Oct. 6 (Bloomberg) -- Vladimir Lenin, Charlie Chaplin and Marc Rich found refuge in Switzerland. So did Roman Polanski, or so he thought up until he was arrested in Zurich on charges of having sex with a minor.

Switzerland’s reputation as a haven will never be the same. That is a good thing if political refugees such as Chaplin, who fled McCarthyism in the 1950s, still get due consideration. (Maybe Lenin should have been sent back to Russia.)

There used to be a certain security associated with Switzerland. Polanski was just one of many who evidently felt safe there: He was even paying taxes on the $1.5 million mountain chalet he bought in Gstaad in 2006, one year after a new international arrest warrant had been put out for him.

Similarly, until last year, thousands of U.S. citizens and UBS AG clients were reassured that the Internal Revenue Service would never get a peek at their Swiss bank accounts.

Those days are over. Switzerland can no longer hide behind its cherished neutrality or its attachment to financial privacy, two concepts now under attack by the outside world.

It was the international financial crisis that put the squeeze on tax havens: Switzerland, which accounts for 27 percent of the world’s privately held off-shore wealth, was clearly the most vulnerable.

The Alpine nation’s political purity has also been damaged in recent months after its president said the country was “willing to apologize” to Libya for the “inappropriate” arrest last year of Muammar Qaddafi’s son, Hannibal, on charges of beating up servants in a Geneva hotel.

Ducking Taxes

The Swiss did the right thing in arresting Polanski. Once he appeared in the country to attend the Zurich Film Festival, they would have been hard-pressed to look the other way. The extradition treaty with the U.S. doesn’t allow any loopholes for statutory rape.

Switzerland has had loopholes, historically, for tax evasion. As rich people around the world know, ducking foreign taxes isn’t a crime there, but rather an administrative offense. Ask Marc Rich, the commodities trader who fled to Switzerland in the 1980s to escape U.S. charges and has lived there ever since.

The U.S. was the first to set the ball rolling with its landmark case against UBS. Since then, country after country has reached a double-taxation agreement with Switzerland, which allow foreign authorities to pursue cases of tax evasion on Swiss soil. Cracking down on tax havens was one of the first orders of business at last April’s meeting of the world’s leading 20 economic powers.

Facing Prison

So the gig is up for those who sought shelter in Switzerland’s banking secrecy laws. Take the example of Juergen Homann, a 66-year-old New Jersey man. On Sept. 25, he became the fourth UBS client to plead guilty to U.S. tax evasion, and could face as long as five years in prison, all because he failed to file tax returns on a $6.1 million Swiss bank account.

This month, more Swiss banking clients will have to come in from the cold: under the settlement reached with the U.S. Justice Department, UBS has pledged to reveal some 4,450 names to the IRS. Those clients have until Oct. 15 to voluntarily disclose their offshore assets or start thinking about prison.

The U.S. isn’t fooling around. “Those who think they can ‘stay below the radar’ face a real risk of prosecution,” John DiCicco, acting assistant attorney general in the Justice Department’s tax division said in a statement.

This talk is having a snowball effect. Now Switzerland’s banks are telling Americans they can’t open accounts unless their businesses are registered with the Securities and Exchange Commission.

When the gnomes in Zurich won’t open accounts for American clients, you know that Switzerland is no longer the haven it once was. Too bad it didn’t happen earlier. Maybe Marc Rich would have faced extradition, just like Polanski.

(Celestine Bohlen is a Bloomberg News columnist. The opinions expressed are her own.)

To contact the writer of this column: Celestine Bohlen in Paris at cbohlen1@bloomberg.net

Last Updated: October 5, 2009 19:00 EDT