Swiss Bankers Fight Against Risks Posed by White-Money Strategy
Swiss wealth managers are fighting against government proposals they say will scare off millionaire clients by forcing them to make declarations on the tax status of assets held in private bank accounts.
Switzerland plans to revise its so-called white-money strategy later this month after proposing in March that banks reject deposits from clients who don’t disclose the origin of their funds and attest they’re tax compliant. That policy should be dropped as it threatens jobs, said Yves Mirabaud, senior partner at Geneva-based wealth manager Mirabaud & Cie.
“What Switzerland is doing now could be extremely dangerous for the Swiss financial place,” said Mirabaud. “Being the only financial center to impose such a self-declaration on our clients will put us in a very difficult competitive situation.”
Switzerland is trying to shed its image as a tax haven as the U.S. probes whether the country’s biggest banks, including Credit Suisse Group AG (CSGN) and Julius Baer Group Ltd. (BAER), helped Americans evade taxes. Adopting tougher disclosure standards before other countries may push more clients to withdraw funds from the world’s biggest center for cross-border wealth.
Mario Tuor, a spokesman at Switzerland’s State Secretariat for International Financial Matters in Bern, declined to provide details of the strategy update or whether the proposal on self-declaration will be shelved.
Swiss banks have about three years until new international standards treat serious tax crimes as money laundering offenses. To avoid being complicit, the banks will be forced to ask clients to confirm whether their assets have been declared, said Philippe Kenel, a lawyer with Python & Peter in Lausanne.
“If they demand declarations now, they may scare off older clients and risk losing three years of making profits from them,” said Kenel.
Switzerland attracted $2.1 trillion to cross-border accounts during an era of undeclared money that started to crumble when the U.S. Department of Justice sued UBS AG (UBSN) for helping Americans dodge taxes three years ago. The Swiss government is still in talks with the U.S. to end a DoJ investigation of at least 11 other private banks.
Swiss wealth managers already scrutinize the origin of customer assets in line with international anti-money laundering requirements and inquiring about tax compliance will undermine client relationships, Gregoire Bordier, president of the Geneva Private Bankers Group, said on Oct 11.
“This is not a question you ask your client: hello sir, are you declared or undeclared?” said Bordier, who is also managing partner at Bordier & Cie.
Bordier said in an October report that requiring self-declarations would be a “petty diligence rule.”
“If a client is capable of hiding a number of elements from tax authorities, he would hardly hold back from lying to his banker,” Bordier said.
Swiss bankers are also concerned that some clients come from countries where tax authorities lack the capacity or willingness to ensure an accurate self-declaration.
“While banks shouldn’t abuse banking secrecy to help their clients avoid tax, that doesn’t mean they should become the agent of foreign fiscal authorities,” said Fabien Aepli, a lawyer with Eversheds in Geneva.
The 350 members of the Swiss Bankers Association, including UBS and Credit Suisse, can be fined as much as 10 million francs ($10.7 million) if they use misleading documents to assist clients in deceiving Swiss or foreign tax authorities, according to SBA’s due diligence code from 2008.
The SBA is developing a new code of conduct under which banks may terminate their relationship with a client who meets criteria that raise suspicions of tax evasion, an official at the Basel, Switzerland-based association said yesterday, while declining to provide further details. The self-declarations proposed by the Swiss government won’t become an international standard, the official said.
Switzerland’s Socialist Party has demanded that the white-money strategy include mandatory self-declarations in return for its support over international negotiations with the U.S. this year.
The Swiss government is reacting to domestic political pressures, Jacques de Saussure, senior partner at Pictet & Cie., Geneva’s biggest private bank, said on Nov. 27 in London. Clients often come to Switzerland for its political, financial and legal stability and because keeping their financial affairs confidential can help protect them, he said.
“They come for security against corrupt and authoritarian governments and administrations,” said de Saussure. “Therefore, whatever information is transmitted can risk their personal security and that of their family.”
Imposing mandatory declarations will boost regulatory and compliance costs and make Switzerland uncompetitive, Nicolas Pictet said in a speech in June in his capacity as president of the Swiss Private Bankers Association. As many as 30 percent of Geneva’s banking jobs may be eliminated amid an “avalanche” of new laws and regulations, he said in June.
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