February 25, 2010 - Phil Hodgen

Swiss Parliament will attempt to approve UBS settlement

The fate of approximately 4,200 U.S. customers of UBS is hanging on what happens next in Swiss Parliament.


Here’s where things are right now:

  • UBS and the U.S. government signed a settlement agreement in August, 2009 in which UBS agreed to turn over the names of 4,450 U.S. customers of the bank.
  • In February, 2010 a Swiss court ruled that this was an attempt to amend the income tax treaty between the United States and Switzerland without following proper procedures (“proper procedures” meaning it should be approved by the Swiss Parliament).
  • This had the effect of stopping disclosure for 4,200 U.S. customers of UBS. The other 250 people had indicia of “tax fraud” (as that term is defined in Switzerland) so their names could be given to the United States under the terms of the treaty as it currently exists.

Current reality

The positions of the players in this game at the moment:

  • A U.S. person who had an account at UBS in his or her own name as a human being (no corporations, trusts, foundations, anstalts, or other fun and games) was protected by the Swiss court ruling.
  • The Swiss government is facing an swarm of belligerent U.S. bureaucrats.
  • That swarm of U.S. bureaucrats? I’ll let you imagine why they’re agitated.

Latest development

The Swiss government has announced plans to put the settlement to Parliament for approval. This will happen in March.

At the moment the settlement of August, 2009 is a “mutual agreement” between governments. It is not a formal treaty. Parliamentary approval would make it a formal mutual treaty between the United States and Switzerland. This would overcome the objections of the Swiss court, and disclosures could proceed.

Roadblocks to disclosure

The 4,200 U.S. taxpayers? It’s not over yet. They may yet be safe from forced disclosure. The game has morphed into what is largely a Swiss domestic political struggle. In order for disclosures to proceed:

  • It must be determined as a matter of Swiss law that the approval of this settlement does NOT trigger the optional national referendum process by which the question of approval could go to the Swiss voters for approval. My guess? If Parliament self-declares that it has the constitutional authority to approve the settlement, someone will take this to court in Switzerland. Expect delays and uncertainty.
  • Assuming that hurdle is jumped, and Parliament indeed has the authority under the Swiss constitution to approve the settlement. Now the Universal Truth of Politics trumps all considerations: “If I vote for this, will my constituents re-elect me?” Ask yourself what your random U.S. Congressman would say if another country was presenting the United States with a BOHICA ultimatum. Boggles the mind, doesn’t it? 🙂 There will be a large minority in Swiss Parliament which will object to approving the UBS settlement on national sovereignty and national pride, and who will be willing to vote “GDIAF.” They will vote this way because it is domestically politically expedient to them, and they don’t care about IRS careers, Department of Justice press releases, or the November, 2010 elections.
  • I am not clear on this (as a matter of Swiss legislative process) but I wonder whether the Swiss Parliament — even though it theoretically could have the power to approve the settlement — might nevertheless have the ability to dodge a vote and pass the question through to the voters for a referendum anyway. This happens in California, for instance. Our spineless politicians in Sacramento have the ability to put a proposition on the ballot for statewide vote because they are not willing to stick their necks out and make a possibly career-ending vote.

What’s next?

This is moving along a predicted path. It will be interesting to see what happens in Switzerland next month.

I think there’s a decent chance that the approval may founder somewhere along the path. The easiest way to torpedo this and let it die a quiet death would be for the Swiss members of Parliament to vote in such a way that makes them look compliant to the U.S. bureaucrats and diplomats, but then let the Swiss courts or the Swiss voters do the dirty work. In that way the diplomatic tea parties can continue to be ever so polite. Plausible deniability, I think they call it. 🙂

Voluntary Disclosure