Political task force to defend banking secrecy

Reuters

Swiss Finance Minister Hans-Rudolf Merz has launched a special task force to try to defend banking secrecy in the face of mounting international pressure.

Merz will enlist the help of bankers, diplomats, economists and legal experts to help ward off attacks. Last week, Switzerland controversially handed over confidential client data to a United States tax evasion probe.

Banking secrecy is a fundamental pillar of the Swiss financial centre and has helped it corner nearly a third of the world’s private banking business. But it also stands accused of helping wealthy foreigners dodge taxes in their own countries.

On Wednesday UBS, Switzerland’s largest bank, paid $780 million (SFr915.8 million) in fines and agreed to hand over details of 250-300 customers to avert criminal proceedings relating to a tax evasion investigation.

Merz was heavily criticised for his part in the climb-down that sidestepped legal proceedings in Switzerland.

Merz has now responded to a cascade of recent international pressure. The US has demanded details of another 52,000 UBS clients, the European Union has waded into the debate and European leaders have vowed to launch a global crusade against tax havens at April’s G20 summit in London.

“Pressure has been building up on an international level about the tax system. We need legal experts, those who know the situation in the US and in Switzerland. Also bankers, economists and people with diplomatic expertise,” Merz said on Wednesday.

“We have to take decisions on strategic issues in the next few days.”

Tax evasion a crime?

When asked if Switzerland would recognise tax evasion as a criminal offence – at present it is considered a civil offence – Merz hinted that the preferred route would be to update existing tax treaties with various countries.

Justice Minister Eveline Widmer-Schlumpf will raise the issue of banking secrecy during a trip to the US next week. Foreign Minister Micheline Calmy-Rey has also been drafted in to help with the task force.

Merz will travel to London next month to speak to international finance ministers before the G20 summit begins. Switzerland’s requests to attend the April summit have been rejected.

The Swiss Bankers Association (SBA) said the political initiative was a welcome move.

“We welcome the formation of this committee as a sign of leadership and also as a solid demonstration of the government’s commitment to the Swiss financial centre,” SBA spokesman James Nason told swissinfo.

“False morality”

But other bankers have demonstrated a marked reluctance to engage in diplomacy with countries that are attacking Switzerland’s banking secrecy. Konrad Hummler, president of the Swiss Private Bankers Association accused some countries of hypocrisy.

In a statement released earlier this week, Hummler highlighted offshore tax havens under British control and entities in the US states of Delaware and Florida that specialise in setting up opaque “shell” companies to help the wealthy avoid large tax bills.

Hummler also questioned the involvement of Silvio Berlusconi in the European initiative against tax havens, pointing out that the Italian prime minister’s tax affairs have previously been called into question.

“Swiss politicians must therefore hold up a mirror to the US and the EU to counteract this false morality,” Hummler stated.

swissinfo, Matthew Allen in Zurich

Bankers sweating

Swiss private bankers are reported to be worried that the global pressure on secrecy could frighten clients off.

The Tribune de Geneve newspaper cited unnamed sources that feared nine out of 10 customers would move their money elsewhere if banking secrecy was lifted.

Ivan Pictet, president of the Geneva Financial Centre, told Le Temps newspaper that the sector’s contribution to Swiss GDP would shrink from 12% to 6-7% if that were to happen.

Wealthy clients at UBS have been withdrawing vast amounts of money in the wake of the US tax evasion probe. Net outflows in the bank’s wealth management and private banking businesses totalled more than SFr58 billion ($50 billion) in the last three months of 2008.

Evasion or fraud?

People wishing to dodge paying taxes on their assets can do so by three means: avoidance, evasion and fraud.

Avoidance is the legitimate means of structuring finances so they don’t fall under the scope of taxable assets. This can be done, for example, by setting up a trust fund or by changing country residence or nationality.

Evasion is the deliberate concealing the true state of assets from the tax authorities – in other words, lying about the extent of your assets. This is a civil offence in Switzerland and some other countries, such as Austria and Liechtenstein, but criminal in most states.

The main distinction between evasion and fraud is that the perpetrator tells lies on official documentation. Unless tax fraud can be proved, Swiss banks are not obliged to hand over details of client assets to investigators. In some cases this information is needed before fraud can be established in the first place.