Reg Rage: G-20 bullies Swiss bankers into submission
Switzerland has just caved in to pressure from the big economic powers and relaxed its banking secrecy laws. Some fear this is the beginning of the end of its long tradition of client confidentiality. Writer Michael Imeson
What is it?
The Swiss government has just agreed to accept the Organisation for Economic Co-operation and Development's (OECD's) Model Tax Convention when entering into tax agreements with other countries. This will force Switzerland to provide details of foreign banking clients to foreign tax authorities if those authorities make a formal request because they suspect tax evasion.
Swiss banks support the decision partly because there was a danger of being blacklisted by the big economic powers, and partly because large elements of Switzerland's privacy laws have been retained. However, some bankers are worried that it is only a matter of time before the laws come under further attack.
Who dreamed it up?
The G-20 and the OECD. They are waging war against low-tax, high-privacy jurisdictions, which they accuse of siphoning off much-needed tax revenues in a recession. Not only is Switzerland on a potential blacklist, so are Luxembourg, various British crown dependencies and offshore territories, Andorra and other countries. In the US, senator Carl Levin and other senators introduced a Stop Tax Haven Abuse Act in March, which is supported by the Obama administration. In the UK, prime minister Gordon Brown has said that the government is conducting a "serious and constructive" review of UK tax havens.
What are the main provisions?
The OECD's Model Tax Convention is the world standard for double taxation agreements. The contentious part for Switzerland was Article 26, which states that a country cannot refuse to provide information on the grounds that the tax offence in question is not a criminal offence under its own laws. In Switzerland, tax evasion is only a civil offence.
The Swiss accept Article 26, but have not agreed to an automatic exchange of information on all foreign clients. They are against such "fishing expeditions" - random, indiscriminate searches - because they believe it is wrong to regard everyone as a suspected tax evader.
What's in the small print?
Countries negotiating double taxation agreements with Switzerland could try to make them retroactive and force the disclosure of information going back years.
What does the industry say?
"We will not automatically provide information on all our foreign clients to the authorities," says Pierre Mirabaud, chairman of the Swiss Bankers Association in Basel.
He accuses many countries of double standards.
"I would define Mr Brown and the UK government's position as full of hypocrisy," he says. "UK trust laws, for example, protect beneficial owners from having to disclose their identities."
How much will it cost?
Not much, if only those suspected of tax evasion have their details revealed. But if automatic disclosure is imposed, the costs for Swiss banks would be far higher.
What do the legislators say?
"With the globalisation of financial markets and in particular the current financial crisis, international co-operation in tax matters has become increasingly important," says Switzerland's Federal Council. It has repeated several times that its decision "does not constitute the end of bank secrecy".
However, with senator Carl Levin's Stop Tax Haven Abuse Act in the mix, the pressure on countries to agree to automatic information exchange will be intense. "The bill's target is offshore tax abuses that rob the US Treasury of an estimated $100bn each year and reward tax dodgers using offshore secrecy laws to hide money from 'uncle Sam'," he says. Emotive talk tends to win campaigns.
The law of unintended consequences
With Switzerland's reputation for banking secrecy weakened, money could haemorrhage to other centres.
Could we live without it?
Yes.
