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* Banks allowed to hand over data on staff, client behaviour
* Swiss government fears more U.S. charges, investigations
* Dozens of banks could reach settlements worth billions ofdollars
* Swiss abandoned attempt to reach deal for whole industry
* Government won't help banks pay fines
By Katharina Bart
ZURICH, May 29 (Reuters) - Switzerland aims to save itsbanks from heavier punishment in the United States for helpingwealthy tax cheats by sidestepping its own famed secrecy laws tolet bankers disclose data to U.S. prosecutors.
A government bill put to parliament on Wednesday would letSwiss banks hand over internal information to U.S. authoritiesin the hope of avoiding threatened criminal charges - though thebanks still face fines likely to total billions of dollars.
Bankers welcomed the prospect of an exit from years of legalwrangling that has already cost them dear and driven one bankout of business but were disappointed ministers failed to winmore clarity from Washington on what settlements they might nowexpect. Opposition in parliament could yet block the measure.
Five months after U.S. action over tax evasion led to theclosure of the country's oldest private bank, and with formalinvestigations under way into some of its biggest institutions,the Swiss government urgently wants a compromise to end threatsof criminal charges that have hurt a vital national industry.
It insists banks will still not be allowed to hand overclient names - protected by its treasured secrecy law of 1934.
But the new proposal, valid for a year only, would allowthem to hand over so much information on customers' behaviourthat U.S. officials should be able to identify Americans whohave used Swiss bank accounts to evade their taxes.
"If banks were not authorised to cooperate with the U.S.authorities, the initiation of further criminal investigationsor charges concerning banking institutions could not be ruledout," the Swiss finance department said in a statement.
Swiss analysts were divided: some called it a sensible wayout of a problem that meant banks, which are mostly now pullingout of the U.S. private client business, found themselves barredby Swiss law from cooperating with U.S. prosecutors; otherscondemned the blow to secrecy as "blackmail" by Washington.
The country's biggest bank UBS was forced in 2009to pay a fine of $780 million and deliver the names of more than4,000 clients to avoid indictment, giving the U.S. authoritiesinformation that allowed them to then pursue other Swiss banks.
Switzerland's tradition of bank secrecy has helped make itthe world's biggest offshore financial centre, with $2 trillionin assets. But that tradition has come under heavy fire sincethe financial crisis as cash-strapped governments around theworld have clamped down on tax evasion, with authorities probingSwiss banks in Germany and France as well as the United States.
Banks under formal U.S. investigation include Credit Suisse, Julius Baer, British bank HSBC's Swiss arm, privately held Pictet in Geneva and smaller playerssuch as LLB's Swiss arm and local government-backedZuercher Kantonalbank and Basler Kantonalbank.
A Credit Suisse spokesman welcomed the legal framework, butdeclined to comment on when it might reach a settlement withU.S. authorities.
UMBRELLA DEAL ABANDONED
Finance Minister Eveline Widmer-Schlumpf said the governmentwanted to rush the legislation through parliament in June forfear that U.S. authorities could bring criminal charges againstlarge banks and open new investigations into many more banks.
She said the U.S. Department of Justice would only startoffering individual settlements with banks once the Swissparliament had approved the legal framework.
The biggest party in parliament, the right-wing SwissPeople's Party (SVP), said it would reject the proposal, as didthe left-wing Social Democrats (SP). However, that does not meanthat the legislation will not ultimately pass in some form.
The government has been negotiating with U.S. authoritiesfor two years to try to resolve the tax dispute, but hasabandoned an attempt to reach an umbrella settlement deal forthe whole financial industry due to secrecy laws as well assquabbling among the country's banks as to who should pay what.
The Swiss Bankers Association said it welcomed a deal toclean up the historic problem in the United States but was"alienated" by the lack of detail offered by the Swissgovernment on what penalties they will face if they now handover information to negotiate settlements with U.S. prosecutors.
Reaction among banking experts were divided.
Peter V. Kunz, a professor at Berne University said the dealwas good for Switzerland and for its banks.
But others were much less positive: "In my opinion it's justpure blackmailing by the U.S. government," said Martin Janssen,professor of finance at Zurich University.
"You cannot even estimate what the costs will be," he said."The U.S. government will just try and find out what thewillingness is of the Swiss banks to pay."
Sources have said fines for the industry might amount to $10billion but minister Widmer-Schlumpf said the government had notdiscussed a total sum for fines and would not offer financialassistance for banks as they seek individual settlements.
The finance department said the bill proposed by the cabineton Wednesday would allow banks to hand over information aboutasset transfers, such as when accounts were closed and wheremoney was transferred, as well as details of third parties whohad business relationships with U.S. clients, such as taxlawyers.
Widmer-Schlumpf said that for the United States to get atmore client names, the U.S. Senate must now ratify a new, widerdouble-taxation agreement that Switzerland agreed in 2009 butwhich has languished in Washington.
Switzerland's oldest private bank, Wegelin & Co, said inJanuary it was closing down after pleading guilty to helpingAmericans evade taxes. It was fined nearly $58 million.
