Four more years of Swiss-US banking tension?
Although Switzerland was given a black eye by the Obama camp during the United States presidential campaign for sheltering some of Mitt Romney’s fortune, a top Swiss official claims banking secrecy will not dominate Obama’s final term.
Yves Rossier, secretary of state at the Swiss foreign ministry, believes the tax dispute “is certainly not at the top of the president’s to-do list”.
Experts in the United States, however, warn that tax evasion in Switzerland will remain a “hot button issue” for Washington.
According to Rossier the interests as well as the legal framework with regard to the fiscal dossier are still diverging between Bern and Washington. The dispute should, however, be resolved within a “few months” based on the current state of affairs, Rossier added.
“It is in the interest of both parties to reach a compromise which will clarify the situation for both countries, for the banks and their American clients,” Rossier told swissinfo.ch. “I am convinced that the US share our interest to resolve the dispute as fast as possible.”
Rossier was speaking on his first official trip to the US since his appointment in January. He was leading the Swiss delegation to a joint working group between the two countries, held in Washington on November 15-16.
According to three US experts involved in the bilateral banking battle, the renewal of the political status quo in the US capital – with the re-election of Obama, a Democrat majority in the Senate and a Republican majority in the House of Representatives – means there won’t be any change in relations with Switzerland.
In other words, Switzerland and its banks will remain in American cross-hairs – as they have since 2006.
“The pressure from the United States will continue as it was. It’s hard to say it’s going to increase because it’s been pretty significant already!” said Heather Lowe, legal counsel and director of government affairs at Global Financial Integrity, a Washington-based NGO specialising in the flow of illicit funds.
Lawrence Horn, a former federal prosecutor and lawyer for Sills, Cummis & Gross, agrees that the intensity of this pressure will not diminish. Tax evasion is still the top priority for the IRS, the US agency responsible for tax collection, along with the theft of taxpayers’ ID numbers.
Horn, who represents US clients of UBS, says tax evasion and loopholes are also a “high priority” for US politicians. He adds that pressure on Switzerland could even tighten given the US budgetary crisis.
“Democrats and Republicans, the White House and Congress, all need to increase revenue. They don’t want to raise taxes, so they have to find it somewhere else,” he said.
Within this budgetary context and a still difficult economic and social environment in the United States, the revelation that until 2010 Mitt Romney had $3 million (SFr2.8 million) in a UBS account led to unrelenting attacks from Obama’s re-election team that the Republican challenger hid his money overseas to avoid paying tax.
“It’s a hot button issue, a populist issue [which is] high on the agenda,” Lowe said.
“Various interest groups, especially unions, have done private polling on this issue and it polls very high with the American public. Those polls show that the public is very upset with this.”
She added: “Unions have realised that this issue has a big impact on the people they represent, and the message out there is that keeping money offshore is un-American.”
Still, Rossier says that from what he gathered the US population was never particularly interested in the tax discussions between Switzerland and the US. Rossier said he remains convinced that the general image of Switzerland is still “excellent”.
Scott Michel, a professor of tax law at the University of Miami and president of the Washington-based Caplin & Drysdale law firm which represents American clients of Swiss banks, recently took part in forums next to Kathryn Keneally, assistant attorney general for the tax division of the Department of Justice.
Michel said Keneally “has repeatedly and very clearly expressed gratitude to the Swiss for their cooperation [and] has said that it’s not all about Switzerland”, pointing out that the Department of Justice is also carrying out investigations in Israel, Hong Kong, South Korea and possibly Singapore.
For all that, Michel says he expects the Department of Justice and the IRS to keep the pressure on “in order to get more disclosures from Swiss banks about account holders”.
“There may well be more indictments and more bad press for Switzerland,” he warned.
However, none of the experts questioned by swissinfo.ch expected any sudden movements stateside – “nothing moves slower than government wheels”, said Horn.
No long-term impact
But while the whole affair risks being dragged out for some time, Michel does not expect any deterioration in bilateral relations.
“I don’t think there will be a long-term impact on the image of Switzerland in the United States,” he said.
“Switzerland is an ally of the US from a very broad perspective. I mean, it’s a very friendly relationship at the core – the trade relationship is tremendous – so all of that, the indictments, the accord negotiations, that’s just about cleaning up the past.”
According to Lowe, “there’s a recognition in Switzerland that the course they’ve taken is not really sustainable in today’s economic situation, but I’m not sure there’s an understanding yet of how the banking secrecy has contributed to fraud”.
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