Swiss Banks No Longer Seek ‘Swiss Solution’

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Swiss Banks no longer seek ‘Swiss solution’ by Chantal Britt,

June 12, 2014 – 17:00

Have Swiss banks found a new religion? They are now distancing themselves publicly from their belief in banking secrecy. Their new strategy: to influence global standards on the automatic exchange of client information.

“We’ve been fighting for banking secrecy for many years, but now we have changed our religion,” said Michel Dérobert, director of the Association of Swiss Private Banks. Dérobert was one of the speakers at a two-day seminar with journalists earlier this month. The bankers used the occasion to put on brave faces – explaining how they think they can maintain their stature amidst a global crackdown on tax evasion. “We want to stay an important financial centre, so we have to deal with the question of information exchange,” explained Claude-Alain Margelisch, chief executive of the Swiss Bankers Association (SBA). “We live in a time where the financial industry is criticised and questioned. The financial crisis has forced the authorities to more effectively collect their taxes. We can’t simply ignore that.” The global financial crisis, market manipulations and prosecutions for tax evasion by the authorities in the United States, Germany and France have dented the reputation of the Swiss financial services industry – the world’s biggest centre for offshore wealth.

Changing times

This culminated last year with the signing of a deal by Switzerland and the US for Swiss banks to cooperate with the US tax authorities, and last month Swiss approval of an Organisation for Economic Co-operation and Development (OECD) programme for the automatic exchange of tax information. Switzerland has come a long way. Private banker Hans Bär was still seen as fouling his own nest in 2004 when he said that banking secrecy makes you fat and impotent and that it’s unethical to make a distinction between tax avoidance and evasion. And even up to March 2008, the then finance minister Hans-Rudolf Merz told parliament that the attackers of the country’s banking secrecy legislation would have a tough time of it.

Playing ball

Six years later, there is not much left of the country’s original obstinacy. Today, the banks’ attitude is all about playing ball and getting equal treatment. The OECD will fix an information standard and Swiss banks have to apply the rules, which will be the same for everybody else, Margelisch said. And this time, the Swiss experts want to actively participate in discussions and influence the standards’ definition, terms and application, said Stefan Flückiger, who headed the Swiss delegation to the OECD. Later this year, the OECD is expected to release more detail on how the standards should be applied. Swiss bankers and diplomats are confident that their main concerns will this time be taken into account. According to Flückiger, a third of the technical input on the information exchange standard came from Switzerland. Reciprocity, data protection, the principle that data may only be used for tax purposes, a level playing field and the regulation of loop holes such as trusts and off-shore vehicles are the main points Switzerland would like to see the OECD address.

The end of secrecy?

So do all these concessions signify the end of banking secrecy? Perhaps for cross-border banking and tax matters it does. Domestically, however, the mills still grind slowly – and a change is unlikely. Eventually Swiss citizens will have to decide the fate of banking secrecy in tax matters in a popular vote. “It is a political decision whether we still have banking secrecy regarding tax in 10 years’ time,” Margelisch said. “Personally I don’t want the state to control what I do financially.” The crucial decisions on the automatic exchange over the next two years will have repercussions on the industry for many years to come. The banking industry is well aware of that, and it has changed its tune on the concessions the negotiators make. “I don’t see it as a submission to foreign judges,” said Flückiger. “You have to act in the interest of your country. You ask yourself what price you pay for the special case, what damage you may sustain if you risk a black listing.” The OECD proposal is not ideal but it’s the “least bad solution”, Flückiger said. And the banks themselves? They just want the uncertainty to end. Exchanging client data once a year is much preferable to the sword of Damocles dangling over your head. “It’s much easier for us to hand over the data than being held accountable years later, having to work out what transaction took place on a particular day in the past,” said Martin Scholl, CEO of Zürcher Kantonalbank. “All we need to do is to programme our computers to provide that information.”

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