Financial Transparency Coalition

From the Tax Justice Blog:

From India’s Tehelka, an interview with Philippe Welti, Switzerland’s ambassador to India, in a section where he talks about the origins of Swiss bank secrecy:

“The banks were comforted with the fact they could say no, we are under legal protection, we are threatened by punishment if we release data. That is the magic of Swiss banking secrecy and my job as an Ambassador, a representative of Swiss society is to remind the world that it risks turning into a dangerous place where the rule of law is abandoned.

The thinking behind it, and the moral value of such a policy of government and a parliament and a people behind is timeless. That’s why I defend it. Because we are talking about values, not commercial benefits.”

So let’s get this straight. Here is a country whose banking system has historically built itself up on the commercial benefits that flow from banking secrecy and from assisting criminal tax evasion, criminal money-laundering, harbouring the proceeds of criminal smuggling, criminal theft, criminal racketeering, criminal drugs-running, and on and on. And here is the Swiss ambassador talking piously about the rule of law, in the very same sentence as he talks about the magic of Swiss banking secrecy.

Now Welti asserts, correctly, that:

“we can order a bank to reveal its data for cases of illegal profit that qualify for the lifting of secrecy.”

That is not an untrue statement – but note that all-important word ‘can.’ Worldwide, this has only been applied in limited cases – notably when there is enough of a media storm about a particularly nefarious and well-known individual or criminal enterprise. But Switzerland continues to harbour oceans of dirty money. Elsewhere, in India’s Business Standard, Welti has asserted that:

“There is a prescribed procedure in a treaty with India to get information on illegal stashes in Swiss bank accounts, which hasn’t been used.

Q: Are you saying the Indian govt has so far filed not a single request before the Swiss govt?

Welti: I haven’t had to deal with one in my time.
. . .
Q: Several Indian agencies look into tax fraud & money laundering — Enforcement Directorate, CBI, Income Tax department. All these agencies have categorically said they have visited Switzerland, they have requested for data and information from Swiss banks but failed to get anything on people they suspect.

Welti: If such agencies have tried and were unsuccessful, I was not aware of that. “

Which kind of says it all.

Now there are a couple of wrinkles here. First, we have so far presented this as if the Indian government has been blameless in this entire episode, desperately trying to get at the information from Switzerland, and meeting a fortress-like Swiss response. It’s not so simple: there appears to be something of a battle underway in India, with the Indian Supreme Court in a sense confronting the Indian government: the Supreme Court seems to be keen to extract the information about so-called “black money,” while the government – which is the one that actually has to implement the information requests with Switzerland – has been rather more reluctant: it has apparently been rather uninterested in submitting information requests of the quality that the Swiss might respond to positively. It’s certainly a murky picture, but the basic facts remain that there is, without question, a large amount of very dirty Indian money in Swiss banks: not just the tax-evading stuff, but money that falls into Anti Money Laundering categories.

A second wrinkle concerns Welti himself. He is an ambassador, bound by his position to follow what his country requires him to say and do. What we are attacking here is not so much Welti himself – we don’t know what his own personal views are – but the arguments he, and by extension his country, are making.

Swiss banking secrecy has indeed been pierced – but only mildly so, and things are continuing to evolve. (See our recent Switzerland edition of Tax Justice Focus for more information.) But the basic business model of secrecy remains intact (and latest news is that Germany and the UK are about to help Switzerland entrench it.) It’s that old Catch-22 situation: you have to already know the information you are looking for, before you request it. Which is little better than a bad joke.

Whereas Switzerland is grudgingly giving some co-operation to powerful countries like the United States, it is far less accomodating to developing countries like India. (See our September 2010 article about the Swiss-India tax treaty, for more.) And note what this UBS banker, in an outbreak of frankness, said last year as changes were taking effect:

“The poor lady shuffled around in her chair quite a lot before answering rather sheepishly that technically, while banking secrecy was still enshrined in the Swiss constitution, there had been some recent re-interpretation of the language and its actual meaning. . . . In a roundabout way she explained that, in practice, much turned on where the client was from (ie don’t be a Yank) and that most clients (especially those from little countries) had nothing to be concerned about.”

That bit in bold is a neat twist on Leona Helmsley’s famous phrase that ‘tax is for the little people’: in this case, criminal tax evasion is for the big people in the little countries (which means that in those countries, tax is for the little people.)

In short, Welti’s statement about his role to tell people about “the magic of Swiss banking” is fundamentally, 180 degrees, at odds with his statements about not tolerating crime.

Criminal activity – notably but not only criminal tax evasion – will continue to go unpunished, courtesy of Swiss banks. Developing countries will continue to be looted, and the rule of law undermined, courtesy of Swiss banks. Philippe Welti, whatever his personal opinions may be, is speaking here with a forked tongue.

A global culture shift is now underway. One day, before too long we hope, people like Welti will be laughed (or perhaps chased) out of town when they say things like this.