Tax Analysts Blog

Switzerland – Their Lips Say Yes, But Their Eyes Say No.

Posted on Apr 4, 2017

How does a country go from being the world leader in bank secrecy to a leader in openness and transparency in nine years? That’s a complicated question with a number of acceptable answers. Let’s look at a few:

  1. You get caught. In the years leading up to 2008, Swiss banking giant UBS grew fat on the earnings of wealthy Americans and Canadians who enjoyed their citizenship’s privileges and benefits, but didn’t want to pay for them. Emboldened by the lure of the dollar, sheer hubris, and the feeling that they could not get caught, UBS bankers continued to push the marketing envelope within the U.S. and Canada until – mirabile dictu – someone turned them in.
  2. You get secrecy shamed. Traditionally neutral, Switzerland is nevertheless a member of the OECD, the coalition of 34 mostly industrialized nations. And while it’s not a member of the European Union, Switzerland does sit in the middle of Europe, surrounded by EU member nations. Partly in response to the global financial meltdown of the last decade, the OECD and the EU began to push for greater financial transparency. Suddenly it was no longer chic for Switzerland to recite its traditional mantra of banking secrecy if it wanted to continue to participate in global finance.
  3. You don’t. Instead, you make it look like you’re cooperating, while your internal institutions – which few people outside Switzerland fully understand – do everything in their power to maintain their country’s role in keeping secure the financial secrets of others.

Having played a role in prying open Switzerland’s vaunted secrecy regime, and in helping bring about an end to traditional notions of Swiss banking secrecy, I feel uniquely positioned to offer a view on the “right” answer, which is – ding, ding, ding -- #3!

Why #3? Isn’t Switzerland actually cooperating in opening up its bank secrecy laws, and helping other nations enforce their tax laws? While it may appear so, there are indications that Switzerland remains committed to its secrecy regime and simply hopes to weather the storm.

First, after UBS got caught, other banks actively solicited its exposed U.S. and Canadian clients, and picked up much of the slack. These included not just the “usual suspects” like Credit Suisse, but also two large Israeli banks, Bank Leumi (which has settled its liability with the U.S. Department of Justice), and Bank Hapoalim (which has not). It is telling that the United States – not Switzerland – led these investigations.  

Second, rather than go after its own banks, Switzerland actively investigated how private information about individual account holders was leaked to foreign tax authorities, including those in France and Germany. When it identified the leakers, it prosecuted them.

Third, for years after 2008, Swiss courts continued to side with bank customers who sought to keep their records hidden from foreign tax authorities. On this front, customers enjoyed not only the protection of Swiss banking secrecy, but also the Swiss court system, in which the identities of litigants remain private.

Recently, Dutch tax authorities – acting alongside their counterparts in Australia, France, Germany, and the U.K. – asked Switzerland to provide information about depositors at an unidentified Swiss bank (reportedly Credit Suisse). They are investigating hundreds of their own citizens for failing to disclose assets and pay income taxes. Switzerland protested that the Dutch did not give advance notice of the request.

Given Switzerland’s track record, who can blame the Dutch for that?

Read Comments (2)

Barry ShottApr 4, 2017

Ding ding ding. Right on the money!

Mike55Apr 5, 2017

I think you have a very good/interesting point here, but I'm not sure whether it's a mountain or a mole-hill in terms of impact. While the Swiss response to the UBS scandal was not as fast/strong as we'd have liked, it appears to have been enough to get the job done. By all accounts the dirty money and tax evader crowd no longer use Swiss bank accounts, meaning Switzerland ultimately did what was necessary (albeit in a less than enthusiastic fashion).

And really, who can blame the Swiss? The Panama Papers confirmed what Switzerland has been claiming all along: Wyoming legal entities and UK trusts (which offer their owners anonymity) are every bit as useful for hiding untaxed and/or illegal money as a secret Swiss bank account. Given the blatant double-standard being applied, perhaps we ought to be glad that at least "their lips say yes."

For the avoidance of doubt: two wrongs don't make a right, so I'm glad secret Swiss bank accounts are no longer viable. I hope that soon we'll be able to say the same of legal entities that allow people to hide money. The point is simply that, given the glass house status of the U.S., we can't expect other countries to endure the stones we are throwing without push-back.

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