March 14 2009
Switzerland’s decision yesterday (Friday) to play by international tax rules is the result of a great deal of political arm-twisting aided by the sting of scandal.
The long struggle to persuade the Swiss to abandon their bank secrecy is not yet over. There is still plenty of room for foot-dragging and hair-splitting and it is likely to be several years before any information is actually exchanged. But yesterday was important.
In accepting the OECD’s principles for the exchange of information on tax, the Swiss finally abandoned their insistence on a single, all-important legal point, that tax evasion is not a crime unless it involves active fraud, such as the forgery of paperwork.
They will continue to treat evasion by their own citizens as a civil matter but finally, for foreigners, they have agreed in principle to provide on request the details of wealthy individuals and corporations who have income arising in Switzerland.
The Swiss moved primarily because they were faced with the deeply undesirable prospect of finding themselves on a blacklist of uncooperative tax havens, due to be announced at the G20 meeting in London in April.
This was not simply a threat of being named and shamed but, as the Guardian revealed last month (Feb), of being subjected to serious economic sanctions designed to drive away billions of dollars of their banking business. Since Switzerland earns 15% of its GDP from the finance sector, this threat made an impression.
In the background, Switzerland’s political authority has been severely weakened by the American investigation into one of their oldest and most prestigious banks, UBS, who have been caught out brazenly helping thousands of wealthy Americans to evade their taxes. UBS staff have also been breaking the US law which forbids foreign bankers to tout for business, by lying on their visa forms about the purpose of their visits to the US, carrying business cards which concealed their true profession, using laptops with heavily encrypted files and deploying counter-surveillance techniques for which they were specially trained.
Even so, Switzerland continued to resist change, arguing that they simply could not afford to change their ways, because they would lose so much business to other havens. But, in a cleverly worked piece of diplomacy, the OECD persuaded all of their main competitors – Liechtenstein, Singapore, Hong Kong, Austria, Belgium and Luxermburg – to announce over the past 48 hours that they, too, would agree to provide information on tax evaders.
But this remains only one significant battle in a long war against tax dodgers. No information will be disclosed until the Swiss have negotiated detailed double-taxation agreements with other nations. That process could take several years. The Swiss are already indicating that they will hand over information only if a detailed request is submitted and if that request complies with their own procedures.
They are also calling for a ‘grandfather clause’ which would allow them to continue to conceal all information about accounts or investments which have been made with them in the past. Since Swiss banks are believed to hold something like a third of the estimated $11.5 trillion of personal wealth which is hidden offshore, this would knock a very big hole in yesterday’s announcement. One source yesterday suggested that this was simply a PR gesture to persuade existing account holders to stay with them.
Bruno Gurtner, the Swiss economist who chairs the global board of the Tax Justice Network, welcomed yesterday’s announcement but warned that nothing would change until the new treaties were negotiated. “In the meantime, people with accounts in Switzerland have the chance to move their money away to other havens who still do not accept the principles.”