Swiss Banks Will See Huge Withdrawals, But That May Not Make Much of a Difference

September 17th, 2012

flickr / wallyg

Switzerland’s legendary banking secrecy is feeling the pressure. A series of tax treaties will make Swiss deposits more vulnerable to scrutiny from law enforcement. The treaties, specifically the German-Swiss one currently being negotiated, are far from perfect, but from the perspective of someone with a deposit in UBS or Credit Suisse, their cover is blown. You may think that this is something that will directly lead to historic prosecutions for epic-scale tax evasion, but that is unlikely. Instead, as Reuters reports, a significant portion of the $2 trillion deposited in Swiss banks are simply going to be withdrawn:

ZURICH – UBS expects Swiss banks to see European clients withdraw “hundreds of billions of francs” as a result of steps to stop foreigners using secret accounts to evade taxes.

Juerg Zeltner, head of UBS wealth management, reiterated an estimate he gave in May that Switzerland’s biggest bank could see outflows of 12-30 billion Swiss francs ($12.8-31.9 billion) from total European assets under management of over 300 billion.

The article does not specify where the money is likely to end up, but you can be sure that little is unlikely to be found back in its home country, ready to be taxed. In all likelihood, less-vulnerable secrecy jurisdictions like Singapore, the Cayman Islands and Mauritius will gain from Switzerland’s loss. Money that tax evaders, organized crime, and other people with less-than-legitimate reasons to seek banking secrecy will simply pack up and wire their money elsewhere.

This is why, ultimately, we need a global automatic tax information exchange regime. The IRS in Washington needs to be able to know, pretty easily, when an American holds a $100 million account at a bank in Switzerland or Singapore or wherever else. Otherwise, we’re just playing a big game of wack-a-mole.

The G20/OECD level is the appropriate place for this kind of discussion to take place. In Mexico, the G20 asked the OECD to begin conducting a study about what that would look like. However, there’s an important thing to keep in mind during this discussion. While it is important for powerful countries like Germany and the United States to have access to this kind of information so that they can enforce their own tax laws, it is even more necessary for developing countries. They need to be included in any kind of global system.

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Written by EJ Fagan

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