US, Switzerland Sign Agreement to Settle Tax Dispute

   By Neil Maclucas 
 

ZURICH--The U.S. and Switzerland have agreed to a plan that will offer Swiss banks the chance to resolve issues related to possible tax dodging by American citizens, potentially bringing a long-running dispute between the two countries to an end.

The agreement, signed Thursday in Washington, provides for fines for banks found to have facilitated tax evasion by Americans in exchange for non-prosecution agreements in many cases. The deal could generate more than $1 billion in penalties and force banks to name account holders.

The agreement follows years of testy relations between the two countries over how to handle the thorny issue of Swiss banking involvement in tax evasion. Like other countries, the U.S. has sought to find tax evaders in order to shore up its finances by repatriating untaxed assets from citizens who stashed money in secret Swiss bank accounts.

Switzerland's strict banking-privacy laws make sharing information about accounts difficult and sometimes illegal. The new agreement, however, will serve as a framework to allow Swiss banks to share such data with the U.S. without violating Swiss law.

"This solution respects the Swiss legal system, doesn't create any retroactive regulations, and doesn't involve emergency legislation," the Swiss Department of Finance said in a statement on Friday morning.

The U.S. campaign against offshore tax dodgers intensified after Swiss banking giant UBS AG admitted to aiding U.S. taxpayers hiding money abroad. The bank was required to pay $780 million in fines and reveal the names of more than 4,000 U.S. taxpayers holding secret accounts. The U.S. also indicted Switzerland's oldest bank, Wegelin & Co., which led to it being shut down.

The settlement divides banks into four categories and covers the period from 2008 to 2014. The first category contains 14 banks thought to include Credit Suisse Group AG, Julius Baer Group AG and state-backed regional banks Zuercher Kantonalbank and Basler Kantonalbank, already under criminal investigation by the justice department.

The second group includes banks that believe they have violated U.S. tax law. They will be allowed to seek non-prosecution agreements by the end of the year in exchange for information on their cross-border business. They will face fines ranging between 20% and 50% of the amount of untaxed U.S. assets they hold.

The final two categories are for Swiss banks that believe they haven't violated U.S. tax law and those whose business is local. Banks in these categories can request a letter from the U.S. stating that they aren't the target of an investigation.

In a statement, the Swiss Bankers' Association, an industry lobby, said the agreement was painful but acceptable.

"The program brings with it painful consequences for Swiss banks," the SBA said in its statement Friday. "The fines are at the upper end of legally acceptable and economically bearable levels."

The deal was signed Thursday by Manuel Sager, Switzerland's ambassador to the U.S., and James Cole of the justice department.

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