More than half of Switzerland’s cantonal banks have chosen to take part in a US disclosure programme to identify undeclared US assets. Larger state-backed cantonal banks are applying for Category Two status – the “more prudent” approach, some find.
Under the terms of the Swiss-US tax deal signed in August, the 300-plus banks in Switzerland will be arranged into four categories by the Department of Justice (DoJ).
Category Two banks acknowledge that they may have some US assets on their books and may be liable for fines even if they only have a single US tax evader as a customer.
Pascal Niquille, chief executive officer of Zug Cantonal Bank, explains why his institution has opted for this category.
swissinfo.ch: Banks which are classified in Category Three, like Bank Vontobel, are giving themselves a clean bill of health. Is classification in Category Two, on the other hand, the same as a guilty plea?
Pascal Niquille: This opposite conclusion is invalid and superficial. The range of banks classified in Category Two is very broad in terms of the business model.
At one end there are banks, such as the Zug Cantonal Bank, which never really pushed this business and were never active in the American market. If you happen to be in a very international place like Zug where there are people from 127 countries, it is normal that there will also be people from the US. At the other end of the spectrum, there are banks that have actively pursued business with customers in the US and still are.
US tax deal
Under the terms of the Swiss-US tax deal signed in August, the 300-plus banks in Switzerland will be arranged into four categories by the DoJ.
Group 1: The 14 banks already under active investigation for suspected tax evasion offences. These include UBS, Credit Suisse, Julius Baer, Pictet and the Zurich and Basel cantonal banks.
Some Swiss subsidiaries of foreign banks are also included in this list, such HSBC and Israeli bank Leumi. Switzerland’s oldest private bank, Rahn & Bodmer, was the last institution to be added to the Category One list in September.
Group 2: Those banks that know or suspect that they have committed tax evasion offences in the US. By coming clean before the end of the year, these banks would avoid criminal prosecution but would be subject to big fines.
Group 3: Banks that have US customers but believe that they, and their clients, have complied fully with US tax regulations.
Group 4: Banks with very limited exposure to foreign clients – no more than 2% of total client base is non-local.
swissinfo.ch: What considerations were key to your decision?
P.N.: The criteria for the classification into these categories are so narrow that even a bank with a single case in which a US customer has not fulfilled his tax liability should not be classified in Category Three or Four. It is consistent with our risk behaviour to err on the side of caution.
swissinfo.ch : In your communiqué, you write that Zug Cantonal Bank cannot rule out it may have been sporadically involved in customers’ tax offences. With this passive formulation are you implying that the bank may have been drawn into a customer’s offence but certainly hasn’t actively contributed to it?
P.N.: This is about customers who have ties to the US, who are taxable in the US and may not have properly fulfilled their tax obligations. Just maintaining a relationship with such customers could already amount to “support for non-compliance of legal requirements” as far as the US is concerned.
swissinfo.ch: You also write that the Zug Cantonal Bank is complying with the request made to all Swiss banks by the Financial Market Supervisory Authority (FINMA). Some cantonal banks were upset about this demand, which was published in selected media. Are you one of them?
P.N.: FINMA’s demand only further clarified what emerged from the programme. We are not one of the banks that were annoyed at FINMA’s request but I was surprised by the communication channel that director Patrick Raaflaub chose. FINMA can communicate directly with the banks under its supervision and does not have to do this through the media.
swissinfo.ch: How big a share of all customers are US customers at Zug Cantonal Bank?
P.N.: A fraction of a per cent. It’s about so-called US persons. This includes not only customers who live in the US, but also, for example, dual nationals who were born in canton Zug and have always lived here. Until now, they were not obliged to inform us of their US passport, but are taxable in the US and may not have complied with this obligation.
swissinfo.ch: Was the decision controversial within the Zug Cantonal Bank?
P.N.: The analysis of the programme and our previous investigations have taken a lot of time. It was a difficult but ultimately objective decision made by the whole of the bank’s management.
swissinfo.ch: What happens now?
P.N.: The programme basically gives us until the end of June 2014 to get more clarity about the customer base, to compile the extensive documentation that the US Department of Justice requires, to translate everything into English and then be ready for further steps.
swissinfo.ch: Do you need external support for this programme or can you handle it yourself?
P.N.: For these tasks, for example for the provision and analysis of appropriate data, one has to rely on specialists. We have been working since October 2013 with external lawyers [law firm Homburger AG] and auditors [KPMG] as well as with a US law firm. We have also mandated an external so-called independent examiner.
swissinfo.ch: How much money have you set aside for the entire programme?
P.N.: The provisions will come out of running costs.
swissinfo.ch: You have not made provisions for it?
P.N.: It is still too early. We are – as I said – still in the stage of inquiries and investigations.
swissinfo.ch: What does the decision mean for your US customers?
P.N.: It’s all about customer relationships since August 2008. Many of those affected are no longer customers of Zug Cantonal Bank.
swissinfo.ch: And you now have to notify the DOJ as to where these clients have moved?
P.N.: Yes, the so-called “leaver lists” are part of the information that we have to provide to the DoJ. In this case, however, no customer names will be given, just transaction details.
swissinfo.ch: And do you think that consequences from the past will be settled with this programme, or do you still reckon with civil liability?
P.N.: This question is premature. We cannot even say whether we have consequences from the past and if so, what would this mean.
swissinfo.ch: What are the risks for employees? Can you and your staff travel abroad without concern, even to the US?
swissinfo.ch: Under this programme, we are cooperating with the Swiss and US authorities. So there is no reason for us to have any travel restrictions.
By Peter Siegenthaler, swissinfo.ch
(Translated by Vincent Landon)