Swiss assess damaged banking secrecy

Swiss assess damaged banking secrecy

31st August 2009, Comments 0 comments

A deal with the United States regarding UBS may have damaged banking secrecy, even if it remains protected by Swiss law.

Geneva -- For more than 60 years, the Swiss have nurtured banking secrecy to the extent that it has become as central to Switzerland's image as chocolate, watches, cowbells and Heidi.

But many bankers, lawyers and analysts in the country believe a deal struck with the United States to relieve pressure on the flagship bank, UBS, has damaged bank secrecy, even if it remains protected by Swiss law.

"The UBS disaster is a catastrophe for the Swiss financial centre... because everyone will rush for the breach," said Patrick Segal, director of Edmond de Rothschild Private Bank.

Unlike most major economies, banking secrecy grants account holders in Switzerland complete privacy, keeping their banking details protected from any authority, including the taxman.

It can only be lifted for legally-sanctioned investigations into criminal offences, and that, under local law, rules out the lesser offence of tax evasion.

Earlier in August, the Swiss and US governments revealed their "treaty" settlement to end a lawsuit against financially-troubled UBS over charges that its bankers used Swiss secrecy to help US taxpayers fraudulently evade taxes.
A man watches the stock exchange rates on screens at the Swiss banking branch UBS in Zurich

While Swiss President and Finance Minister Hans-Rudolf Merz described the deal as a "win-win situation" for both states, the details raised alarm in the industry.

It included an arrangement to disclose details of 4,450 UBS accounts through an established process to deal with tax fraud, which is regarded as a crime in Switzerland.

But the agreement was considered a "fishing expedition" that used to be disapproved of in Switzerland, setting a new precedent, experts warned.

"Nobody can see legally how... this treaty wouldn't apply to other banks," said lawyer Enrico Monfrini, who helped Nigeria recover hundreds of millions of dollars stored abroad by late dictator Sani Abacha.

Above all, it contained wording that blurred the distinction with tax evasion, where banking secrecy had been regarded as absolute in the past.          

Manuel Ammann, director of the University of St Gallen's Institute of Banking and Finance, said that compromise amounted to an "official" announcement of the relaxation of secrecy.

"In that respect banking secrecy has been weakened in Switzerland," he told AFP.

"That is new and due to the very strong pressure the Swiss government and the Swiss financial system has been put under by the G20 (group of leading economies) and by the OECD," he added.

Recently valued by a banker at half of the sector's 12 percent contribution to Switzerland's GDP, secrecy has caused more offensive thoughts abroad than those picturesque Swiss icons.

Local financial observers privately admit it has attracted foreign clients seeking to evade or avoid the taxman, those hoarding the proceeds of corruption, or dictators that stole their country's resources.

When Swiss authorities have faced foreign pressure, especially over the criminal element, they have ultimately narrowed the scope of secrecy or opened a door, notably to prosecute money laundering and seize misused assets.

New York: People enter and leave the building of Swiss Bank UBS in Midtown Manhattan on 19 August 2009 in New York City. UBS will release over 4,000 names of American account holders as part tax-evasion settlement and investigation by American authorities

"The private sphere has shrunk in the wash with each incident over the past 30 years," Segal said.

But secrecy thrives on its reputation or the perception foreign clients have of it, rather than an understanding of the changing laws.

"People did not understand before that they were not 100 percent protected," Monfrini remarked. "Now they think they are protected too little."

Ammann underlined that their reputation had been a huge asset.

"Swiss banks essentially just had to wait for customers to come. By losing that competitive advantage, Swiss banks will have to do much more to acquire assets and keep those assets," he explained.

The financial world is now focusing on dual taxation deals that will be signed over the coming weeks to meet international standards on exchanging tax information, especially those with the biggest opponents of secrecy: Britain, France, Germany and the United States.

"I think the future of Swiss banking secrecy will depend very much on the content of those treaties and the practice of delivering those treaties," said Ammann.

AFP / Peter Capella / Expatica

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