Financial Transparency Coalition

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Reuters has reported:

“Under a ‘clean money’ strategy, which Finance Minister Eveline Widmer-Schlumpf is expected to present to the cabinet on Wednesday, banks will be obliged to get foreign clients to declare they are compliant with their home tax regimes.”

(See a new publication on the Swiss financial centre strategy. So far, only the release is available in English.)

Let’s be clear about what this is likely to mean in practice.

Some clients of Swiss banks have money parked there legitimately, with all relevant assets and income declared to their home authorities as appropriate. But lots of them have stashed their cash there to evade tax (and to do other nefarious things). So as regards the ‘clean money’ strategy, the relevant people are those who have already taken the formidable step of lying to their home tax authorities. This measure merely gets them to lie again – but this time, only to Swiss banks. Lying this time will be far easier: the Swiss banks, unlike their home tax authorities, have no incentive to police these ‘declarations’, and there will be no penalties (apart from being subjected to potentially irritating nudging and winking from the bankers).

This measure could perhaps make a very small difference, at the margins, but won’t put the Swiss banks out of pocket much. By contrast, it hands the banks a major coup: business as usual, covered by a charade that allows them to say ‘look how clean we are!’

Reuters has more:

The plan falls short of measures desired by left-wing Swiss politicians to require bank clients to prove taxes had been paid.

At least some people in Switzerland have noticed what a charade this is. Now if those plans of those on the left were ever to come to anything: well, then we would start to sit up and take serious notice.

Of course Swiss bankers have poured derision on this one proposal that would constitute a genuine move for transparency.

“As a bank, if you have a client give you money you have to trust and believe them . . . You can’t be responsible for whether clients have paid their taxes,” said Thomas Sutter, spokesman for the Swiss Bankers’ Association.”

This is an insidious use of the word “trust” – just what one would expect from the Swiss Bankers’ Association. A tax adviser commenting irreverently on the Reuters report told TJN:

“Ha ha ha ha useless. Force tax evading criminals to swear that they are not tax evaders – otherwise they won’t get a choccy with their coffee during their next visit to the bank vault.

You couldn’t write this fiction if you were Mickey Spillane.”

But that is not the only problem with the strategy. There is another, more technical but also absolutely fundamental flaw in this approach. From Mark Morris:

Note that majority of bank accounts in Switzerland are held by fiduciary structures where no immediate beneficiary is identifiable, e.g. discretionary trusts, foundations or establishments. (For those not familiar with these particular schemes, take a look at Section 3.1 here for a brief explanation.)

With these structures, a settlor or grantor gives away assets into these structures, but until a new beneficiary is identifiable – and that may not be for years or even a decade or more in the future – the assets sit in an ‘ownerless’ limbo. That is the whole, slippery, point of these things: tax advisers think these structures can keep the tax inspectors and others at bay.) But if there is no immediately identifiable beneficiary, then there is literally nobody who can sign this declaration.  And you can be quite, quite sure that the Swiss bankers won’t be banging the table to find one.

And there is another question. As one TJN official notes:

“By “clients” – do they mean account holders, or the individuals concerned? If the case is account holders, then an account holder can be a company, or a trust, for example. So, extending the example – if the principle of the declaration is based on the account holder, and the account holder is a company or a trust from a no-tax jurisdiction (eg Bahamas), then the declaration of fulfilment of tax obligations would be true and correct if they pay zero tax.”

To be fair, the strategy is not just about client declarations. The Swiss government says it is looking also for enhanced due diligence requirements for banks when accepting assets. This could, potentially, make a difference. However, this is likely to be far less significant than it seems, partly for reasons outlined above.

From Swissinfo:

“The Basler Zeitung said the international community would be sceptical of any plan in which the financial sector was responsible for enforcing honesty.

“The idea of self-declaration is far from being sufficient to calm the suspicions of foreign tax authorities. Even less so because Eveline Widmer-Schlumpf wants to leave it up to the banks to ensure the implementation and monitoring of such a scheme.”

The Wall Street Journal cites our friend Andreas Missbach:

“The Bern Declaration, or EvB, a Swiss non-governmental organization, said the government’s proposals are a “wishy-washy” strategy prepared for Swiss domestic consumption.

“The U.S. and the major European Union countries have made clear progress in recent weeks in regulating the exchange of [tax] information, and if Switzerland would give up its counterproductive resistance to such exchanges, it could help formulate future rules on cross-border banking business,” said EvB spokesman Andreas Missbach.”

Quite so.

All of this, then, is not entirely insignificant. But it is not a major step forwards. To get a true understanding of what the Swiss are doing, read the first sentence of this.

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