequences.

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Switzerland’s banks remain among the world’s most secretive

Despite the progress made over the years, the Swiss financial sector continues to be one of the least transparent in the world. But there is good news too.

Switzerland’s banks remain among the world’s most secretive
Switzerland remains one of the world's least transparent nations. Photo AFP

Switzerland is in the third place in the 2020 Financial Secrecy Index released by the non-governmental organisation (NGO) Tax Justice Network (TJN), which rates 133 nations based on their financial transparency.

Two other European countries, Luxembourg and the Netherlands, are also ranked among the top 10 least transparent nations on the TJN’s list.

Despite being in the third place, Switzerland ranks better this year than it did in the previous edition of the Index, which is released every two years — it slipped from the first to third place. The Cayman Islands and the United States took the first and second spots, respectively.

Switzerland reduced its risk of being an offshore haven for tax cheats by 12 percent, “finally improving enough to move off the top of the index”, TJN said. 

READ MORE: Switzerland's strangest taxes – and what happens if you don't pay them

This improvement is mainly due to Switzerland extending its international network for the automatic exchange of customer information to more than 100 countries. 

Also, in a referendum held last year, Swiss voters accepted the Federal Act on Tax Reform and AVS Financing (TRAF). This legislation introduced major changes in the Swiss tax system by ending some preferential tax schemes and replacing them with new regulations which are in line with international standards.

This tax reform prompted the European Union to change Switzerland's status from ‘tax haven' to one which is EU-compliant, removing strict controls on transactions within the EU. 

So why, despite all the reforms, does Switzerland still rank among the world’s least transparent nations?

According to a Swiss NGO Alliance Sud, wealthy people from poor countries can still hide their money here from the tax authorities of their home nations.

Alliance Sud noted that despite the progress made in the past years by Swiss financial institutions, “the fight against tax evasion remains insufficient”.

Switzerland is the world’s biggest centre for managing offshore wealth, with a quarter of global assets invested here.

For years, it has been placed on various lists of tax havens where wealthy foreigners could park their money. Faced with widespread criticism for this practice, Switzerland passed an anti-money laundering law in 1997 and introduced strict regulations against tax evasion.