Switzerland's efforts to calm a banking furor hit a major setback Tuesday as nationalist and left-wing lawmakers blocked a treaty with the United States that would have allowed UBS to hand over thousands more files on its American clients to U.S. tax authorities.
The Swiss government and Washington had painstakingly crafted the treaty last August to resolve a long-standing dispute over the bank's alleged role in aiding tax evasion but 104 lawmakers in Switzerland's lower house voted against the deal Tuesday, compared to 76 in favor. Sixteen lawmakers abstained.
The government had urged lawmakers to approve the deal to avert harm to the Swiss economy, which is heavily dependent on the country's banking industry.
The deal is crucial to UBS — the country's largest bank — which has faced intense pressure from U.S. authorities since 2007.
Last year the bank agreed to turn over hundreds of client files and pay a $780 million penalty in return for a deferred prosecution agreement. But Washington has signaled that unless UBS reveals a further 4,450 American names demanded in the U.S.-Swiss agreement, it may face a crippling civil investigation just as the bank is recovering from the subprime crisis and seeking to rebuild its U.S. business.
The deal was blocked Tuesday by lawmakers from Switzerland's two biggest parties, the People's Party and the Social Democrats.
The Social Democrats had tied their consent to a binding government commitment to tax bankers' bonuses. The People's Party wanted parliament to vote against such a tax before dealing with the U.S. tax treaty. Both parties' demands were rejected by the government.
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. But lawmakers also voted to put any eventual compromise to a popular referendum, making a further delay likely.
Shares in UBS AG fell 2.1 percent after the vote to 14.41 Swiss francs ($12.41), as the bank now risks being drawn into costly civil litigation by U.S. authorities over the 4,450 suspected American tax cheats.
Switzerland has made many compromises in recent years to fend off demands by Germany, France, the United States and others for an end to its treasured banking secrecy rules, but the treaty that failed Tuesday would have gone far beyond those measures.
Last year, the government agreed to do away with the difference between tax evasion and tax fraud — a key legal distinction that has allowed foreigners with accounts in Switzerland to avoid having their details handed over to investigators back home.
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