While UBS is still embroiled in its own troubles, it looks like Swiss private banks are enjoying the demise of their larger international brothers. While UBS has been strong-armed into confession and penalties because of its activities in the US, small Swiss private banks are feeling righteously confident that US authority cannot touch them.
Private bankers from the Swiss bankers association have put on a unified effort to defend secrecy laws, which are still punishable by up to 3 years in jail for breaking confidentiality. In fact, they are keen to point out, its still illegal to share financial information concerning their clients with the Swiss government let alone a foreign tax authority.
But there’s a monster on the horizon.
The Swiss government has agreed to follow the OECD model on exchange of tax-related information, and to comply with this agreement at least 12 tax treaties with other nations will have to be renegotiated - the upshot being that in future Swiss banks will have to divulge the financial records of their clients if foreign authorities can provide evidence of tax evasion.
Not only that, but US authorities like the IRS are pressing for “automatic” exchange of information of suspected tax evasion, which Switzerland previously did not treat as a crime, only cooperating in cases of suspected tax fraud (e.g. willfully forging a tax return). This will not be the first time American has pressured Switzerland to change its sovereign laws. In 2004 the treasured “numbered bank account” was essentially phased out by US instigated anti-money laundering legislation.
Despite this, the secret weapon could be the Swiss themselves. Secrecy is ingrained in the Swiss psyche. And why not? It has brought them a lot of money over the years.
It’s not only the financial sector which has a stake in this, but the people who recognize that a huge flight of capital from their country isn’t going to benefit them one bit. Individual treaties could find themselves the subject of a national referendum - only 50,000 signatures required to vote. With over three
quarters of Swiss citizens believing their nation’s Secrecy laws should not be changed (according to an SBA poll), the battle is not over yet.
Source: Bloomberg.
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