Swiss Bank Secrets
Crime writers and Hollywood producers take note: Secret Swiss bank accounts aren’t so secret anymore. Switzerland’s reputation for tight-lipped discretion made it a magnet for money from dictators and tax dodgers, along with the fictional assassin Jason Bourne. Now whistleblowers and a crackdown after the 2008 financial crisis are creating a world less tolerant of offshore havens. That’s enabled the U.S. and other countries to break open the vault. Switzerland’s biggest banks have paid fines and fingered their clients. Customers are being told to pay their taxes or clear out their accounts. It's not clear whether Swiss banks will be able to hold on to their clients without the cloak of anonymity and how much more the industry will shrink. There are also questions about whether the cleanup will lead to less tax evasion, or just push it elsewhere.
Billions of dollars have oozed from Swiss banks as clients take part in government tax amnesty programs in Europe and the Americas. The end of secrecy, combined with other pressures such as negative interest rates, may trigger the disappearance of a third of Swiss banks. In early 2015, a whistleblower leaked account details from thousands of customers of HSBC’s Swiss unit, prompting calls for tax authorities to step up investigations. Over the last several years, the country's largest wealth managers have cut deals with the U.S. government and admitted they helped Americans cheat on their taxes. UBS agreed in 2009 to turn over account details on 4,700 clients after a banker caught in the act revealed the use of clandestine accounts, shell companies and other techniques to help rich people avoid detection. Credit Suisse pleaded guilty in a U.S. court in 2014 and paid $2.6 billion. More than 80 other Swiss banks settled to avoid prosecution. The banks want to avoid the fate of Wegelin, the country’s oldest lender, which was forced to close in 2013 after a guilty plea. A handful of U.S. inquiries are unresolved and authorities in France, Belgium, Germany and Argentina continue to probe. Individual bankers and taxpayers have also faced charges. Switzerland avoided an OECD blacklist in 2009 by agreeing to adopt international standards on exchange of information on foreign account holders. Those standards presaged the global system of automatic data transfer that will start in 2017.
Banking secrecy wasn’t invented by the Swiss: Italian bankers used similar discretion as far back as the 16th century. Switzerland built its brand with a 1934 law making it a crime for banks to reveal a client’s identity. Prudent bankers offered confidentiality on a par with doctors, lawyers or priests. They touted the country’s history of neutrality in European conflicts, and even suggested that the law helped stop the Nazis from uncovering Jewish wealth (an argument later debunked). Bankers also pointed to the country’s relaxed approach to tax evasion, which is not a criminal offense for Swiss taxpayers. Deposits from France, Germany and Italy swelled, particularly during periods of high taxes, even though Swiss banks charged high fees. Before the UBS settlement, account information was revealed only occasionally to governments tracking terrorists and organized crime. Amid the probes, Switzerland’s share of offshore deposits has held steady at about a quarter of the world total, though that share is expected to drop as Hong Kong and Singapore benefit from booming wealth creation in Asia.
The U.S. and other countries argue that Swiss banks actively marketed tax-evasion services and lawmakers say the settlements should provide more names of clients who broke the law. Swiss bankers are bound by law not to squeal on their clients. They want to protect their industry, arguing that cross-border deposits were attracted by the country’s stability and investment expertise, qualities that will continue to lure rich families. As the iconic haven in book and film, Swiss banks see themselves as a convenient scapegoat for a global problem. Other notorious tax shelters include British Crown dependencies such as the Channel Islands, they note, and Miami, a haven for Latin American money. Since the U.S. refuses to exchange account data automatically, American banks are now attracting the type of offshore business their government has forced Switzerland to give up.
The Reference Shelf
- Businessweek's look at how the U.S. is emerging as a tax and secrecy haven.
- The International Consortium of Investigative Journalists published a series on the leaked HSBC documents in February, 2015.
- Boston Consulting Group’s annual survey on global wealth.
- A Tax Justice Network report on Switzerland
- U.S. Senate Subcommittee report on offshore tax evasion and the Justice Department website on its Offshore Compliance Initiative.
- “Inside Swiss Banking,” a 2009 book by Beat Guldimann, a former employee of UBS.
- Mark Henley’s film-noir-inspired photographs of Swiss banks on Zurich’s Paradeplatz were turned into a film.
First published July 28, 2014
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