Swiss lawmakers rejected Wednesday a deal proposed by Washington to halt ruinous US legal action provided that Swiss banks that helped stash cash expose American tax dodgers and pay hefty fines.
The country's lower house shot down the controversial Lex USA accord, which would have temporarily lifted Switzerland's long-sacrosanct banking secrecy and allow banks to settle with US authorities and draw a line under past wrongdoing.
A total of 123 members voted against the deal, which Washington insisted was non-negotiable and had to be force by July 1, with no details to be revealed beforehand. Sixty-three were in favor, and four abstained.
It was not clear immediately how Washington would react, while Swiss Finance Minister Eveline Widmer-Schlumpf, who backed the accord, said the government was exploring all options to find a solution.
Opponents from across the spectrum lined up to blast the deal.
We must not cave in to pressure from other countries, said Christoph Blocher, a leader of the right-wing Swiss People's Party, the country's largest political force and staunchest defender of banking secrecy.
We must avoid creating a precedent, because other countries would want to follow the US lead. It would be the end of Switzerland. He told the chamber it was up to banks to find a solution.
Susanne Leutenegger Oberholzer, of the centre-left Socialists, described the accord as a blank check.
The banks know exactly why we're in this situation and who's to blame. They violated another country's law and should face the consequences, she added.
The vote came a day after G8 leaders agreed to chase tax cheats and crack down on corporate schemes to reduce tax bills, and just hours after Switzerland's upper house approved the deal. Under Swiss law, the lower house had the final word.
Parliament is this week also scheduled to examine a deal signed earlier this year to simplify Swiss implementation of the US Foreign Account Tax Compliance Act (FATCA), which requires the world's banks to report Americans' holdings.
The United States plans to enact FATCA in from January 1, 2014.
Swiss banks are believed to hold billions of dollars belonging to American citizens who have not declared these assets to US tax authorities. Currently, US investigators have to make formal requests for legal assistance concerning specific tax-dodgers, a procedure Washington sees as cumbersome.
The Swiss government had approved Washington's take-it-or-leave-it settlement at the end of May. Parliamentary backing was needed for a one-year waiver of secrecy rules for American clients. Otherwise, the banks risk breaking Swiss law if they hand over the names of clients and employees that handled their assets.
Widmer-Schlumpf said the deal would have allowed each financial institution to deal with the past in the way that is most appropriate for it.
The Swiss Bankers Association said it regretted Wednesday's vote, dubbing the deal the best way to create a climate of legal security and to draw a line under the past.
It urged the government to move fast to resolve the issue, saying the void left the banking sector and the Swiss economy facing unpredictable consequences.
Washington has raised the specter of charges of abetting tax evasion that could end in financial penalties far outweighing the preemptive fines foreseen in the Lex USA deal, as well as barring Swiss banks from the large and profitable American market.
The battle began in 2009 after Swiss banking giant UBS was fined in the United States for complicity in tax evasion -- an issue in sharp focus amid the financial crisis. Fourteen other Swiss banks ended up in US sights for grabbing former UBS clients.
Switzerland has sought to defend banking secrecy by giving ground in some areas and insists that all the globe's offshore havens must fall into line to ensure fair competition.