A Bitter Battle of Self-Preservation
July 14th, 2010
July 14th, 2010
In October of last year I wrote about Roman Polanski, a sex offender turned movie director, who has lived in Europe since 1978 when he fled the United States (see: Confessions of a WaPo Reader). Swiss authorities took Polanski into custody last fall in Zurich and it looked as though European authorities might extradite Polanski to the United States. That October I argued that the arrest was a move to sooth U.S.-Swiss relations in the wake of the IRS inquiry into Switzerland’s largest bank, UBS. I noted it was a part of a growing trend toward accountability and transparency worldwide.
I need to retract that relatively strong statement, though perhaps not wholly.
About a month ago, the Swiss Parliament voted to allow UBS to disclose 4,450 tax evading American names to the IRS, which had been part of a settlement between the U.S. Department of Justice and the Swiss bank. Many hypothesized that this historic vote could lay the groundwork for more legal action by the U.S. against another bank. Top contenders appear to be Credit Suisse, Switzerland’s second largest bank, and HSBC, which is based in London, but has extensive Swiss operations under its Private Bank.
Though this vote was a move in the right direction, I am skeptical that it was–as Rueters reported–a lifting of “the veil on Switzerland’s cherished tradition of banking secrecy.” I think of it as a lurch toward self-preservation, namely to protect UBS from exposure to further action by the U.S. Justice Department, as a “no” vote would have forced UBS to miss its August 24th deadline to hand over the account names.
We will see how all of this new found transparency affects HSBC. Two years ago a mass leak of client data from HSBC’s Swiss-based Private Bank arrived in the inboxes of the German secret police, the French police, and the UK’s tax authorities. After extensive investigation French authorities have said they will use the data to pursue alleged tax dodgers and Germany, Italy, and Spain are sifting through records with similar goals. This has prompted UBS Chief Executive, Oswald Gruebel to grumble that “If governments are in the market of buying illegal data,” it “changes the world.”
This goes with a recent and (largely) unrelated move: the U.S. has recently ramped up its investigation into HSBC’s Private Bank, which began as an offshoot of the UBS case in 2008. The Justice Department noted it is “looking for UBS-style numbers and UBS-style fact patterns.”
We have not heard a peep from HSBC on the issue, a significant departure from the approach taken by UBS, which was to remain defiant to the bitter end. But this situation does not exist in a vacuum. This month European regulators are conducting stress tests on major banks at the corporate level. It may be that anything other than “keeping their heads down” at HSBC may startle already skiddish investors.
Though pressure is mounting, yet again, I don’t see the Swiss changing much about their approach to international finance or their attitude toward other countries’ laws.
As a result, it did not surprise me to read yesterday that Switzerland rejected the U.S. extradition request for Roman Polanski. His release clearly has little to do with HSBC, but if you asked me, I would say it is only further evidence that the Swiss are not about to change their spots. They’ll be compliant, but only to the point that it allows them to defend what they see as a sovereign right: providing the freedom and the sanctuary for other countries’ citizens to commit criminal acts. And that will be one bitter battle toward self-preservation.