The Situation
Credit Suisse and UBS, Switzerland’s two largest wealth managers, 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. The settlements offer a roadmap to another 13 banks facing U.S. criminal probes, and about 100 more — about a third of all Swiss banks — that are cooperating with the U.S. Justice Department. They want to avoid the fate of Wegelin, the country’s oldest lender, which was forced to close last year after a guilty plea. Individual bankers
and taxpayers have also faced charges, sending more than 43,000
offenders into the arms of a U.S. amnesty program. Switzerland avoided
being blacklisted by the OECD by bowing to political pressure and agreeing to adopt international standards used by 60 countries to exchange information on account holders. A new U.S. law is also fostering bank-to-government data sharing designed to throw light on difficult-to-trace accounts.
The Background
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. It’s facing more competition from Hong Kong and from Singapore – which has its own bank secrecy rules — as wealth creation booms in Asia.
The Argument
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 trying to protect their tradition, arguing that cross-border deposits were attracted by
the country’s stability and investment expertise, qualities that will
continue to lure rich families. They say they can’t just flout Swiss
laws by squealing on their clients in response to vague, broad requests
for information by the U.S., and it’s difficult to cooperate fully with
foreign tax authorities’ demands until domestic rules and tax treaties are
clarified. 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.
The Reference Shelf
- 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.
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