Swiss Lower House Defers Final Decision on UBS Treaty

By Klaus Wille
BusinessWeek
Jun. 09, 2010

June 8 (Bloomberg) -- Switzerland’s lower house rejected an agreement with the U.S. over suspected tax evasion at UBS AG, opening the door for further talks between both parliamentary chambers and a final vote by June 18.

The settlement in a first round was rejected by 104 votes to 76 in Bern today after the Swiss People’s Party and the Social Democrats voted against the accord. UBS fell as much as 3.9 percent as the vote prolonged uncertainty over the bank’s U.S. operations.

Switzerland has until August to disclose data on as many as 4,450 UBS clients to the U.S. tax authorities. Failure to follow the treaty’s provisions may result in the U.S. again pursuing charges against Switzerland’s biggest lender by assets and threaten the bank’s business in the country.

“The final word hasn’t been spoken yet,” said Georg Lutz, a political scientist at the University of Lausanne. “After some more haggling, I think parliament will eventually approve the deal.”

Parliament’s upper house last week voted in favor of the treaty, so that the issue will have to be resolved in further talks by both chambers. The legislature’s approval is crucial for the government and UBS to circumvent a court ruling that the deal isn’t enforceable under current Swiss legal provisions.

The People’s Party had tied its support to a commitment by parliament that it wouldn’t raise corporate tax bills on bankers’ bonuses. The Social Democrats wanted binding rules on risk-taking at the country’s biggest banks. Parliament has until June 18 to discuss the parties’ proposals.

Both parties have said they may back the accord if their conditions are met.

Possible Countermeasures

If lawmakers ultimately scuppered the deal, the U.S. may take “countermeasures,” Swiss president Doris Leuthard said in an interview with Neue Zuercher Zeitung on May 22, imposing a “burden” on the Swiss economy. “Therefore, we should do everything to avoid that,” she was quoted as saying.

Shares in UBS fell as much as 57 centimes after the decision and were down 38 centimes, or 2.6 percent, at 14.34 Swiss francs at 12:18 p.m. in Zurich.

A final approval would pave the way for Switzerland to order disclosure of the account details to the U.S. fiscal authorities, who suspect the bank’s clients of tax evasion.

“It would be in the interest of the Swiss economy if we left this unfortunate chapter behind us,” Justice Minister Eveline Widmer-Schlumpf said before the vote. The country should address “questions regarding the future,” she said.

The lender “took note of the decision,” UBS spokesman Serge Steiner said by telephone, declining further comment.

The Swiss Federal Administrative Court ruled on Jan. 21 that the country’s tax authorities are entitled to order disclosure of the data only in cases of “tax fraud,” adding that condition wasn’t met by the majority of the UBS accounts to be handed over.

The court also hinted that approval by Swiss lawmakers would raise the August agreement to the status of a state treaty and allow the disclosure.

--With assistance from Elena Logutenkova in Zurich. Editors: Paul Verschuur, Matthias Wabl.

To contact the reporter on this story: Klaus Wille in Zurich at [email protected].

To contact the editor responsible for this story: John Fraher at [email protected].