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)

Clock ticks on Swiss banking secrecy

Luxembourg has bowed to pressure and adopted the automatic exchange of tax information (AFP)

by Armando Mombelli, swissinfo.ch
April 23, 2013 - 11:00

The foreign assault against Swiss banking secrecy continues – after the European Union and the United States, the G20 has joined the throng. Switzerland is ever more isolated after Luxembourg dropped its opposition to sharing bank data with its partners.

In an opinion piece published by the French newspaper Le Monde on April 10, Swiss Finance Minister Eveline Widmer-Schlumpf defended Switzerland’s so-called clean money strategy, outlining the measures taken by the government to fight tax evasion.

She pointed out that when Switzerland undertook reforms, it expected the international community to take note of the efforts made without launching another attack against the Swiss or threatening to take further retaliation measures.

The same day, her hopes were doused when Luxembourg announced it would lift bank secrecy rules for European Union citizens who have savings based in the country from 2015 onwards.

Austria, the only other staunch defender of banking secrecy within the EU, is also hinting it is ready to negotiate with Brussels.

FATCA

The Foreign Account Tax Compliance Act (FATCA) was passed in the US in 2010 as part of the Hiring Incentives to Restore Employment Act.

It is designed to close loopholes in existing tax compliancy regulations, known as the Qualified Intermediary (QI) accord.

The law obliges foreign firms to report offshore accounts and security trades by US clients that amount to more than $50,000 (CHF46,500). If they fail to do so, they will be hit with a 30% withholding tax.

The US plans to bring FATCA into force in stages, starting as early as next year.   

The Swiss government has signed the accord, which parliament will be asked to ratify during its summer session. Under the agreement, it is up to banks to pass the required data on to clients.

Clients will be able to oppose the transmission of personal data, however. The US tax authorities will then have to ask Switzerland for administrative aid.

Exposed

This sharp shift of policy by Luxembourg and Austria could leave Switzerland even more exposed to renewed attacks by the EU. So far, the three countries had mutually protected each other.

Luxembourg and Austria had previously stated that banking secrecy was not negotiable unless the Swiss did the same. Bern had also rejected pressure from the EU, saying that Brussels had to convince the two other nations first.

This tactic worked for years and the European Commission’s pressure failed to yield tangible results. The potential breakthrough came from the United States, with Switzerland, Luxembourg and Austria expected to ratify the FATCA (Foreign Account Tax Compliance Act) accord in the coming months.

Under this agreement, the US can obtain all the banking data concerning its citizens living in Europe, de facto eliminating banking secrecy. Any resistance will be met with retaliatory measures, the Americans have promised.

“Given the sanctions announced by Washington, rejecting the accord would not be a realistic option,” said Maurice Pedergnana, an economist at the University of Lucerne.

“Swiss banks would no longer be able to operate in the US or hold American bonds and shares. You cannot have wealth management services without proper access to the world’s biggest financial market.”

If Austria, Luxembourg and Switzerland give the go-ahead to the accord, they will find it hard to resist pressure from the EU to provide the same kind of access to bank client data.

Staying secret

Which way out of the crisis?

Crunch time

On April 14, Germany, France, Britain, Italy and Spain renewed their attack on banking secrecy. They added the automatic exchange of data to the agenda of the next EU summit in May, with an avowed aim of making it the norm – including for Switzerland – by 2015.

New pressures surfaced following a meeting of the finance ministers of the G20 club of advanced and emerging economies on April 19 that endorsed automatic exchange of tax data among nations, calling it the expected new standard for how governments can help each other fight cross-border tax cheating.

Widmer-Schlumpf told reporters after the meeting that Switzerland was ready to take part in discussions under the condition that it was “not just a European standard but a global one” and included offshore tax havens. This position, supported by the head of the Swiss Bankers Association Patrick Odier, does not have the backing of the majority of Swiss cabinet members or parliament, however, who are refusing – or at least delaying - any discussion on automatic exchange of tax data.

For Pedergnana, waiting to see how things pan out is a recipe for trouble. “It’s a position that is based on an outdated way of thinking and business models,” he told swissinfo.ch.

“Switzerland cannot avoid negotiating with the EU, its biggest trade partner. We are a small country far too involved in the global economy to behave like an island.”

He adds that playing the waiting game will reduce any wiggle room during talks.

“Switzerland should present a clear strategy and concrete proposals to get some concessions from the EU,” he added. “And that should be, first and foremost, free access for Swiss banks to the European financial market.”

Swiss tax woes

Switzerland has been under extreme pressure from both Europe and the US over its role as a shelter for tax cheats since the financial crisis of 2008.

In 2009, the bank UBS was caught aiding and abetting tax evaders and was forced to pay a hefty fine.

Then, the Swiss government was then forced to shatter its previously inviolate banking secrecy laws to hand over thousands of client details to the US authorities.

In 2012, Switzerland's oldest private bank, Wegelin, was forced to dissolve after US investigators found links to tax evasion. Up to 13 other Swiss banks are still under investigation by the US authorities under suspicion of helping tax cheats.

In Europe, several CDs of client data have been stolen from Swiss banks and sold to foreign countries such as Germany and France.

Switzerland has signed tax treaties with Britain and Austria to impose withholding taxes on accounts held by citizens of these countries.

Germany rejected a similar deal, forcing Swiss banks to tell clients to either declare their assets to the German authorities or close their accounts.

“European rhetoric”

In parliament, politicians on the left agree. “We have two paths of action now,” said the centre-left Social Democrat Carlo Sommaruga. “We can either wait to end up on a grey or blacklist, as in 2009, and be forced to act quickly, or we can take note of what’s happening around the world and join forces with Luxembourg and Austria to define the terms of negotiations with the EU.”

He added: “We could, for example, demand that any new standards be extended to the special tax regimes afforded in some Anglo-Saxon countries.”

On the political right, most parties prefer to wait and see. “As long as Brussels demands we surrender unilaterally without some compensation, Switzerland shouldn’t budge,” said the centre-right Radical Christian Lüscher.

“The EU is piling on the pressure for so-called ethical reasons, but it is in fact trying to protect its interior market by refusing any access to our banks.”

Politicians from the rightwing Swiss People’s Party are not even considering changes to banking secrecy.

“We are facing the usual European rhetoric that we have wrongly taken too seriously in the past. Brussels is not really in a position to impose anything on us as it is too dependent on Switzerland,” said People’s Party representative Yves Nidegger.

“You only have to think about transport [to understand this]. In my opinion, the cost of a war would be less than if we give in, as it would only lead to a weakening of our financial services.”

Armando Mombelli, swissinfo.ch
(Adapted from French by Scott Capper)

Commodity sector hails light touch approach

The Swiss commodities trading company Glencore trades in metals, minerals, agricultural products and raw materials for energy production (Keystone)

by Matthew Allen, swissinfo.ch

April 22, 2013 - 11:00

Haunted by the spectre of tax hikes and worsening publicity, the Swiss commodities industry has been thrown a lifeline by the country’s refusal to force greater transparency on the sector.

But the regulatory respite has been thrown into the shade by continued foreign attacks on banking secrecy and cantonal tax perks. The cosy Swiss conditions enjoyed by traders may be coming to an end, with rival countries queuing up to poach disgruntled firms.

Traders have heaped praise on last month’s recommendations of a government white paper on the commodities industry, calling them “well considered”, “appropriate” and “balanced”.

Especially welcoming was Switzerland’s refusal to emulate the hardline regulatory crackdown of Washington and Brussels that demands companies to reveal financial transactions to other governments.

The rising clout of the industry was one reason Switzerland’s white paper was so highly anticipated. The sector’s astronomic recent growth (the profit of the world’s top 20 traders soared from $2.1 billion in 2001 to a peak of $33.5 billion in 2008, according to an estimate by the Financial Times) has attracted both wealth and lurid tales of exploitation, corruption and environmental damage.

But Martin Fasser, chairman of the Zug Commodity Association, said the Swiss decision not to require financial information was neither here nor there. Fasser argues that international traders are already obliged to open up their books to the authorities as the US Dodd-Frank legislation already demands and the proposed EU transparency directives threaten.

“New transparency requirements are not generally being viewed as a game changer in the grand scheme of things,” he told swissinfo.ch. “The financial information is already available so it would be no big deal to disclose payments in the notes of financial statements.”

“I have not heard of any company that would consider moving to Switzerland to escape Dodd-Frank or EU legislation, or of any that would move out of Switzerland if the Swiss government would change its approach and implement transparency regulations here,” he added.

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Conspiracy theories

But for Emmanuel Fragnière, who runs a commodities degree course at Geneva’s HEG of Business Administration, financial secrecy is the lifeblood of the industry, oiling the complex transactions that move raw materials around the world.

Setting the right price for a trade is a delicate balancing act that can mean the difference between profit and loss. Such data is crucial to maintain competitive advantage over rivals and is fiercely protected.

Fragnière believes the US and European demands for greater transparency from commodities companies are linked to an ongoing global “attack” on the Swiss financial sector.

Regulations should be enhanced to stave off “pirate” operators that seek to exploit rather than practise fair trade, he said. But he objected to the dogmatic approach of the US and the EU.

“Switzerland is a playground for international commodities dealers, but it has been operating in a ‘wild west’ environment,” he told swissinfo.ch. “Even a sector built on secrecy needs rules, but these need to be applied in a much more practical manner than by dictating new constraints.”

Trade hub

Increasing weight of commodities business

Commodities trading has gained in importance for the Swiss economy over the past decade. The country is the world's leading hub for the trade in oil, metals and grain.  [...]

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Singapore threat

Samir Zreikat, who runs commodities consultancy firm Dealigents, also believes that the transparency crackdown is an extension of the attack on Swiss banking secrecy. He fears that Switzerland’s stock of top-in-class lawyers, accountants and financial specialists could follow assets being transferred out of Switzerland by overseas clients.

“As wealthy people move their assets from Swiss banks to other jurisdictions I have no doubt that some service companies will follow them, reducing the attractiveness of Switzerland as well as the general level of expertise,” he told swissinfo.ch.

Singapore is one such location that stands to benefit. The island state has already built up an impressive commodities sector - partly attracted by its vicinity to China, but also by its low tax regime.

Some 280 companies benefit from the relaxed Singaporean regulatory environment, directly employing some 12,000 workers (slightly more than the Swiss market), according to official sources.

Switzerland vs Singapore

Swiss towns such as Winterthur, Lucerne and Lausanne have a long tradition of trading in commodities such as cotton or coffee, stretching back to the 19th Century.

After the two world wars, Switzerland became a favourite venue for many international companies that wanted a neutral base from which to trade raw materials – often in politically sensitive regions.

There are now an estimated 10,000 workers in the sector, generating some 3.5% of Switzerland’s economic output.

Singapore entered the market relatively late by comparison, launching its “global traders programme” to attract big players in 2001.

But the industry has seen meteoric growth, employing some 12,000 professionals in 280 companies. The top traders generated some $1 trillion in revenues in 2011.

No mass exodus

Singapore-based entities face an effective tax rate as low as five per cent compared to some ten per cent in Switzerland. EU pressure on Switzerland’s cantonal tax regime for international companies could force the Swiss rate up to around 13 per cent in the near future.

Last year, international commodities trader Trafigura sent shock waves through the Swiss sector when it relocated its main trading booking centre to Singapore. But the company insisted this was for geostrategic reasons rather than tax.

Fasser is still concerned by the threat of Singapore, but he believes changing tax rates are more likely to affect future growth of the sector than spell an exodus from Switzerland.

“The commodities industry has become less welcome in Switzerland than in the past and tax regimes in some other jurisdictions have become more competitive,” he said. “For outside firms thinking of expansion, there are fewer reasons to come to Switzerland than 15 years ago.”

Gennady Timchenko, co-founder of the oil trading giant Gunvor, has also warned Switzerland not to give up too much ground to EU tax demands. Timchenko currently lives in Geneva, which is also home to many of the company’s traders.

“If I was not here, the company would probably also not be here,” he told the Neue Zürcher Zeitung newspaper. “We feel at home in Geneva, but if the government radically changes the framework conditions we would have to recalculate.”

“We could move to Singapore at any time, we already have an office there. Singapore is also a safe and stable location. The climate is perhaps a little different, but we could get used to that.”

Matthew Allen, swissinfo.ch

Swiss seen as lagging in global hunt for tax cheats

G20 Finance Ministers and Bank Governors at the 2013 IMF and World Bank Spring Meetings in Washington (Keystone)

April 19, 2013 - 22:15

In response to Switzerland’s being placed on a “could do better” list, Swiss Finance Minister Eveline Widmer-Schlumpf has said the country is ready to take part in discussions “under the condition that it is not just a European standard but a global” one.

“Switzerland for the time being is stuck,” said Pascal Saint-Amans, director of the OECD's Centre for Tax Policy.

The Paris-based organisation, which comprises 34 industrialised nations, presented its report to the Group of 20 finance ministers and central bank governors meeting in connection with the International Monetary Fund and World Bank semi-annual conference in Washington.

The standards – which call for automatic data exchange between countries when tax cheating is suspected – reflect a tougher approach to tax avoidance agreed upon in 2009 by the world’s financial centres.

"Significant progress has been made ... but significant progress remains to be made," said Saint-Amans. He acknowledged that Switzerland had made progress, but was not done yet with changing its ways.

Widmer-Schlumpf represented Switzerland at the meeting of the G20 at the invitation of Russia, this year’s G20 chair.

Swiss self-defence

She presented a progress report from the Global Forum on Transparency and Information Exchange for Tax Purposes, showing that Switzerland has undertaken to comply with the standards and is currently putting them into practice.

The report was to “show that the cabinet has introduced solutions for all of the issues criticised by the Global Forum”, according to a press statement on Thursday.

Switzerland has been under fire for several years for the sheltering of taxable income by its banking sector. UBS, Switzerland's largest bank, paid $780 million (CHF730 million) in 2009 and handed over thousands of client names to settle US charges that it helped US citizens hide funds.

On Friday, Widmer-Schlumpf said Switzerland wanted to find a solution to the tax dispute with the UN “as soon as possible”, adding that a concrete proposal was currently being discussed. However, she couldn’t say when a result could be expected.

She said she had met her US counterpart Jack Lew in Washington, but he had said the ultimate decision on the discussed proposal would be taken by the justice department.

Reuters news agency quoted one person familiar with the issue as saying that, under the proposal, 300 Swiss banks could expect various consequences for having helped rich Americans dodge the taxman.

Combatting banking secrecy

On Friday in Washington, the finance ministers of the G20 countries urged the international community to do away with banking secrecy, noting that the global economy has avoided “major risks”, but remains unequal.

Tax evasion has dominated European headlines in recent weeks, following the admission by a disgraced former French minister that he held a Swiss account, and the recent leak of data about thousands of holders of secret bank accounts worldwide.

swissinfo.ch and agencies

Fresh US tax cheat charges hit banking sector

Switzerland is desperate to avoid another Wegelin disaster (Keystone)

April 17, 2013 - 13:52

A Swiss banker and a lawyer have been charged in the United States with helping tax cheats. This heaps further pressure on the beleaguered Swiss finance sector, coming a day after yet more secret data was leaked to Germany.

The New York attorney’s office issued the indictments against the duo on Tuesday – the latest in a string of legal charges against Swiss-based bankers and lawyers. In the meantime, the Swiss government is trying to negotiate a settlement with the US to put an end to investigations into several Swiss banks.

The indictment, filed with a Manhattan federal court, accused an executive at a Swiss private bank and a partner in a law firm of conspiracy to evade US taxes. Both of the accused are believed to be in Switzerland.

The US authorities have continued to aggressively pursue Swiss banks and individuals since forcing Swiss bank UBS to pay a $780 million (CHF720 million) fine in 2009 and the Swiss government to later hand over details of thousands of the bank’s customers.

Up to 13 banks remain in the sights of US prosecutors who scored a direct hit against Switzerland’s oldest bank, Wegelin, last year. Wegelin was forced to break up and effectively end its 271-year existence after being caught red handed poaching tax evading clients from UBS.

The latest US charges filed on Tuesday indicate that another Swiss private bank tripled its US clients between UBS’s prosecution in 2009 and Wegelin’s demise three years later.

Data leak

The Swiss financial sector was also stung by the revelation that yet another CD containing confidential banking data had been sold to Germany. The German state of Rhineland-Palatinate said on Tuesday that it had paid €4 million (CHF4.85 million) for the CD containing details of 40,000 bank clients.

The Swiss authorities are currently pursuing the extradition from Spain of Hervé Falciani, the former employee of HSBC Geneva who passed on secret data to France. Breaking bank secrecy laws is a criminal offence in Switzerland.

But the Swiss government is also currently working on a sustainable solution to the impasse with the US that it hopes will bring an end to criminal investigations of banks and individuals.

A government spokesman confirmed on Wednesday that negotiations with Washington were still ongoing but gave no indication of when a final deal could be struck.

swissinfo.ch and agencies

Alleged HSBC data thief in extradition hearing in Spain

MADRID | Mon Apr 15, 2013 10:16am EDT

(Reuters) - A former HSBC employee wanted in Switzerland on allegations of stealing data on tens of thousands of bank accounts came before a Spanish court on Monday for extradition proceedings, arguing he was a whistleblower fighting corruption.

The data caused a sensation in 2010 when it ended up in the hands of tax authorities in France, Italy, Spain and other European countries, which have used it to go after billions of euros in lost taxes.

Switzerland has asked for Herve Falciani, who has Italian and French citizenship, to be extradited to face charges there of violating Swiss banking secrecy laws.

Three judges from Spain's High Court heard testimony from Falciani as well as a French prosecutor, Spanish tax authorities and a government lawyer before adjourning on Monday to consider the case.
They did not hear testimony from Switzerland or HSBC (HSBA.L), and officials from both could not immediately be reached for comment.

The lawyer for the Spanish state argued against extraditing Falciani.

"We can't punish people who, when they observe criminal conduct where they work, denounce it to the authorities," Dolores Delgado, state lawyer, told the court.

Falciani told the judges he had leaked the information to fight against a non-transparent system at the bank that made it easy for crime to be committed.

"I want to reiterate my disposition to fully cooperate with all my experience, not only with the European judicial authorities but especially with the first people who should be interested - the Swiss authorities and the Luxembourg authorities who are even more opaque," he said, speaking in French through a Spanish interpreter.

He told the judges in a courtroom in San Fernando de Henares, outside Madrid, he had received no remuneration for providing the data to France and other governments.

Switzerland's $2 trillion offshore banking sector, built on strict secrecy laws, has come under pressure as governments around the world try to clamp down on tax avoidance in the aftermath of the 2008 financial crisis.

On Friday the European Union's six biggest countries agreed to cooperate in the fight against tax havens, piling pressure on Austria to follow Luxembourg in ending bank secrecy. Tax evasion deprives EU governments of roughly 1 trillion euros ($1.3 trillion) annually.

Falciani, who worked as a computer technician for HSBC, collected the data on account-holders from 2006 to 2008, when HSBC discovered the data leak. In 2009 Falciani fled to France while he was under investigation by the bank.

Falciani told the judges that he had fully collaborated with French authorities so that they could use the encrypted data to pursue tax evaders.

HSBC says information on 24,000 client accounts was involved. French officials have said it was more than four times that many.

Former Spanish tax authorities told the judges that they had used Falciani's data, which they received from France, to pursue hundreds of tax evaders.

Falciani traveled to Spain by boat in July 2012 and was arrested in Barcelona on an international warrant seeking his extradition to Switzerland.

He was held in custody until December, when he was given conditional release pending the extradition proceedings.

(Reporting by Emma Pinedo; additional reporting by Sarah Morris; Writing by Fiona Ortiz; editing by Jane Baird)

Tax compliance deal signed with US

Switzerland's banking secrecy is set to be undermined further by the Fatca deal (Keystone) by Urs Geiser, swissinfo.ch
February 14, 2013 - 14:49

Switzerland and the United States have signed a controversial deal aimed at cracking down on wealthy American tax dodgers. The accord further undermines Switzerland’s tradition of banking secrecy.

The Foreign Account Tax Compliance Act (Fatca) obliges foreign firms to report offshore accounts by US tax payers that amount to more than $50,000 (SFr45,943).

The signing on Thursday came the day after Finance Minister Eveline Widmer-Schlumpf told a news conference that Switzerland had decided to agree to a bilateral deal with the Internal Revenue Service (IRS) which allows for certain exceptions, notably for the Swiss insurance sector, pension funds and the Swiss National Bank.

Switzerland is only the second state after Japan to opt for this type of agreement; most other nations are reportedly willing to sign a standard agreement.

Widmer-Schlumpf made no bones that the cabinet struggled to take a decision.

“Fatca is not something to rejoice about. But it is a pragmatic solution,” she said. She said further details of the accord would be published after the signing.

Swiss banks active in international financial markets have no choice but to apply the US rules, according to Widmer-Schlumpf.

Parliament still has to discuss the issue, after which the agreement can come into effect in theory at the beginning of 2014.

In an initial reaction to Widmer-Schlumpf’s announcement, the rightwing Swiss People’s Party said it reserved the right to reject the Fatca deal. It accused Washington of imposing its laws outside its own borders and lacking respect for the sovereignty of other states.

The Swiss Bankers Association said it welcomed the signing of the agreement although the banks continue to view Fatca "critically" due to the costs it incurs and the administrative burden it creates.

Fatca

The Foreign Account Tax Compliance Act (Fatca) was passed in the US in 2010 as part of the Hiring Incentives to Restore Employment Act.

It is designed to close loopholes in existing tax compliancy regulations, known as the Qualified Intermediary (QI) accord.

The law obliges foreign firms to report offshore accounts and security trades by US clients that amount to more than $50,000 (SFr47,942).

If they fail to do so, they will be hit with a 30% withholding tax.

The US plans to bring Fatca into force in stages, starting as early as next year.

Global settlement

Widmer-Schlumpf said negotiations with Washington on a global settlement for outstanding tax issues were still under way but she refused to elaborate.

The finance minister added the US authorities had given assurances that acceptance of the Fatca deal would be considered beneficial to speed up a global deal for Switzerland’s financial sector.

The government has been trying to strike a deal for about a dozen Swiss banks which risk court proceedings in the US over illegal tax practices.

Widmer-Schlumpf said the Fatca deal could also put more pressure on Switzerland to accept the automatic exchange of bank data with the European Union.

Until now Switzerland has refused to cave in to demands from Brussels, saying bilateral agreements with individual EU member states on a withholding tax were more practical.

Accords with Britain and Austria came into force at the beginning of the year. A similar deal with Berlin was rejected by the German parliament. Negotiations with a number of other countries are pending.

Urs Geiser, swissinfo.ch