Swiss lawmakers block UBS treaty

Associated Press / June 9, 2010

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GENEVA — Switzerland’s effort to end a tax-evasion dispute with Washington hit a major setback yesterday when lawmakers blocked a treaty that would have seen the largest Swiss bank give US authorities files on thousands of American clients.

The Swiss government and Washington had crafted the treaty last August to resolve a dispute over UBS AG’s alleged role in aiding tax evasion, but 104 lawmakers in Switzerland’s lower house voted against the deal, compared with 76 in favor, after their demanded amendments were refused. Sixteen lawmakers abstained.

The government and industry groups had urged lawmakers to sign off on the treaty to avert harm to the Swiss economy, which is heavily dependent on the country’s banking industry.

A US Justice Department spokesman declined to comment on the matter. Senator Carl Levin, a Democrat who has led a congressional investigation of UBS and other banks, criticized the move and called for the United States to go ahead in its case against UBS.

The deal is crucial to UBS because it allows the bank to bend Switzerland’s banking secrecy rules as an exception without committing others to do so. Last year UBS agreed to turn over hundreds of client files and pay a $780 million penalty in return for a deferred prosecution agreement, after admitting that it had for years helped US clients hide money from the Internal Revenue Service using offshore accounts.

Washington has signaled that unless UBS reveals a further 4,450 American names by August as demanded in the US-Swiss agreement, it may face a crippling civil investigation.

The US deal was blocked by lawmakers from Switzerland’s two biggest parties. The Social Democrats had tied their consent to stricter regulation for big banks and a binding government commitment to tax bankers’ bonuses. The People’s Party wanted parliament to vote against such a tax before dealing with the US tax treaty.

The bill will now be passed back to the upper house for further debate and could be voted on again by the lower house later this month. A spokesman for UBS would not say what the bank would do if a second vote goes against it as well.