Cabinet urges rejection of banking secrecy initiative

The initiative supporters, who lodged the proposal last autumn, want to ban the automatic exchange of client data within Switzerland’s borders Keystone

The Swiss cabinet has urged parliament to reject an initiative aimed at maintaining banking secrecy for domestic private bank clients. In recent years, Switzerland’s much-vaunted tradition of banking secrecy has been under constant pressure. 

On Wednesday the government dismissed calls to anchor the protection of domestic Swiss banking secrecy in the country’s constitution, as outlined in the initiative “yes to the protection of the private sphere”, which was successfully lodged last autumn. 

In its written message to parliament, which must now debate the issue ahead of a nationwide vote, the cabinet said the private sphere of taxpayers was already sufficiently protected and the initiative risked facilitating tax evasion. It said the initiative could have a negative impact on the fight against money laundering and terrorist financing. 

The group behind the initiative – members of the conservative right Swiss People’s Party, centre-right Radical Party and Christian Democratic Party – as well as the Association of Small and Medium-Sized Enterprises and the Homeowners’ Association – want to ban the automatic exchange of client data within Switzerland’s borders. 

They argue that instead of automatic transfer, the courts should be the ones to decide whether Swiss citizens’ bank information is sent to the tax authorities. In this sense, supporters seek to expand the power of the courts: currently, banks can only pass information to legal authorities in cases of proven tax fraud. The initiative seeks to allow reasonable suspicion of a tax crime to allow a client’s information to be sent to the courts. 

Currently, cantonal authorities are only allowed to see bank details of suspected tax evaders in severe cases and if a court or other authority has authorised them to do so. 

Interference

In its written reply, the government said that the initiative would “interfere significantly in tax and prosecution procedures and, as a result, would endanger the accurate levying of federal, cantonal and communal taxes”. It added that if a citizen refuses to cooperate the tax authorities should be able to continue to obtain information on the individual from third parties. 

In the past, critics have described the initiative as a “save-tax-dodgers” ploy aimed at protecting the billions of Swiss francs which are hidden from tax authorities by dishonest Swiss taxpayers. 

In Switzerland, taxpayers must disclose their income and wealth to the tax authorities. However, their privacy continues to be protected as the authorities can only use information for tax purposes, and under most circumstances, not share it with other parties. Banking secrecy is protected by a 1934 law – violating it is punishable by prison. 

Under domestic Swiss law, only tax fraud is a criminal offence, such as deliberately falsifying documents. Tax evasion, for example “forgetting information”, is a civil offence that can incur fines. 

But the subtle distinction between tax fraud and evasion was abolished for foreign clients of Swiss banks in 2009 following international pressure from the United States and the Organisation for Economic Cooperation and Development (OECD). 

Switzerland is committed to applying the automatic exchange of tax information to selected foreign states from the start of 2018.