“Baffling” banking laws must change
Idiosyncrasies in Swiss banking secrecy laws must end if the global fight against tax fraud is to have a lasting effect, a tax haven expert tells swissinfo.
Raymond Baker, director of Global Financial Integrity, a Washington-based think tank, adds that Switzerland’s recent decision to adopt international standards for cooperating on tax abusers does not go far enough.
He says that it is time for Switzerland to act so that all transactions are completely transparent.
The Swiss government bowed to pressure last week and agreed to meet Organisation for Economic Co-operation and Development (OECD) standards for handing over bank data on a case-by-case basis.
swissinfo: What is your reaction to Switzerland’s announcement that banking secrecy will be eased?
Raymond Baker: This announcement is not a significant step because it does not change Swiss laws on banking secrecy. In fact, what the Swiss government said in essence is that if a foreign government knows what it is looking for, the Swiss authorities will cooperate. But the government has given itself lots of leeway for denying requests for information.
This flexibility that the Swiss authorities hold onto stresses the need for the OECD standards to be clarified. It is important that these standards are expanded, in particular to allow governments to request information from Switzerland and other tax havens, even if foreign governments only have reason to believe that funds are deposited there illegally.
A concerted effort is required by the international community to modify the OECD standards. Several countries already believe that these standards are not specific enough.
swissinfo: What more should Switzerland do?
R.B.: I want Switzerland to end the distinction between tax fraud and tax evasion. This baffling distinction is becoming increasingly untenable. It is obvious that most of the funds deposited in tax havens violate the law. I would like Switzerland to take the lead.
I reject the idea that the Swiss economy is reliant on banking secrecy and would collapse without it. It is time for Switzerland to stop its rearguard battle and act so that all transactions are completely transparent.
swissinfo: But Switzerland maintains it is not a tax haven…
R.B.: A tax haven is a place that gives tax benefits to entities that operate elsewhere. There are around 90 tax havens [worldwide] and Switzerland appears on each list that has been drawn up of tax havens. Of the 90 or so tax havens, there are around 20 that are also secret jurisdictions – Switzerland figures among them too.
swissinfo: What impact will Switzerland’s adoption of the OECD standards have on the UBS case in the United States?
R.B.: I do not know whether this measure will increase or cool the US authorities’ enthusiasm to obtain from UBS thousands of customer names that have been withheld to date.
The fact is, the US treasury department is completely preoccupied by the global crisis, the next G20 summit and Barack Obama’s economic rescue package. Other issues have been put on the back burner for the moment. However, the survival of Swiss banking secrecy will continue to generate pressure on the Swiss government.
swissinfo: Some lawyers of American clients of UBS believe the US justice authorities will have obtained all the names they want by the end of the year. Do you agree?
R.B.: There are many names to submit to US tax authorities and whether to disclose them is an important decision for Switzerland. But if all names are disclosed, that will be the end of bank secrecy.
For UBS, it raises questions about the standards of supervision at the bank – being at the heart of a scandal for the second time in five or six years.
Indeed, in 2003 UBS already had to pay the US government a fine of $100 million (SFr114 million) because at the start of the war in Iraq American soldiers discovered hundreds of millions of dollars in illicit money hidden in bags in the walls of Saddam Hussein’s various palaces, and which for the most part had been managed by UBS. The bank should have understood then that it is not a good idea to make blunders involving the dollar or the US taxpayer.
swissinfo: But UBS was not the only bank involved in Saddam Hussein’s hidden cash – the Bank of America was also involved. In fact, some US territories are considered tax havens, such as the Virgin Islands…
R.B.: Yes, but why should that be the standard by which the Swiss measure their conduct? It is because of this habit of governments making accusations against one another that reforms are delayed.
It is clear that the US has often taken the initiative. In 1977, 20 years before any European country, it prohibited companies from paying bribes to foreign officials, which put them at the forefront of the fight against corruption. After September 11, 2001, the Patriot Act strengthened the fight against money laundering. Today, it is necessary for Switzerland to find the political will to reduce its involvement in tax crimes.
swissinfo-interview: Marie-Christine Bonzom in Washington
Banking secrecy is far from being a simply Swiss phenomenon. The European Commission is also targeting Belgium, Luxembourg and Austria. The Organisation for Economic Cooperation and Development also considers that Andorra and Monaco are non-cooperative tax havens, whereas Liechtenstein has cooperated with the EU since last year.
Banking secrecy is limited in Britain and the US but the two countries do have territories where it is less restrictive. Singapore has drafted plans in the general direction of the OECD. But when it comes to Hong Kong, China is deaf to EU demands for more transparency.
Last week, Switzerland’s announced it would adopt OECD standards and ease banking secrecy.
Swiss authorities in February handed over bank details of 250 wealthy Americans suspected of tax fraud. The US set an ultimatum and threatened to indict the leading Swiss bank, UBS.
The Group of 20 major powers asked the OECD to draw up a list of countries who refuse to comply with international standards, including Switzerland.
Switzerland has protested against such a blacklist and won pledges by Britain to avoid a potentially damaging move.
Raymond Baker is the founder and director of Global Financial Integrity, a think tank based in Washington. He is also the author of several books on tax, money laundering and the impact of illicit flows of money on the poor in developing countries.
Born in Louisiana, Baker is a graduate of Harvard Business School and Georgia University’s Institute of Technology.
In January, he formed the task force on Financial Integrity and Economic Development, a coalition bringing together several NGOs, including Transparency International, and some 50 countries including France, Germany, Norway and Spain.
The coalition aims to “advocate for greater transparency and accountability of the financial system globally”.
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