First posted on Commercial Law International on June 29, 2009.
The world economic down turn has had many knock on effects, many of which unexpected. It seems that bad times has the uncanny effect of making the once unthinkable, unsayable and undoable all very much possible.
The Swiss banking model can be best characterized with one word: Secrecy.
This don’t ask, don’t tell attitude is more than just a business model – it is enshrined in Swiss law. The high protection that client confidentiality receives in Switzerland has made it a favorable destination for the money of my high net worth individuals wishing to shield their money. Also it doesn’t hurt that it also has a very favorable tax policy as well.
This Swiss shield unfortunately is not very discriminating – it basically protects all comers. It makes no distinction between those who wish to shield their money for legitimate or illegitimate purposes. Moreover, it doesn’t even a make a distinction between rightfully and ill gotten gains. This hands off approach while very profitable has lead to some very tragic and embarrassing incidents for Switzerland. Specifically, I am mainly speaking of Nazi accounts filled with plunder during their rise and fall but generally I am also referring to Swiss banks being the preferred destination for the money of certain criminal elements and many a dictator.
Please don’t get me wrong, I am not trying to say that the Swiss actively seek out ill gotten gains – to my knowledge they do not – nor am I saying that they have done nothing to try and rectify ill gotten gains ending up in their banks, I am not trying to say that at all. Then what am I trying to say?
What I am trying to say is simply this: any system predicated on secrecy will have its limits on how well it can tackle the twin issues of legitimacy and source of funds.
However, times they are a changing.
This change is evidenced by four things. The first is a long and as yet to be resolved battle between UBS and US authorities over the names and identities of some of the banks US clients and with it opposing interpretations of the US-Swiss Tax Treaty. The second is the OECD´s tax haven black list, talk of G20 nations developing a sanctions regime aimed at tax heavens and the drive by OECD countries and in particular the US to conclude double taxation agreements. The third is the revised US-Swiss double taxation treaty. And lastly is the current economic climate.
All of this has forced the Swiss into re-think mode. As reported in the Financial Times: leading members of the Swiss Private Bankers Association have recognized they may have to raise tax compliance with clients and, if necessary encourage them to declare previously hidden assets.
Does this mean an end to secrecy as the cornerstone of the Swiss banking model?
Highly unlikely. However, it does mean a few rays of light into the otherwise dark room of secrecy called the Swiss banking model.
Some good thoughts in this article, but unfortunately primarily based on James Bond and other Hollywood fiction. Swiss banking is based on individual’s privacy, that is true, but there is no such thing as secret number accounts and there isn’t any Don’t ask/Don’t tell mentality either. That’s pure fiction. In fact, for over a decade now Switzerland has the most rigid laws against money laundry and related crimes WORLDWIDE and is also actively reimbursing ill-gotten money. A quick Google search will confirm these facts. Now compare this to some States in the US (e.g. Delaware, Florida) that are true tax havens, and you will see that the current campaign against the so-called tax heaven Switzerland is in fact an attempt by the IRS to export their tax laws without having to clean up at home, for whatever reasons.
That said, I agree that a business model based on secrecy is probably not the best, but if you think about it and consider all the rules that are in place in Switzerland to avoid abuse, it really is more about privacy of individuals than protecting cheats, unlike in many other places, including all the no questions asked anonymous firms and companies in Delaware or the funds in Miami. Denying that is just pure hypocrisy, nothing else.
Rob