Switzerland under siege as tax row escalates

Algirdas Semeta is gunning for Switzerland (Keystone)

by Matthew Allen, swissinfo.ch
(with input from Armando Mombelli)
April 14, 2013 - 14:56

Switzerland has been forced firmly back on the defensive as the global row over tax evasion heated up during the week, culminating in fresh calls for Swiss banks to automatically hand over details of foreign clients to other countries.

Having already succumbed to a United States demand for information on its citizens’ Swiss accounts, a fresh attack has been mounted by the European Union that threatens to isolate countries that refuse to bend to its will.

Switzerland’s position of defiance appeared to have been weakened by Luxembourg’s capitulation last week to EU demands for an automatic exchange of tax data. Austria also came under sustained pressure from EU finance ministers - meeting in Dublin on Saturday - to fall into line, but is so far resisting.

European Commissioner for Tax, Algirdas Semeta, said after the meeting that he hoped for a mandate from EU member states to start tough new negotiations with Switzerland in the near future.

The debate, that has been running on for several years, has been given new impetus by the “offshore leaks” media headlines in the last two weeks that have revealed details of how the global offshore system operates.

Switzerland has also attracted unwelcome attention by the revelation that former French Budget Minister Jerome Cahuzac had hidden assets form the French tax authorities in a secret Swiss bank account.

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

Worse still, 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 February of this year, Switzerland officially agree to implement the US Foreign Account Tax Compliance Act (Fatca) that will force Swiss banks to automatically hand over details of US clients.

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.

In April of this year, former French Budget Minister Jerome Cahuzac admitted that he had hidden assets ina  secret Swiss bank account.

Opinion divided

Swiss Finance Minister Eveline Widmer-Schlumpf and the Swiss Bankers Association have so far refused to bow to the renewed EU assault, arguing that Switzerland is poised to implement its own policy to weed out tax cheats from its banks.

Switzerland is desperate to hold on to the last remnants of its once fabled banking secrecy by offering to tighten up the system of forcing foreign clients to either declare accounts to their EU home countries or pay taxes on their assets anonymously.

“It is conceivable that different standards can coexist,” Widmer-Schlumpf told Le Temps newspaper on Saturday. But she held out an olive branch to the EU  the Sonntagszeitung on Sunday.

“I have never said that an automatic exchange of information would not be considered in future,” she said. “But it comes down to the fundamental question of what information we would exchange.”

But Widmer-Schlumpf’s position was rather undermined by the leader of her own Conservative Democratic Party, Martin Landolt, who has breached a taboo by openly discussing how an automatic exchange of information could work in theory.

Given that honest taxpayers already reveal their financial affairs to the Swiss tax authorities, this system could be extended to pass information to other countries, he told the NZZ am Sonntag newspaper.

Digging in heels

Ueli Maurer, Defence Minister and this year’s Swiss President under the revolving system, used the media this weekend to put forward his view that Switzerland should stand firm against continued attacks on its financial centre.

“The state should completely respect the privacy of individuals,” he told Le Matin Dimanche newspaper. “There is absolutely no reason that this [automatic exchange of information] should be a theme for us.”

The thorny issue of automatic information exchange continues to polarise opinion in Switzerland. The financial sector and its supporters feel that Switzerland has already given enough ground since UBS bank was caught red handed aiding and abetting tax evaders in the US in 2009.

Since then, Switzerland has handed over the details of thousands of UBS account holders to the US, agreed to cooperate more fully with tax investigations in other countries, renegotiated numerous double taxation treaties and introduced a “clean money” strategy for its financial centre.

Argument already lost?

But others feel that Swiss banking secrecy is already dead, making it pointless to reject automatic information exchange.

“In future, any financial intermediary that aids tax evasion - or who even just hears about it - can be pursued on charges of money laundering for not identifying clients or informing the authorities," Geneva tax expert Douglas Hornung told swissinfo.ch. “This is a sword of Damocles for all who work in this field – those involved should divorce themselves from it.”

Tax lawyer Marco Bernasconi also points out that bank security is no longer watertight given the weight of data that has been stolen and sold to foreign governments.

“Whereas banks could hide money relatively securely in offshore structures up until a few years ago, secrets are much harder to keep today,” he told swissinfo.ch. “This model belongs to the past, because today, it’s becoming harder and harder to evade taxes.”

Matthew Allen, swissinfo.ch
(with input from Armando Mombelli)

Austria defends bank secrecy

Finance Minister Maria Fekter rejects data exchange

Austrian Finance Minister Maria Fekter. Photo: Reuters

Saturday, April 13, 2013

Austria dismissed calls yesterday to follow Luxembourg in ending bank secrecy but pressure grew as a group of Europe’s biggest countries prepared to outline plans to tackle tax evasion which is said to deprive EU governments of one trillion euros annually.

In blunt remarks on the sidelines of a meeting of European ministers, Austria’s finance minister described any exchange of information about account holders as an invasion of privacy and criticised other countries for failing to tackle what she called the real “hot spots” of money laundering.

“Austria is sticking to bank secrecy,” Maria Fekter told reporters in typically combative form, putting her country in a minority of one at a meeting of 27 EU ministers.

She attacked the Group of 20 top economies for not taking “any step to close the money laundering in all the islands like Cayman Islands, Virgin Islands or... in Delaware”.

But Fekter’s case was looking increasingly hopeless as ministers from Germany, France, Spain, Italy and Britain yesterday said they were preparing to outline their vision for cooperating to tackle tax evasion.

EU leaders will also discuss how to combat the issue when they meet at a summit next month, said the president of the European Council.

“We must seize the increased political momentum to address this critical problem,” Herman Van Rompuy, who chairs meetings of EU leaders, said in a broadcast statement.

The meeting of EU finance ministers in Dublin follows Luxembourg’s decision this week to share foreign bank account details with EU governments from 2015, bringing it into line with all other countries in the bloc bar one - Austria.

The discussion, which is set to continue today, could see some frank exchanges between Germany, whose finance minister Wolfgang Schaeuble campaigned against bank secrecy, and Fekter, who has promised to fight “like a lion” to keep it.

“Automatic exchange of information involves a massive interference in people’s privacy rights,” Fekter has said. “Here the state sniffs around deep into the private affairs of account holders.”

Confidentiality is so cherished in Austria that banking secrecy is anchored in the Constitution. It has deep traditional roots.

Fekter faces a difficult fight. France, in particular, wants to underscore its determination to tackle tax fraud, one official said.

France’s former budget minister Jerome Cahuzac is under investigation for fraud after admitting lying about having a Swiss bank account, an affair that has prompted criticism of French President Francois Hollande.

It is unclear if Fekter will have her way even in Austria, with some voices pushing for a more moderate approach, including the country’s chancellor, Werner Faymann.

He has said it would be possible for Austria to share information on foreigners’ accounts without violating banking secrecy. (Reuters)

UPDATE 3-Luxembourg calls time on bank secrecy with EU states

Wed Apr 10, 2013 10:39am EDT

* Luxembourg PM says ready to share bank account information
* New transparency regime would begin from Jan. 1, 2015
* Move follows pressure from Germany and French scandal (Adds comment from Schaeuble, paragraph)
By Michele Sinner

LUXEMBOURG, April 10 (Reuters) - Luxembourg plans to lift bank secrecy rules for European Union citizens who have savings based in the country, the prime minister announced on Wednesday, marking a sharp shift in policy that will take effect from 2015.

The move would bring Luxembourg into line with all other EU countries bar Austria in sharing information within the European Union about bank depositors in its territory. The decision adds to pressure on Vienna to fall into line, after Austria's chancellor said on Tuesday it would join talks on the subject.

Luxembourg's decision follows lobbying by Germany and the European Commission, bolstered by the case of former French budget minister Jerome Cahuzac, who is under investigation for fraud after admitting lying about having a Swiss bank account.

"We can, without great damage, introduce automatic exchange of information as of January 1, 2015," Prime Minister Jean-Claude Juncker told parliament in a state-of-the-nation address.

"We are following a global movement ... we are not caving in to German pressure," he said, adding that 25 EU countries as well as the United States wanted such data-sharing.

Germany said on Tuesday that the EU's five largest economies - Germany, France, Britain, Italy and Spain - had agreed to deepen cooperation on tackling tax evasion.

Juncker's announcement ends decades of bank secrecy in Luxembourg, which helped the country establish what is now one of the biggest financial centres in Europe and to make its citizens the region's wealthiest in terms of per-capita income.

Luxembourg, with a banking industry roughly 22 times the size of its economy and with deposits 10 times its GDP, has come under heavy pressure to change in recent weeks.

The losses imposed on uninsured deposit holders in the bailout of Cyprus underscored the weak bargaining position of smaller EU states should they run into difficulty. Cyprus's financial sector, swollen with foreign funds lured by low taxes and light regulation, also dwarfed the island's economy.

Germany's Finance Minister Wolfgang Schaeuble welcomed Luxembourg's move.

"This is truly no small step for Luxembourg and it deserves our respect," Schaeuble told the Sueddeutsche Zeitung daily, according to excerpts of Thursday's edition.

"We will not wait until every last Caribbean island has changed its behavior but with a broad international approach we will be successful."

The European Commission "warmly welcomed" the announcement by Juncker and said discussions were ongoing with Austria to encourage it to fully sign up to the EU's savings directive, a piece of legislation that advocates say will help in the fight against tax evasion across the EU.

"I hope they will be able to follow the Luxembourg lead," said Emer Traynor, the Commission's spokeswoman on tax issues.
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For a ranking of countries' compliance with banking transparency standards, please click link.reuters.com/gyb37t ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

FIGHT LIKE LION

Luxembourg is also set to sign a similar agreement with the United States, which has long been pushing for tighter controls on offshore centres such as Switzerland to stop tax evasion.

Pressure to shift increased after a report by the Washington-based International Consortium of Investigative Journalists detailed how banks have worked to help wealthy clients use tax havens such as the British Virgin Islands.

"We cannot deny to the Europeans all that we will have to concede to the Americans in a bilateral treaty," said Juncker.

Once Luxembourg adopts the legislation, it would mean the automatic exchange of data about EU citizens holding bank accounts in Luxembourg, with the aim of cracking down on tax avoidance in particular on interest income from savings.

It will not apply to foreign companies based in the country, which is a popular headquarters for major corporations. Juncker said Luxembourg would not increase corporation tax.

Most developed countries share information on taxpayers and depositors "on demand". But since this requires the authorities in the requesting jurisdiction to suspect wrongdoing, it only has limited impact in uncovering unlawful behaviour.

Automatic exchange of information allows tax authorities to more easily spot tax evasion or illicit money flows.

Juncker played down the impact of the change in rules, which Luxembourg has been resisting for roughly seven years since the EU Savings Directive was launched.

"The finance sector in Luxembourg doesn't existentially depend on banking secrecy," he said. "The government is not switching off the lights in the finance sector."

Luxembourg's announcement leaves Austria as the only country not fully signed up to savings directive rules. Its finance minister said this week she would "fight like a lion" to defend the country's banking secrecy regime.

But Chancellor Werder Faymann signalled an easing of Vienna's hardline stance, saying on Tuesday that Austria would join Luxembourg for talks with the EU on how to crack down on cross-border tax cheats.
The European Commission warned Austria on Monday that its banking secrecy would put it in a "lonely and unsustainable position" if it did not adopt the same rules as other countries in sharing data on foreign depositors.

(Additional reporting by Gareth Jones in Berlin; Writing by John O'Donnell; Editing by Catherine Evans and Susan Fenton)

Austria minister to fight "like a lion" for bank secrecy

April 8, 2013 - 10:14

VIENNA (Reuters) - Austrian Finance Minister Maria Fekter will fight "like a lion" to defend the country's banking secrecy, she told a newspaper, promising to veto any steps that endanger the centuries-old tradition.

Austria is staunchly opposed to automatically exchanging information on depositors with fellow European Union members who want to abolish banking secrecy as a way to crack down on cross-border tax evasion.

It taxes interest income at source and sends the proceeds back to the depositor's home country without revealing any names, a system it defends as being more efficient than exchanging personal information with foreign governments.

But that model looks increasingly unsustainable since the rescue of Cyprus's banks.

It was Greece's sovereign debt crisis that pushed Cypriot banks over the edge, but the failure also underscored the risks of allowing offshore banking to become the principle business of national lenders.

Luxembourg, the only other EU member that refuses to automatically share data on banking clients with EU peers, is ready to ease its secrecy rules and work more closely with foreign tax authorities, Finance Minister Luc Frieden told a German paper at the weekend.

Fekter took a much harder line in an interview with Austrian paper Oesterreich printed on Monday.

"I am a hunter of tax cheats but also the protector of honest savers. It is unjustified to open all the savings accounts of those who have done nothing wrong. That is why I am fighting like a lion for banking secrecy," she said.

She assumed Austria would keep its banking secrecy for a long time, adding: "As minister I will not approve any agenda item that jeopardises banking secrecy."

Most developed countries, including Austria, already share some information on taxpayers and depositors on demand, but since this requires the authorities in a jurisdiction to suspect wrongdoing, it only has limited impact in uncovering unlawful behaviour.

Automatic exchange of information allows tax authorities to more easily spot tax evasion or illicit money flows.

Austria has already struck tax deals with neighbours Switzerland and Liechtenstein that preserve tax secrecy and is about to embark on tax talks with the United States, which is campaigning to track down the offshore wealth of its citizens.

Should Vienna strike a deal with Washington along the lines of one Switzerland signed this year - to make banks disclose information about U.S. account holders - while withholding similar information from its fellow EU members, it will be a red flag for Brussels.

European tax commissioner Algirdas Semeta criticised Austrian banking secrecy policies in January and said Vienna would break the law if it adopted such selective disclosure.

(Reporting by Michael Shields; Additional reporting by Tom Bergin; Editing by Tom Pfeiffer)
Reuters

Luxembourg 'open' to bank transparency, Luc Frieden

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Luxembourg would consider greater transparency of its banking sector to help curb tax evasion, the finance minister has told a German newspaper.

 

Continue reading the main story

Luxembourg would consider greater transparency of its banking sector to help curb tax evasion, the finance minister has told a German newspaper.

In an interview published on Sunday, Luc Frieden said he wanted to "strengthen co-operation with foreign tax authorities".

Luxembourg is known for its highly secretive banking sector.

Germany is among the countries which say it is being used by foreign customers as a tax haven.

Speaking to Germany's Frankfurter Allgemeine Sonntagszeitung newspaper, Mr Frieden acknowledged that other countries were increasingly demanding more information on what their citizens were doing with their money in foreign banks.

"The international trend is going toward an automatic exchange of bank deposit information. We no longer strictly oppose that," he said.
Reliant on banks
On Friday Germany signed a tax evasion treaty with Switzerland - another European banking centre known for its secrecy.

It is designed to allow Germany to claw back taxes from German depositors hiding money in Swiss banks.
Luxembourg is a country of only 500,000 people, but its banks and other financial institutions have assets worth more than 20 times the country's economic output.

Despite its heavy reliance on financial services, Mr Frieden insisted Luxembourg "does not rely on clients who want to save on their taxes".

He has previously said he wants banking customers to be attracted to Luxembourg by the quality of its banking services, rather than its secrecy.

Calls for more transparent banking sectors have grown louder in Europe in recent years, as governments seek to raise more taxes to support their finances amid a global recession.

The recent bailout of Cyprus has also raised particular concerns about the risks posed by small European states with over-sized financial sectors.

US court orders oldest Swiss bank to pay up

Wegelin & Co., founded in 1741 in St. Gallen, is shutting its doors after the resolution of a US court case over aiding tax evaders (Wikimedia Commons)

by Rita Emch in New York, swissinfo.ch

A United States court has sentenced Switzerland’s oldest private bank, Wegelin, to pay $74 million (CHF69.5 million) for aiding tax evasion. This is the first such US indictment of a foreign bank.

Judge Jed S. Rakoff handed down the sentence on Monday afternoon in a Manhattan courtroom, taking into account the requests of both the prosecutor and the bank in setting the amount to be paid.

"Wegelin has now paid a steep price for aiding and abetting tax fraud that should be heeded by other banks, bankers, and advisers who engage in the same conduct," Manhattan US Attorney Preet Bharara said in a statement. “US taxpayers with undeclared accounts - wherever those accounts may be - should know that their bank may be next, and they should pay what they owe the IRS [US Internal Revenue Service] before we come find them.”

US tax probe

Wegelin private bank pleads guilty

Switzerland’s oldest private bank, Wegelin, has pleaded guilty to helping wealthy United States taxpayers dodge taxes through offshore accounts. The bank was indicted last February on charges of conspiracy and fraud.  [...]

Business Banks in turmoil 6 comments

Wegelin’s case marks the first time a foreign bank has been convicted in such a case in the US. The US government filed conspiracy and fraud charges against Wegelin in February 2012 in connection with having helped Americans hide at least $1.2 billion from the IRS.

Federal authorities said Wegelin bankers began pursuing US clients of UBS once the Justice Department's probe of that bank became public in 2008.

At the end of 2012, Wegelin sold a large part of its business to the Raffeisen Group. On January 3, Wegelin pled guilty to the charges and agreed to a multi-million dollar fine. In return, the criminal case was dropped and both sides waived the possibility of appeal.

The sentence handed down to Wegelin on Monday requires the bank to pay reparations for allegedly untaxed income of $20 million and $15.8 million in profits the bank made from US tax evaders.

In addition, the sum included a fine of $22.05 million and $16.3 million related to a correspondent Wegelin account found at UBS and confiscated by the US Justice Department.

The bank must pay its entire fine within three days. To ensure payments are made, the judge issued a probationary period of one month.

Longstanding tax fight

UBS was the first bank to come under observation from the US Internal Revenue Service (IRS). In 2009, UBS had to pay a $780 million fine for aiding tax evasion.

In 2010, the Swiss government came to an agreement with the US which involved sending the names of 4,500 American UBS clients to the IRS. The agreement was ratified by parliament in 2010.

Tax amnesty legislation in the US has led around 30,000 tax evaders to declare assets hidden in overseas banks. The US Justice Department has gathered significant evidence against Swiss banks which helped hide such assets.

In 2011, US officials opened investigations into ten Swiss banks regarding tax evasion, including Credit Suisse.

Several lawyers and bank workers have since been arrested or charged in the US with aiding tax evasion. Three managers from Wegelin were among them.

At the end of 2012, Wegelin sold a large part of its business to the Raffeisen Group. A few days later, the US Justice Department charged Wegelin with aiding and abetting tax evasion.

It was the first time that such charges were brought against a foreign bank in the US and the first time such a case went to court.

At the end of 2011, the US Justice Department demanded bank client data relevant to American business from all Swiss banks, including the names of bank employees and of tens of thousands of clients.

After having first spoken out against giving up the data, the Swiss government gave the green light for its transfer in April 2012, unleashing a massive controversy across the country.

Switzerland and the US have long been searching for a negotiated global solution to their tax evasion issue.

Legal jurisdiction?

“To me, what justifies this deal - which is what it is - is the practical reality that it would have been difficult for the government to have obtained jurisdiction over the bank,” Rakoff said before he handed down the sentence. “Some credit has to be given to the bank for coming forward in those circumstances.”

Prior to announcing his decision, Rakoff had negotiated the sentence with both sides. The judge nonetheless expressed his surprise that while the Justice Department had accused the bank of being “extremely intentional” in its aiding of tax evaders, prosecutors did not insist on the maximum fine.
 
Wegelin’s $74 million fine represented about 12 per cent of the CHF560 million it earned when it sold the largest part of its holdings to Raffeisenbank. “Not much pain there, is there?" the judge remarked.

Although Otto Bruderer, the Wegelin representative present at the sentencing, did not make a statement, the bank noted in a press release its “satisfaction” that the judge had stuck to the fine and compensation amounts agreed upon with the prosecutor.

“With this ends the tradition of the private bank Wegelin & Co., founded in 1741,” the release stated. It also noted that all banking operations would be discontinued and all remaining tasks would be carried out by a special entity.

More Swiss banks in the crosshairs

The case against Wegelin is part of a massive US effort against tax evasion begun in 2007 with an investigation into UBS.

However, the Wegelin sentence has not ended Swiss banks’ relationships with the US Justice Department. Investigations into 10 more banks, including Credit Suisse and the Zurich and Basel cantonal banks, are ongoing.

A case against three Wegelin account managers is also still pending, a spokesperson for the prosecutor said after Monday’s sentencing.

Recent pressure on Swiss banking secrecy has not only increased from the US but also from the European Union and international bodies like the Organisation for Economic Co-operation and Development (OECD).

Switzerland has felt compelled to respond to international pressure and negotiate over issues that were previously considered “non-negotiable”.

Rita Emch in New York, swissinfo.ch
(Translated from German by Veronica DeVore)

UBS told to give IRS data on Wegelin accounts

Wegelin, Switzerland’s oldest private bank, pleaded guilty to charges of helping wealthy Americans evade taxes (Keystone)

Jan 29, 2013 - 09:03

A federal judge in the United States has authorised the Internal Revenue Service (IRS) to seek records from Swiss bank UBS of US taxpayers suspected of hiding their income in accounts with Swiss bank Wegelin.

Wegelin, Switzerland’s oldest private bank, pleaded guilty in Manhattan federal court on January 3 to charges of helping wealthy Americans evade taxes through secret accounts and then announced it would close down as a result.

On Monday, US District Judge William Pauley in Manhattan granted the IRS’s request to issue a “John Doe” summons, which seeks information about possible tax fraud committed by individuals whose identities are not known, to UBS for the names of taxpayers who may have hidden income at Wegelin and other Swiss banks.

A UBS spokeswoman declined to comment on the ruling.

When the government indicted Wegelin nearly a year ago, it alleged that the bank used a US correspondent account at UBS to handle funds for American clients, a standard industry practice for foreign banks. By covertly transferring money from undeclared Swiss accounts, Wegelin allowed clients to avoid paying income taxes in the United States, the government alleged.

Guilty plea

Wegelin became the first foreign bank in recent memory to be indicted by US authorities last February, opening a new chapter in a broad probe into Swiss banking secrecy.

As part of its guilty plea, the bank agreed to pay $57.8 million (SFr53.5 million) in fines after admitting to helping US clients evade taxes for more than a decade.

It announced on the same day that it would shut its doors permanently after more than 270 years in operation.

In 2009, UBS entered into a deferred-prosecution agreement, turned over 4,450 client names and paid a $780 million fine after admitting it provided tax-evasion services to rich Americans. Since then, dozens of Swiss bankers and their clients have been indicted in a crackdown on the practice.

swissinfo.ch and agencies