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Mon, Aug 24, 2009 - Page 10 News List

Swiss size up hole in nation’s iconic banking secrecy


For more than 60 years, the Swiss have nurtured banking secrecy to the extent that it has become an unshakable part of Switzerland’s image, like chocolate, watches, cowbells and Heidi.

Many bankers, lawyers and analysts in the country, however, believe a deal struck with the US to relieve pressure on the flagship bank, UBS, has blown a hole in the wall of secrecy, even if it remains enshrined in Swiss law.

“The UBS disaster is a catastrophe for the Swiss financial center ... because everyone will rush for the breach,” said Patrick Segal, director of Edmond de Rothschild Private Bank.

Unlike most major economies, banking secrecy grants account holders in Switzerland complete privacy, keeping their banking details out of bounds for any authority — even the Swiss taxman. It can only be lifted for legally sanctioned investigations into criminal offences, and that, under local law, rules out the lesser offence of tax evasion.

Last Wednesday, the Swiss and US governments revealed their “treaty” settlement to end a lawsuit against financially troubled UBS over charges that its bankers used Swiss secrecy to help US taxpayers fraudulently evade taxes.

While Swiss President and Finance Minister Hans-Rudolf Merz described the deal as a “win-win situation” for both states, the details set off alarm bells in the industry.

It included an arrangement to disclose details on an unprecedented number of UBS accounts — 4,450 — through an established process to deal with tax fraud, which is regarded as a crime in Switzerland.

The scope, however, was tantamount to a “fishing expedition” that used to be frowned upon in the Swiss rulebook, setting a new precedent, experts said.

“Nobody can see legally how ... this treaty wouldn’t apply to other banks,” said lawyer Enrico Monfrini, who helped Nigeria recover hundreds of millions of dollars hoarded abroad by late dictator Sani Abacha.

Above all, it contained wording that blurred the distinction with tax evasion, where banking secrecy had been regarded as absolute in the past. Manuel Ammann, director of the University of St Gallen’s Institute of Banking and Finance, said that concession amounted to an “official” announcement of the relaxation of secrecy.

“In that respect banking secrecy has been weakened in Switzerland,” he said.

“That is new and due to the very strong pressure the Swiss government and the Swiss financial system has been put under by the G20 and by the OECD,” he said.

Recently valued by a banker at half of the sector’s 12 percent contribution to Switzerland’s GDP, secrecy has conjured up less innocuous thoughts abroad than those more picturesque Swiss icons. Local financial observers privately admit it has attracted foreign clients seeking to evade or avoid the taxman, those hoarding the proceeds of corruption, crime or dictators that plundered their country’s resources.

When Swiss authorities have faced foreign pressure, especially over the criminal element, they have ultimately narrowed the scope of secrecy or opened a door, notably to prosecute money laundering and seize embezzled assets.

“The private sphere has shrunk in the wash with each incident over the past 30 years,” Segal said.

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