Swiss to sign last rites for banking secrecy

(Globalpost/GlobalPost)

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Switzerland will break the seal on its banking secrecy, until now considered virtually ironclad, by signing an international agreement on fighting tax evasion on Tuesday, the OECD said.

This marks "the end of banking secrecy" in Switzerland, the head of tax issues at the Organisation for Economic Cooperation and Development, Pascal Saint-Amans, told AFP.

The inclusion of Switzerland in the agreement to exchange information among more than 60 countries will be "highly significant" in the fight against tax evasion, he said.

At the instigation of many advanced countries, the Paris-based OECD has spearheaded a clampdown on tax evasion and the concealment of illicit funds.

Swiss banking secrecy in its current form took shape before World War II, and provided the victims of Nazi persecution with a way to protect their assets.

The movement to scrap the policy in Switzerland and other well-known "tax havens" arose after the financial crisis of 2008 and subsequent eurozone debt crisis.

Ordinary people with money woes, often facing higher taxes to cover the costs of the crises, were outraged by revelations of tax evasion and avoidance by corporations and wealthy individuals.
US tax authorities in particular took tough action against some Swiss banks.

At the same time, high-profile controversies arose when lists of bank accounts stashed in Switzerland were leaked to tax authorities elsewhere.

The multilateral agreement on the exchange of information on tax matters is to be signed at the OECD headquarters at 1200 GMT by Switzerland's permanent representative to the organisation, Stefan Flueckiger.

The convention's signatories so far include all 20 members of the Group of Twenty (G20) of the world's leading economies, as well as more than 40 other countries.

In addition to exchanging information, signatories agree to organise simultaneous controls to track tax fraud.

The main objective is to ramp up the effort to catch tax cheats who hide their assets and transactions behind the protective laws of offshore tax havens.

Until now, many tax authorities, and their governments, have complained that cross-border tax investigations have been hampered or completely stymied by the complex routes used to hide funds, coupled with obstructionism on the part of some national authorities.

These difficulties have been exacerbated by the increased openness of frontiers to capital flows as well as the use of new technologies for transferring money.

Saint-Amans said the convention "prepares the way for the automatic exchange of tax information".
The OECD wants to make this the normal practice internationally, but it continues to be an extremely sensitive issue for the Swiss, as well as for some other countries.

Under the convention as it stands, however, the automatic exchange of information is optional.
The OECD noted that among the countries that have signed the convention or are preparing to are a number of jurisdictions often described as tax havens, some under the British crown, notably in the Caribbean.

Saint-Amans said the noose would continue to tighten on tax evasion and that countries that do not sign up to the agreement "would begin to be sidelined".

He said: "I can't see how going back could be possible."

Switzerland, which has been under strong pressure since the financial crisis to open up its banking
secrecy and to tax foreign assets, announced its intention to sign the agreement last week.
At the same time, it expressed its concern to preserve the integrity and reputation of its financial institutions.

The next hurdle -- which could prove a formidable one -- is ratification of the convention by the Swiss parliament

Bank whistleblower faces criminal backlash

Reyl is fighting back with its own accusations. (Keystone)

July 13, 2013 - 16:27

A former private banker has been arrested in Switzerland on suspicion of breaking secrecy laws after blowing the whistle on undeclared accounts held by ex-French budget minister Jerôme Cahuzac.

The former Reyl & Cie employee also told the media that he knew of other tax dodging funds hidden away by other French ministers or ex-ministers. He was detained on July 5, the Federal Prosecutor’s Office confirmed on Saturday.

Reyl & Cie said it had pressed criminal charges last month, saying that its former worker had falsified documents and violated Swiss banking secrecy laws.

The claims of assisting tax evaders, along with allegations that it was implicated in hiding non-declared funds of Cahuzac, led to the Paris authorities opening an investigation into Reyl in May.

Reyl said it was left with “no alternative” after the French media were contacted by its former employee. The bank also stressed in a media release on Saturday that it held no accounts of French politicians.

Complaints mount

The charges are the latest in a string of criminal complaints against former Swiss bankers that have handed over confidential details of clients to other countries.

In June, a former Julius Baer IT worker was charged by canton Zurich prosecutors for allegedly selling information to the German tax authorities.

Last year Switzerland demanded the arrest of German tax officials for their role in buying Swiss bank data.

Switzerland also tried unsuccessfully to extradite former HSBC employee Hervé Falciani from Spain after he stole client information from the Geneva branch of the bank.

On the other side of the coin, several Swiss bankers, lawyers and other financial advisors have been indicted in the United States on charges of aiding and abetting US tax cheats.

Court verdict seals bank client data transfer

The Federal Court believes the US data request is no "fishing expedition". (Keystone)

July 5, 2013 - 17:18

Switzerland’s highest court has finally approved the handover of Credit Suisse bank client data to the United States following a lengthy legal battle that challenged the original government decision to allow the transfer.

The Federal Court threw out two test complaints from bank clients on Friday, paving the way for the handover of information relating to 96 requests made by the US Internal Revenue Service (IRS) through the double taxation agreement (DTA) mechanism between the two countries.

The final verdict followed a Federal Administrative Court ruling last year that prohibited the data transfer on the grounds that the request was too general and did not adequately identify bank clients.

The IRS re-submitted the request in July of last year giving fuller details. In March 2013 the Federal Administrative Court found that the new request sufficiently met the DTA requirements and approved the data release. It was a last ditch appeal to the Federal Court that was turned down on Friday.

The US authorities have to date submitted requests for administrative assistance in tracking down tax cheats at four Swiss banks, starting with UBS and Credit Suisse. In May of this year, Julius Bär revealed it had also been targeted and a month later Wegelin was also named.

Wegelin, Switzerland’s oldest private bank, has already effectively gone out of business having collapsed under the weight of US criminal proceedings over its role in helping US citizens dodge taxes.

Political deals

UBS was the first Swiss bank to feel the wrath of the US authorities in 2009 when it was forced to pay a $780 million (CHF742 million) fine. The Swiss government later had to intervene to allow the bank to release the details of 4,450 clients to the US, striking the first fatal blow against Swiss banking secrecy.

The US currently has 14 Swiss banks in its legal sights that are faced with possible criminal indictments. On Wednesday, the Swiss government outlined measures aimed at helping all Swiss banks suspected of aiding US tax cheats to avoid prosecution for their past behaviour.

Banks can apply for permission to hand over information in relation with their business dealings in the US. The data could include names of employees and third parties, such as lawyers and asset managers, but not those of their clients or details of accounts.

US requests for information on clients must still be made through the DTA channels.

Switzerland has also signed up to the US Foreign Account Tax Compliance Act (FATCA) that will regularise their future dealings with US clients. Banks will be allowed to name US clients to the IRS providing the customer gives consent.

US continues hunt for tax dodgers in Swiss banks

Switzerland's oldest private bank says it will provide bank data to the US (Keystone)

June 14, 2013 - 12:21

The United States tax authorities have filed a request for legal assistance to identify former American clients of the private bank Wegelin who are suspected of tax dodging. It is the fourth such request against a Swiss financial institute.

Wegelin, which announced at the beginning of this year it would close its doors, on Friday confirmed reports that it had received notification by Switzerland’s Federal Tax Authorities to comply with the US request, based on a 1996 double taxation agreement.

A bank official added that Wegelin would submit the necessary information.

The request focuses on former Wegelin clients who were listed as beneficiaries of asset management companies between 2002 and 2012 and are suspected of fiscal fraud, according to the Neue Zürcher Zeitung newspaper on Friday.

The Federal Tax Administration declined to confirm the report or give further information.

Wegelin technically still exists but sold its non-US business and pleaded guilty to charges of helping wealthy American clients evade taxes.

It is the fourth such demand against Swiss banks. The country’s two main banks, UBS and Credit Suisse, have also faced requests against a particular group of clients over the past few years.

Two weeks ago, the private bank Julius Baer was also notified that it was subject of a similar request by Washington.

Experts point out that further queries by the US will follow, targeting about ten other Swiss banks under legal investigations.

Banking deal

Parliament is currently debating a law allowing banks to provide information to the US justice department without breaking Swiss banking secrecy rules.

The Senate approved the controversial draft law on Wednesday, but the House of Representatives is to discuss the issue next week.

However, the requests for Julius Baer and Wegelin are separate from the bill, according to observers.

The US government agency for tax collection and tax law enforcement has been the driving force behind the legal enquiries, while the US justice department has now taken over the settlement with Swiss banks suspected of violating US law.

Senate approves US tax probes bill

The Senate has passed a government plan to let Swiss banks settle US tax probes (Keystone)

June 12, 2013 - 15:26

The Swiss Senate has passed a government plan to let Swiss banks settle tax probes by the United States. The draft law now goes to the House of Representatives next week.

The 46-seat chamber on Wednesday approved the plan, designed to solve the issue without overturning Swiss banking secrecy laws, by 24 votes to 15 with two abstentions.

Lawmakers are divided over the plan to allow Swiss banks, suspected of helping wealthy Americans hide their money, to disclose data to US prosecutors to help settle investigations into tax evasion.

If the draft law succeeds, Swiss banks then have 120 days to hand over the internal information to US authorities.

The cumbersomely named “Federal Act on Measures to Facilitate the Resolution of the Tax Dispute between Swiss Banks and the United States” intends to put legacy issues to bed.

US prosecutors must still formally ask the Swiss authorities for client names and account details under the existing double taxation agreement between the two countries.

Swiss banks would also be authorised to pass on the names of their own employees that have been involved in US client business.

Swiss take first step to end US tax spat

One vote passed for Finance Minister Eveline Widmer-Schlumpf, at least one more to go (Keystone)

by Urs Geiser, swissinfo.ch
June 12, 2013 - 18:00

A draft law allowing Swiss banks to pass data to the United States justice authorities has won approval by the Senate. The other parliamentary chamber, the House of Representatives, is set to discuss the controversial issue next week.

Following more than 20 hours of debate, the Senate on Wednesday approved the divisive bill by 24 votes to 15.

Supporters, mainly from the centrist parties, warned of the potentially disastrous consequences for indicted banks, the finance industry and also for the Swiss economy if the government-sponsored bill was rejected.

The law would help draw a line under a dark chapter of banking history, said Senator Pirmin Bischof, while This Jenny expressed concerns about possible job losses in the banking industry.

Other supporters of the draft law stressed that a proposed deal between the banks and the US would not put a financial burden on Swiss taxpayers.

“Given the choice between an emergency landing and a crash, I prefer the former,” said Werner Luginbühl.

Opponents, mainly from the centre-right Radical Party, criticised the cabinet as it refused to provide additional information on the proposed deal, notably the amount of fines the banks could face. The cabinet was also accused of failing to take responsibility by deferring the decision to parliament.

Many speakers warned that acceptance of the bill would encourage other countries in Europe to follow the US example and exert additional pressure on Switzerland.

Despite all the differences, both sides agreed that the US programme – offered to Swiss banks suspected of helping wealthy American clients stash away money from the tax authorities – amounted to blackmail.

“Given the choice between an emergency landing and a crash, I prefer the former. ”

Werner Luginbühl

Responsibilities

Finance Minister Eveline Widmer-Schlumpf reiterated the importance of a correct legal framework for the banks to settle investigations into tax evasion.

She called on senators to give banks the opportunity to take the responsibility for their mistakes and avoid further damaging the reputation of the Swiss financial centre. Otherwise the problems risked becoming a never-ending story, she added.

During the debate the Senate decided to amend the draft law, boosting the right of accountants and tax lawyers to challenge decisions to hand over certain data. The financial regulator is to be mandated to draw up a detailed report about the management of assets by foreign clients.

 

Banking secrecy

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Tax evasion

As part of the deal, Swiss banks can disclose their US dealings, including names of bank staff and third parties such as accountants and tax lawyers who helped Americans evade taxes.

This would pave the way for individual banks to reach their own agreements with the US authorities without breaking Swiss law and violating banking secrecy rules. It is said that the settlements could include fines worth several billion dollars for Swiss banks.

At least 14 Swiss financial institutions have been under investigation, suspected of helping US citizens evade taxes. Two financial institutes have closed down over the past six months.

Switzerland’s oldest private bank, Wegelin, was forced to shut its doors following a US indictment in January. It admitted to wrongdoing and paid $58 million (CHF54 million) in fines.

In 2009, the country’s biggest bank UBS was forced to pay a fine of $780 million and deliver the names of more than 4,500 clients to avoid indictment, handing information that allowed the US authorities to then pursue other Swiss banks.

Next hurdle

Following the Senate approval on Wednesday, the bill now goes to the House of Representatives, where opposition to the deal is likely to be tougher.

The law, to be in place for 12 months only, will have to win a qualified majority – more than half of all members of each chamber, not just a majority of those present – to come into force at the beginning of next month.

If parliament fails to meet the deadline, Washington has threatened to withdraw its offer for the Swiss banks to hand over internal information over the next 120 days to avoid an indictment.

In a related business, the Senate is due to begin discussions next week on a tax compliance bill with Washington.

The Foreign Account Tax Compliance Act (FATCA) obliges foreign firms to report offshore accounts belonging to US taxpayers that amount to more than $50,000. Critics say the bill further undermines the cherished Swiss banking secrecy laws.

Time line - Swiss banks in US tax row

2009: Switzerland’s biggest bank UBS agrees to turn over more than 4,450 client names and pay a $780 million fine after admitting to criminal wrongdoing in selling tax-evasion services to wealthy Americans.

July 2011: Second biggest bank, Credit Suisse, is under criminal investigation by US. The bank later makes a provision for a potential fine of CHF295 million.

February 2012: US justice department indicts Wegelin, Switzerland's oldest private bank, on charges that it enabled wealthy Americans to evade taxes on at least $1.2 billion hidden in offshore accounts.

June 2012: US treasury department reaches a tentative agreement with Switzerland to help banks comply with US tax evasion regulations.

June 2012: Bank Julius Baer hands 2,500 employee names to US authorities in a bid to free itself from the tax probe, according to lawyers.

August 2012: Global bank HSBC hands over details of current and former employees to the US authorities.

November 2012: Private bank Pictet confirms it is also under investigation by the US.

December 2012: Two bankers and one former employee of Zürcher Kantonalbank charged by US, accused of helping US clients avoid taxes.

January 2013: Wegelin private bank shuts its doors, following a guilty plea to charges of helping wealthy Americans evade taxes through secret accounts. It agrees to pay nearly $58 million in fines on top of $16.3 million in forfeitures already obtained by the authorities.

May 2013: Swiss government presents bill to parliament that would let Swiss banks hand over internal information to US to avoid threatened criminal charges - though the banks still face fines likely to total billions of dollars.

The bill aims to save the banks from heavier punishment in the United States for helping wealthy tax cheats, by sidestepping its secrecy laws to let bankers disclose data to US prosecutors.

June 2013: Parliament begins discussions on banking deal.

Princely Liechtenstein bank keen for clarity on tax

June 12, 2013 - 10:59

By Emma Thomasson

ZURICH (Reuters) - Prince Max von und zu Liechtenstein, chief executive of Liechtenstein's biggest bank LGT, said it was striking how fast opinions on tax evasion had shifted since 2008, when stolen data revealed hundreds of Germans had hidden assets in the principality.

But the Prince, who runs the royal-family-owned bank, is not worried by an international push to fight tax evasion and expects Swiss and Liechtenstein banks to flourish if disputes over untaxed assets are settled quickly.

"The data theft of 2008 was the first example of that change of attitude but at least it put us ahead of the game. What doesn't kill you makes you stronger," he said in an interview.

Discussing the outlook for Liechtenstein banking over a lunch of monkfish and asparagus at a luxury Zurich hotel, Prince Max was relaxed about the future. "People are focusing on the threats but there are more chances than threats."

Secrecy has fostered an usually large banking industry in the tiny principality wedged between Austria and Switzerland, helping to make the 36,000 inhabitants of a territory slightly smaller than Washington D.C. among the world's wealthiest. The banking sector contributes about a third of national output.

But LGT was one of the first major banks to be caught up in an international clamp down on tax evasion since the financial crisis. In the lean times since then, governments from the United States to Germany and France have had to try to boost tax receipts to fill empty coffers.

LGT, which had expanded aggressively overseas, suffered a client exodus in 2008 and 2009 after it featured in a U.S. Senate report on tax evasion.

But the bank has recovered faster than LLB and VP Bank, the country's second and third biggest banks, reporting net asset inflows of 10.5 billion Swiss francs (7.1 billion pounds) in 2012, taking total assets under management to 102.1 billion.

Prince Max says customers are attracted by LGT's "Princely Portfolio" that allows them to mirror the strategy used for the royal family fortune, estimated to be as much as 8 billion francs.

"If you delegate investment decisions to somebody else you should only do that if that person has his own skin in the game," he said. "We offer our clients the same sort of deal."

"Having been through ups and downs in our 900-year history, one of the things that has helped the family survive is that we're well diversified."

Harvard graduate Prince Max, 44, worked for JP Morgan for more than a decade in New York, London and Germany before taking over at LGT in 2006 from his uncle Prince Philipp. Prince Max is the second son of Prince Hans-Adam, who handed over daily running of the principality to his oldest son Prince Alois in 2004.

SUSPICIOUS MAIL

Prince Max said the failure in December of a Swiss tax deal with Germany - which Liechtenstein had hoped to mimic - and U.S. investigations into Swiss banks - including the Swiss arm of rival LLB - could scare clients again in the short term.

"Big clients have come back but smaller clients are worried that they might look suspicious if they get mail from a Swiss or Liechtenstein bank," he said.

That is why he is supportive of attempts to settle those tax disputes. Liechtenstein's prime minister told Reuters last month the country was prepared to discuss an automatic exchange of client data with the European Union after Austria and Luxembourg pledged to drop bank secrecy.

"If information exchange comes with the EU it will strengthen our ability to attract capital again from EU countries - because it provides legal certainty," he said.

EU finance ministers gave their officials approval in May to start formal negotiations with Switzerland, Liechtenstein, San Marino, Andorra and Monaco about surrendering bank data on an automatic basis, exposing savers to tax claims.

Despite the upheaval in the private banking business caused by the tax issue, LGT is not targeting more acquisitions after it bought the Swiss business of Dresdner Bank in 2009.

"Why should we run the risk and spend a lot for growth, which we can achieve ourselves in two or three years if we let our people do their job?" he said.

(Editing by Jane Merriman

US requests bank data from Julius Baer

Julius Baer is the third Swiss bank to take in a request to reveal American client data (sporst via Flickr Creative Commons)

May 28, 2013 - 12:00

The United States has increased pressure on Switzerland to find a lasting solution to the tax evasion row between the two countries by demanding information on Julius Baer bank clients suspected of dodging taxes.

The US request for administrative assistance was made to the Swiss authorities under the terms of an existing double taxation agreement. Julius Baer has confirmed that it is the third Swiss bank to be targeted by the US in such a way following earlier requests for data relating to UBS and Credit Suisse clients.

Switzerland is also negotiating a separate deal with the US that aims to put an end to intrusive demands for information and a growing list of criminal proceedings against Swiss banks and their employees. Swiss Finance Minister Eveline Widmer-Schlumpf said recently that Switzerland was “on the point of presenting a solution” to the ongoing tax evasion row following several years of negotiation.

In the meantime, US authorities have shown no signs of relaxing their investigation into around 13 Swiss banks that are strongly suspected of aiding and abetting US tax evaders.

The latest official request for information follows the indictment of a Swiss banker and lawyer by a Manhattan court in April.

Seeking resolution

The Swiss financial sector has also expressed impatience at finally finding a lasting solution that covers both future tax relations between the two countries and resolves the legacy issues of the past.

“It’s in the best interest of the financial sector and each individual bank to resolve the US issue quickly and completely,” Urs Rohner, chairman of the board of directors at Credit Suisse, told the Neue Zürcher Zeitung newspaper on Tuesday.

“A solution that seems painful at first sight is better than no solution,” he added. “To believe that one can push this issue to the back burner and that it will dissolve over time is unrealistic. That will not happen.”

Switzerland’s banking sector has been under enormous pressure from the US since UBS was caught red-handed helping tax evaders in 2009. The bank was forced to pay a huge fine and hand over thousands of client files to the US tax authorities, effectively ending Switzerland’s long-standing tradition of strict banking secrecy.

Last year Switzerland’s oldest private bank, Wegelin, collapsed under the weight of a US prosecution after poaching American clients from UBS and offering a sanctuary for their undeclared assets.

The European Union is also queuing up to negotiate Switzerland’s implementation of amendments to its Savings Directive, which would enforce similar conditions on financial entities as those sought by the US.

All together now: Finance Minister Eveline Widmer-Schlumpf believes Swiss tax laws need more harmony (Keystone)

May 30, 2013 - 16:15

The current distinction between tax evasion and tax fraud is unsatisfactory, according to Finance Minister Eveline Widmer-Schlumpf, explaining why the cabinet wanted to reform the tax penal law.

False accounting is potentially tax fraud, she told the media on Thursday, while repeatedly failing to declare income is considered tax evasion. “There is no logical difference,” she told journalists in Bern on Thursday.

Widmer-Schlumpf said the aim of the revision was an efficient tax penal law with high legal certainty that would also have a preventive effect.

“It should be worthwhile for people to be honest over their taxes,” she said.

New measures would include differentiating between simple evasion, qualified evasion (currently considered fraud) and qualified evasion of large amounts.

She pointed out that the current distinction made the work of the cantonal tax authorities more difficult, since they are not allowed to consult bank data in cases of suspected tax evasion. The federal tax authorities, however, have this right when it comes to investigating indirect taxes such as VAT.

The proposed amendment would mean that violations would be judged according to their seriousness, and the same criteria would apply to all.

The authorities would need concrete indications that an attempt had been made to defraud them before they could request data from the bank.

“In these cases banking secrecy should not be a shield for tax evaders,” she said, adding that nothing would change for the vast majority of citizens.

FATCA sounds death knell of banking secrecy

To continue operations in the US, Swiss banks will have to submit to the tax authority (IRS) (Keystone)

by Armando Mombelli, swissinfo.ch
May 28, 2013 - 11:00

Legislation allowing for the sharing of American citizens’ bank data will go before the Swiss parliament next month. It seemingly spells the end of prized Swiss banking secrecy, although lawmakers say it is far from a done deal.

Recent weeks have seen an unprecedented ramp-up of international efforts to put an end to banking secrecy.

The Group of 20 major economies wants automatic exchange of tax information at a world level, and it wants it soon. The Organisation for Economic Co-operation and Development (OECD) is setting out the relevant international standards in the coming months, and the European Union wants to open talks on imposing fiscal transparency on all its members - and Switzerland - by 2015.

The bastions of banking secrecy are caving in one after another – Luxembourg, Austria and even faraway Singapore. 2013 is likely to be the year in which Switzerland too hoists the white flag. The first major act of surrender could happen in mid-June, when a draft agreement between Bern and Washington on the United States Foreign Account Tax Compliance Act is debated by Swiss parliamentarians.

Having enacted this legislation, Washington wants the financial institutions of the world to hand over names and information on deposits and interest of “persons subject to unlimited tax liability in the US” from next year on. This obligation concerns not just American citizens resident in the US but also expatriates.

Double trouble

US expats feel the burden of FATCA

US anti-tax evasion legislation known as FATCA – the Foreign Account Tax Compliance Act – has caused upheaval among the American expat community and dual Swiss-US nationals living in Switzerland where it was agreed in February.  [...]

Foreign Affairs Banks in turmoil 5 comments

Full transparency

Under the terms of the agreement negotiated by the Swiss government with Washington, financial institutions will have to obtain the consent of account holders before turning over their data to the American Internal Revenue Service (IRS).

But clients who refuse to comply will be hit with a 30 per cent tax at source on payments coming from the US. And the IRS can still obtain data on these people by submitting a request for administrative assistance to Bern involving whole groups of bank customers.

As the Swiss government formulated it, the agreement provides for “semi-automatic exchange of information”. In reality, however, beginning January 1, 2014, banking secrecy will no longer exist in Swiss dealings with the US.

“This is indeed how it is, in spite of any euphemistic language being used,” says Beat Bernet, who teaches banking economics at the University of St Gallen. “Under FATCA, Switzerland is giving Washington almost total transparency about bank customers.”

“It should not be forgotten that we became a lot more transparent in the wake of September 11, 2001, when Washington demanded and got access to a lot of bank data to investigate networks financing terrorism. Since then the American administration can see data about international financial operations through the servers of SWIFT [Society for Worldwide Interbank Financial Telecommunication] and accounting centres for credit cards based in the US.”

Chasing down the fat cats

In 2010, the US Congress adopted a piece of legislation called the Foreign Account Tax Compliance Act (FATCA) to fight offshore tax evasion by its own citizens. The acronym seems a wry nod to President Barack Obama’s frequent denunciations of “fat cats” who salt their untaxed wealth away in offshore accounts.

Under this new legislation, Washington is demanding that all foreign financial institutions (banks, life insurance companies, investment funds, foundations), including even those not operating in the US, give up names and data of all their customers who are subject to American tax.

This means all American citizens or non-nationals resident in the US, American expatriates, and foreigners with significant holdings in the US.

All financial institutions abroad are required to register with the US Internal Revenue Service (IRS) and to enter into an agreement by which they undertake to identify customers subject to American tax and give their names and bank data to the IRS.

Nobody gets off

The FATCA legislation – which other European countries are also having to accept – allows very little margin for banking secrecy. By this September parliament has to ratify or reject the agreement concluded by the government with Washington, which at least provides some leeway for the financial institutions.

Whatever the outcome, Swiss banks will not be able to sidestep this legislation even if they do not have branches in the US.

Financial intermediaries who do not cooperate with the IRS will be hit with a 30 per cent tax at source on all payments originating from the US. They will thus have to stay away from the dollar and the American securities and capital markets.

“A refusal is theoretically but not practically possible. The institutions who do not cooperate will in fact be excluded from the international financial system,” notes Bernet.

This view is shared by Christoph Schaltegger, professor of economics at the University of Lucerne. “If Switzerland wants to have a financial market, it will not be able to dodge the international rules,” he says.

“All banks are closely connected through the international interbank payment system. If a bank is at risk of heavy sanctions in the US, it will be excluded from the interbank agreements. Thus it will lose the trust of its customers and their money too.”

The Bern-Washington accord

Several EU countries have already concluded a FATCA agreement with the US based on what is called ‘model 1’, which provides for automatic exchange of tax information between the two sides.

Under the agreement concluded by the Swiss government (‘model 2’) however, it will be up to the banks themselves to send names and data of their customers directly to Washington.

To do this, they must first obtain the customer’s consent. Banks are nonetheless required to notify the IRS of the number and total assets of accounts belonging to customers unwilling to cooperate.

The IRS can then ask for full details as part of a request for administrative assistance to the Swiss authorities.

Unlike other European countries, the Swiss government has not insisted that the American side reciprocate.

Imperialist attitude

Despite looking like a foregone conclusion, the Swiss FATCA agreement will meet stiff resistance in parliament. Only the centre parties intend to vote for it, albeit with major reservations.

The left will only give its agreement if the government officially undertakes to rapidly implement the automatic exchange of information. “FATCA reflects the imperialist attitude of the US. But it is a step in the right direction, if it leads to automatic exchange of information”, says Social Democratic parliamentarian Carlo Sommaruga.

For the political right, the agreement is unacceptable under any conditions. “As an independent country, we cannot let ourselves be dictated to by other states or organisations to change our laws unilaterally. All the more so since the FATCA agreement would oblige us to rubberstamp all future changes in the American legislation,” objects Peter Föhn.

According to the People’s Party senator, this is not the way to change the rules of the game. “Until now Swiss banks promised to protect their customers’ assets and respect their privacy. Now, in one fell swoop, all their data are being sent to the US. That way we do damage to the reputation of the whole financial industry.”

Wide breach

But that is not all. The breach in Swiss banking secrecy caused by the FATCA agreement will no doubt be forced wider by the EU as well. “It will be very hard for Bern to explain to Brussels that it is ready to give the US automatic exchange of information, but not Germany or France,” notes Schaltegger.

At this point, “Switzerland would do better to focus its energies on the strong points of its financial industry: a strong currency, a reliable legal framework, a stable political system and a high level of professionalism,” Bernet believes. “Even without banking secrecy, it can provide a lot of security to foreign individuals and companies.”

(Translated from Italian by Terence MacNamee)