(Bloomberg News) Senator Rand Paul is blocking an amendment to a U.S.-Swiss tax treaty, slowing Switzerland's handover of data on thousands of Americans with bank accounts hidden from the U.S. Internal Revenue Service.
The protocol, negotiated in September 2009, would amend a 1996 treaty and make it more difficult for Switzerland to refuse requests from the IRS for tax information about U.S. customers of Swiss banks. The U.S. is cracking down on secret accounts held by its citizens at UBS AG, Credit Suisse AG, Wegelin & Co. and other financial institutions.
Paul, a Kentucky Republican, said the protocol is too "sweeping" and would threaten protections under the Fourth Amendment to the U.S. Constitution, which guards against unreasonable search and seizure. Paul said he is exercising his privilege to delay a Senate vote.
"We're concerned about the due process of whether or not people have any kind of process before their records are looked at, the privacy of your banking records," Paul said in an interview last week. "There needs to be some constitutional protections to your banking records."
President Barack Obama sent the protocol to the Senate in January 2011, and the Foreign Relations Committee approved it July 26. Paul, a critic of the IRS who won his seat in 2010 with the backing of the Tea Party movement, could require Democrats who control the Senate to spend a week of floor time before voting to ratify the protocol, which requires assent by two- thirds of the senators. He said his office discussed changes with the Swiss ambassador.
No Easy Out
"The hard part about finding a compromise is it's a treaty and I don't know that they're willing to rewrite the treaty for me," Paul said. "But I don't know any easy way out of the situation."
Under the current treaty, the Swiss can grant a U.S. request seeking data on a taxpayer suspected of "tax fraud and the like," which involves acts such as using false documents or third parties to disguise account ownership. The Swiss won't hand over data if taxpayers are suspected of evasion, a view upheld April 5 by the Swiss Federal Administrative Court.
The new U.S.-Swiss protocol includes language that would prevent Swiss officials from denying an information request on the grounds that it would violate domestic bank-secrecy laws. The protocol would allow the U.S. to request account data without specifying taxpayers by name.
Swiss Ratification
While Switzerland's lawmakers approved amending the treaty, the country's federal government won't ratify the protocol until both countries agree on a solution that ends negotiations on the investigation of Swiss banks, Finance Minister Eveline Widmer- Schlumpf said before a vote in the Swiss parliament on March 5.