Switzerland and the United States have signed a controversial deal aimed at cracking down on wealthy American tax dodgers.

The accord further undermines Switzerland’s tradition of banking secrecy. The Foreign Account Tax Compliance Act (Fatca) obliges foreign firms to report offshore accounts by US tax payers that amount to more than $50,000.

The signing on Thursday came the day after Finance Minister Eveline Widmer-Schlumpf told a news conference that Switzerland had decided to agree to a bilateral deal with the Internal Revenue Service (IRS) which allows for certain exceptions, notably for the Swiss insurance sector, pension funds and the Swiss National Bank.

Switzerland is only the second state after Japan to opt for this type of agreement; most other nations are reportedly willing to sign a standard agreement.

Swiss banks active in international financial markets have no choice but to apply the US rules, according to Widmer-Schlumpf.

The Swiss Bankers Association said it welcomed the signing of the agreement although the banks continue to view Fatca "critically" due to the costs it incurs and the administrative burden it creates.

Widmer-Schlumpf said negotiations with Washington on a global settlement for outstanding tax issues were still under way but she refused to elaborate.

The finance minister added the US authorities had given assurances that acceptance of the Fatca deal would be considered beneficial to speed up a global deal for Switzerland’s financial sector.

The government has been trying to strike a deal for about a dozen Swiss banks which risk court proceedings in the US over illegal tax practices.

“Today’s announcement marks a significant step forward in our efforts to work collaboratively to combat offshore tax evasion,” said Acting Secretary of the Treasury Neal S. Wolin. “We are pleased that Switzerland has signed a bilateral agreement with us, and we look forward to quickly concluding agreements based on this model with other jurisdictions.”

Widmer-Schlumpf said the Fatca deal could also put more pressure on Switzerland to accept the automatic exchange of bank data with the European Union.

Until now Switzerland has refused to cave in to demands from Brussels, saying bilateral agreements with individual EU member states on a withholding tax were more practical.

Accords with Britain and Austria came into force at the beginning of the year. A similar deal with Berlin was rejected by the German parliament. Negotiations with a number of other countries are pending.