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Switzerland; United States: Agreement on Tax Dispute

(Oct. 17, 2013) Switzerland and the United States signed an Executive Agreement on August 29, 2013, that was designed to end a dispute between the two countries on issues relating to the conduct of Swiss banks in allegedly having assisted U.S. taxpayers in the commission of tax evasion. (Press Release, Swiss Federal Department of Finance, Switzerland and United States Sign Joint Statement to End Tax Dispute Between Swiss Banks and United States (Aug. 30, 2013).) The Agreement provides the rules under which Swiss banks may cooperate with U.S. authorities by providing information on the alleged misconduct without thereby violating Swiss privacy laws. (Id.)

The tax dispute dates back to February 2009, when the Swiss bank UBS obtained a deferred prosecution agreement from the United States that obligated Switzerland to process U.S. requests for information concerning UBS accounts that were held between 2001 and 2008 by U.S. taxpayers suspected of evading U.S. taxes. (Edith Palmer, Switzerland: Information on Tax Evasion, GLOBAL LEGAL MONITOR (Dec. 4, 2009).)

Since then, there has been a continuous tug of war between the U.S. authorities on the one hand and Swiss banks, authorities, and courts on the other, concerning the Swiss banks’ provision of information concerning suspected tax evasions by their customers. By the fall of 2012, several Swiss banks were the target of U.S. criminal investigations and several others were concerned that they might also be investigated. (Message relatif à la loi fédérale sur des mesures visant à faciliter le règlement du différend fiscal entre les banques suisses et les Etats-Unis d’Amérique [Message on the Federal Act Concerning Measures to Facilitate the Resolution of the Tax Dispute Between the Swiss Banks and the United States], Switzerland Federal Authorities website (May 29, 2013).)

From 2009 to 2012, the Swiss banks increasingly found it necessary to cooperate with the U.S. authorities to avoid serious financial sanctions. At the same time, they did not want to violate Swiss privacy laws. (Id.) In June 2013, a legislative attempt to resolve this conflict failed. To facilitate cooperation between the Swiss banks and the U.S. Department of Justice, the Swiss Federal Council (Bundesrat, the executive branch of government) submitted a proposed law, know as the “Lex USA,” to Parliament that would have allowed Swiss banks to engage in such cooperation without thereby violating Swiss secrecy laws. (Mesures visant à faciliter le règlement du différend fiscal entre les banques suisses et les Etats-Unis d’Amérique. Loi urgente[Measures to Facilitiate the Resolution of the Tax Dispute Between the Swiss Banks and the United States. Urgent Act], (May 29, 2013), CURIA VISTA [Database of the Swiss Federal Parliament].) On June 18, 2013, the National Council, the representative chamber of the Swiss federal legislature, rejected the proposed Lex USA. (Ulrika Lomas, Switzerland Unveils Alternative to “Lex USA,” TAX-NEWS (July 9, 2013).)

The Executive Agreement of August 29, 2013, overcomes this obstacle by giving the Swiss banks the opportunity to request a non-prosecution agreement from the U.S. authorities in return for paying a fine and providing information on bank employees and other individuals who organized questionable customer transactions, together with statistical information on customer behavior. Customer data may not be disclosed under this scheme, and the Swiss banks must observe certain rules of Swiss data protection. In order to comply with U.S. requests for information, each bank must request permission from the Swiss authorities. Absent such permission, if they released information, the Swiss banks might be criminally liable under article 271 of the Swiss Criminal Code. This article makes the cooperation with foreign authorities a punishable offense, if the cooperating activities normally should be carried out by the Swiss authorities and not private parties. (Swiss Criminal Code [Schweizerisches Strafgesetzbuch] (Dec. 21, 1937, as amended), Systematische Sammlung des Bundesrechts 311.0 [in English].)