French showdown looms over stolen bank data

Strange goings on at HSBC private bank Keystone

A dispute between Switzerland and France over stolen bank data and tax evasion is threatening to undermine diplomatic relations between the two countries.

The Geneva-based HSBC private bank case has so many sub plots and has thrown up so much conflicting information that it could read as spy novel. Both sides accuse the other of encouraging criminal behaviour.

At the centre of the affair lies the ongoing dispute between Switzerland and other countries over banking secrecy and the role of Swiss banks in hiding the assets of foreign tax evaders.

Several weeks ago it emerged that a former employee of the HSBC operation had stolen confidential client information and had given it to the French authorities.

Hervé Falciani is currently hiding in France from a Swiss arrest warrant as lawyers and politicians squabble over the validity of using illegally obtained information to suppress the crime of tax evasion in other countries.

The incident bears the hallmark of a similar case last year when the German authorities bought data stolen from a Liechtenstein bank. In that instance, Germany appeared to gain the upper hand, but Switzerland is now fighting hard to protect its interests.

Mysteries unsolved

The first signals of the current dispute emerged in the summer when French Budget Minister Eric Woerth announced France had obtained details from Swiss banks of some 3,000 suspected tax evaders. At the time, the statement was vague and mentioned no names or institutions.

At the beginning of December it emerged that some of this information had derived from data stolen from HSBC Geneva, although the French denied paying for the information. Falciani broke his silence to tell the media that he was motivated by conscience rather than money.

A string of conflicting pieces of information then emerged with many of the discrepancies still yet to be properly explained.

The exotically named Eric de Montgolfier, state prosecutor of Nice (the French town to which Falciani fled), popped up to say he had received information on 130,000 HSBC clients spread around the world.

However, HSBC Geneva insisted the theft only affected around 100 clients and stated it did not have anywhere near as many as 130,000 foreign accounts on its books.

The strangest rumour to emerge was that the Swiss Federal Prosecutor’s Office had handed over information needed to decode the data to France. But this story was flatly denied by the Swiss authorities.

Backpedalling fast

Last weekend some Swiss newspapers ran stories implying that Falciani had tried to sell some of his stolen information in Lebanon. It has also emerged that Falciani was held by the Swiss authorities before they let him slip through their fingers.

As the plot thickened, France said on Monday that it would return the stolen data to Switzerland only to add a day later that it had made copies that could still be used to track down tax evaders.

Switzerland had already suffered a number of reversals in the international crusade against tax evasion this year. It was forced to renegotiate several double taxation treaties with other countries to get itself off the Organisation for Economic Co-operation and Development (OECD) “grey list” of uncooperative tax havens.

More damagingly, Switzerland was compelled to hand over details of thousands of UBS clients to the United States to ward off the threat of the bank losing its license to trade there.

Line in the sand

But the Swiss are keen to show that enough is enough and recently refused to agree to the automatic exchange of information with foreign tax investigators. Switzerland has also suspended ratification of the new double taxation agreement with France in protest at its neighbour’s behaviour.

Hans Geiger, emeritus professor of finance at Zurich University’s Swiss Institute of banking and Finance, said the recent French actions smacked of hypocrisy.

“It is unacceptable that France is using criminal activities in Switzerland to investigate crimes in their own country,” he told swissinfo.ch. “The Germany-Liechtenstein case was dirty and this looks like turning dirty too.”

“It seems that big countries do not always care what smaller countries think.”

But with Swiss Finance Minister Hans Rudolf Merz – who also holds Switzerland’s rotating presidency in 2009 – appearing to draw a line in the sand, showdowns with powerful neighbours such as France may be on the cards next year.

Matthew Allen, swissinfo.ch

Taxing times

Switzerland has been under continuous attack this year for helping foreign tax evaders hide their assets. The global crusade coincided with the devastation of the financial crisis leaving large holes in the budgets of many countries.

The OECD placed Switzerland on a grey list of uncooperative tax havens in April. The Swiss were removed in September after renegotiating several double taxation treaties, but they have refused to automatically transfer information to tax investigators without proof of crimes.

Former German Finance Minister Peer Steinbrück referred this summer to the Swiss resembling Indians running away from the cavalry. Italian Finance Minister Giulio Tremonti said this year that he wanted to “bleed dry” the financial sector in the southern Swiss canton of Ticino.

Several countries, including Italy, France, Britain and the United States launched tax amnesties this year in an effort to repatriate assets from tax cheats. These are forecast to damage the Swiss offshore banking industry.

Switzerland was particularly annoyed at the aggressive Italian amnesty that saw surveillance and tailing of cross border suspects going into Switzerland. Merz suspended ratification of the new double taxation treaty as a protest.

The most damaging tax evasion case involved the activities of UBS bank in the US. In February, UBS was fined $780 million after admitting helping US citizens to dodge taxes.

In September, the Swiss government was forced to hand over the details of 4,450 UBS clients to the US – in effect violating Swiss banking secrecy to prevent a ruinous court case for UBS.

Canada and India have also issued warnings that they will not tolerate Swiss banks sheltering tax evaders’ assets.