Swiss banking halved if secrecy ends

25th February 2009, Comments 3 comments

A leading Swiss banker says the financial sector is threatened by pressure to end secrecy.

GENEVA - Switzerland's key financial services industry could be destroyed if its secrecy ends as part of reforms to manage the global economic crisis, a prominent Swiss private banker warned.

Without banking secrecy, "the financial centre would shrink by up to half of its current size," Ivan Pictet, a private banker who heads the Geneva Financial Centre bank association, told Le Temps daily on Tuesday.

"Rather than making up about 12 percent of gross domestic product, the financial sector would make up just about six or seven," he said when asked what would happen if Switzerland gives up its bank secrecy practices in response to calls for greater financial system openness.

Critics say that the system must be made more open and accountable so that financial risk can be more easily assessed and capital flows more easily monitored, two key failings contributing to the current crisis.

That put Switzerland under pressure because its banking system prides itself on offering complete secrecy for clients, which many critics claim means the country allows wealthy foreign clients to evade tax.

In Switzerland, tax evasion is not a crime but tax fraud, which involves the forgery of documents, is.

Swiss banking secrecy law prohibits banks in Switzerland from revealing any information to authorities or any third parties about their clients, except in cases involving recognised criminal investigations.

A Swiss bank would not therefore transmit details in cases of evasion but would do so only in instances of fraud.

Earlier in February, UBS provided data on 250 to 300 clients to the US government and paid a fine of USD 780 million (CHF 902 million) to settle a case of assisting tax fraud by US clients.

A day later, however, the US government filed a separate lawsuit to try to force UBS to disclose the identities of 52,000 US customers who allegedly evaded taxes.

Fears that the secrecy laws will be changed hurt Swiss banking stocks on Thursday, with UBS falling almost 17 percent.

UBS continued to fall to historic lows on Tuesday, trading down 4.70 percent to CHF 9.53 in afternoon trade.

Pictet said that Thursday's falls in share values did not represent the expected cost to the industry should banking secrecy be abandoned.

"If (banking secrecy) were to disappear, the client would no longer have any reason to travel 500 kilometres to see his wealth manager," he warned.

But international pressure is mounting, with European leaders preparing for the meeting of the Group of 20 nations in April calling Sunday for a list of "uncooperative jurisdictions" to be drawn up, with sanctions to be imposed.

Pictet said that was a "real threat" and called for Switzerland to "fight for equal treatment as all other financial centres such as Singapore."

He said abolishing banking secrecy could have a "huge" impact on Geneva.

"The 140 or so banks which are in Geneva would no longer have reason to stay, they are here to offer Swiss banking secrecy.

"The traditional Swiss knowledge on wealth management would be insufficient in itself to compensate for the loss of the protection of the private sphere."

Banking secrecy is meant to "protect the private sphere of the client and there is no prosperous financial centre that does not efficiently protect the confidentiality of its clients," he said.

Pictet also rejected the suggestion that Switzerland's financial centre thrives on tax evasion, saying it is "not the role of a banker to assure that his client is paying his taxes.

"That would require a police investigation before determining if the client could be accepted or not," he added.

AFP / Expatica

3 Comments To This Article

  • peter humphries posted:

    on 4th May 2009, 13:17:06 - Reply

  • jack loach posted:

    on 9th March 2009, 13:24:25 - Reply

    The Establishment “ Cover up crimes”.

    The ‘Doyens’ of the establishment.’ ( Ivan Pictet and Monty Raphael.)

    Ivan Pictet.
    Managing partner in Pictet
  • albrecht posted:

    on 26th February 2009, 03:56:08 - Reply

    I It is a shame that UBS, and some others in Switzerland, feel they need to bow to pressures of the USA- which thinks it runs the world- instead of adherence to the law in their own country. Switzerland should stand firm against the hegemonic influence of the USA, but also UK and EU, who want to eliminate privacy in all facets (banking, telephonic, internet, etc.) The USA, and its minions like UK and EU, seem to want a police state everywhere. Of course, it is ok for US banks to break the law or regulations--- they'll just get bailed out but when another countries' bank follows the rules in their own country they will reap the whirlwind of the US wrath. Instead the USA, and others, should reexamine their confiscatory and predatory tax policies that seem to force rational people and entities to wish to fee to friendlier jurisdictions.