Foreign banks aim to save banking secrecy

Switzerland's image as a fiscal paradise has been shaken in recent months Keystone

The Association of Foreign Banks in Switzerland has come up with an ambitious plan to save the Swiss tradition of banking secrecy.

But as banking secrecy has already been shaken by double tax accords and the UBS deal, experts say the move may be too late.

Switzerland is currently signing double taxation agreements on easing the flow of tax information between it and third parties – the latest being on Tuesday with Luxembourg. The aim is to be removed from the “grey list” of tax havens drawn up by the Organisation of Economic Co-operation and Development (OECD).

But the Association of Foreign Banks in Switzerland, made up of more than 140 Swiss banks with majority shareholders domiciled abroad and Swiss branches of foreign banks, says it has no intention of seeing banking secrecy eroded any further.

The body has devised a plan called Rubik, after the famous conundrum cube in which the colours have to be matched up on each side.

Bringing back order

This project is aimed at “bringing back order into a sector marked by great confusion”, according to its supporters and will soon be presented to the political parties.

The centre-right Radical Party has already been informed of the idea and has approved its strategy, the association’s Martin Maurer told swissinfo.ch.

“We don’t want to maintain neutrality in fiscal matters. We want to apply foreign laws to assets managed by banks in Switzerland by paying the tax required, but we want to respect the private sphere,” Maurer said.

“We won’t therefore deliver the names of account holders, but will pay back what rightly belongs to states with whom the double taxation agreement has been signed.”

This essentially means that, under the association’s proposal, income would be separated from wealth. Account holders who have assets managed in Switzerland but who are domiciled in other countries would pay income tax deducted at source to these countries.

Keeping anonymity would also help protect foreign bank employees from legal action and encourage foreigners to keep their assets under management in Switzerland, the association believes.

“Rear-guard action”

But not all experts are convinced by the plan. Henry Peter, a lawyer in Italian-speaking Lugano and a professor at Geneva University, says it is “praiseworthy but not that simple”.

“It’s a rear-guard action,” he added.

“The approach consists of making our neighbours, and the United States, accept a solution based on deducting taxes at source – which will make Switzerland into a kind of taxman for other countries. It’s a solution that is not likely to satisfy them nowadays,” Peter warned.

The expert in international financial law said that the Rubik project’s strategy came late because it was “undoubtedly drawn up at the time when Switzerland had not yet started grappling with the claims from certain countries, as is the case in the present international context”.

Well-placed

For his part, Maurer believes that his federation is better placed than the Swiss Bankers Association to lead the fight and could even be more aggressive in this area.

“The financial establishments in our association are younger and perhaps less weighed down by tradition than the large Swiss establishments. We nevertheless have a lot of experience on the international tax level,” Maurer said.

There have also been other moves to save Swiss banking secrecy, including a people’s initiative launched jointly between the Italian-speaking rightwing Lega dei Ticinesi party and the rightwing Swiss People’s Party. This wants to see banking secrecy anchored in the Swiss constitution.

But it could already be too late. Switzerland has also agreed to pass on around 4,500 details of United States bank accounts to the US tax authorities to end a tax dispute between the US and Swiss bank UBS.

This has seemingly opened the floodgates for Switzerland’s neighbours. Italy has already declared a tax amnesty, while Germany is threatening certain Swiss asset managers with legal action.

“One can’t really imagine that countries will accept that the assets of those they consider to be tax evaders remain managed in Switzerland under the condition of anonymity,” Peter said.

“Added to this are the economic problems that are hitting most countries. They need these assets to be repatriated to boost to their economies.”

Nicole della Pietra, swissinfo.ch (adapted from French by Isobel Leybold-Johnson)

UBS and the US

On May 14, 2008, former UBS employee Bradley Birkenfeld and a Liechtenstein businessman were charged by the US authorities with helping an American billionaire avoid paying taxes on $200 million of assets deposited in Swiss and Liechtenstein bank accounts.

Birkenfeld turned whistleblower, giving details of UBS private banking practices to US prosecutors.

In July, a Miami court authorised the Internal Revenue Service to issue a summons on UBS demanding the release of confidential information on clients the agency suspected of tax evasion. In the same month, UBS told a congressional hearing that it would stop offshore banking activities for US clients.

UBS agreed in February to pay $780 million and name some United States clients to resolve criminal fraud charges against it.

However, this did not affect a separate demand from the IRS for the details of 52,000 UBS clients, in direct contravention of Swiss banking secrecy laws. Switzerland has now agreed to process a request by the US for details of 4,450 American accounts of the UBS. Under the accord, UBS does not face a fine or suffer other punitive damages.

Rubik project

Anonymity: The project wants to separate income from wealth and hand over tax at source to third countries, while keeping the Swiss bank account holder’s anonymity.

Protection: According to the Association of Foreign Banks in Switzerland, this strategy will also afford more protection to foreign bank employees in Switzerland from legal action by third countries.

Preservation: The project organisers believe that guaranteeing anonymity will also encourage foreigners holding accounts with assets under management in Swiss banks to keep their assets in Switzerland instead of taking their money back to their home countries.