Switzerland’s Two Faces of Secrecy

July 11th, 2014

For about five years now, nations around the world have called on Switzerland to change its secret ways. Over these years Switzerland’s banks, which hold nearly one-third of the estimated $7 trillion in global wealth kept offshore, have borne much of the brunt of the U.S. Department of Justice’s campaign against banks facilitating tax evasion by American citizens. Other nations, such as India, have also followed suit. And although Switzerland has attempted to cultivate an image of international cooperation – the reality of Swiss banking secrecy has been more of the same.

For the purposes of outward appearances, at least, Switzerland has caved to some of the international pressure. After much debate in 2009, Switzerland surprised the world when, at the last moment, it decided not to step in and forbid banking giant UBS from handing over the names of tax-evading Americans to the Internal Revenue Service. In 2012 Switzerland began making overtures toward cooperation when it agreed to make anonymous advance payments to German tax authorities for undeclared money. In 2013 Switzerland joined the OECD’s Multilateral Convention on Mutual Administrative Assistance on Tax Matters. Under this agreement, participants must aid each other in tax collection efforts, and the agreement also includes some provisions on automatic exchange of financial information.

While these public agreements and appearances represent, in many ways, a new voice for this nation, for all practical purposes they do not represent a shift from the status quo.

In Switzerland, violating client confidentiality in banking has continued to remain a national crime. Legally and culturally, bankers who violate their “duty of absolute silence” can face “home raids, prison, fines for secrecy violations and industrial espionage, and the ostracism of colleagues and friends.”

So on the one hand, Switzerland would like to look like it’s cooperating with international norms. But on the other, neither Switzerland nor its bankers want to actually do anything to cooperate with those norms. The result is something like the strange case of Dr. Jekyll and Mr. Hyde.

Take the recent back-and-forth between India and Switzerland over Indian account holders in the European nation. It all began last year when India received information from the French government suggesting that 700 Indian citizens hold HSBC bank accounts in Geneva, some of which may contain tax evading funds. India petitioned Switzerland to reveal the information, but the European nation responded that it is not required to share the information with India under the two nations’ double taxation avoidance convention. And so it did not.

Late in June, however, the Press Trust of India (PTI) reported that the Swiss government was preparing a list of Indian nationals who are holding tax-evading funds in its banks. Justice M.B. Shah, the head of a special team investigating Indian’s black money, told PTI the list would combine information about black money and people who are legally vested. He added that if the money “is illegal or unaccounted then we take action.”

In early July, however, Swiss Finance Minister Arun Jaitley replied to the Indian government that “there is no list of Indians tax residents holding assets in Swiss financial institutions in their own names or through (other) structures.” The Association of Foreign Banks in Switzerland added that requests from Indian authorities should be “properly justified” and that “conjectures” should not dominate public opinion.

These events underscore two points. First, while Switzerland may want to remain in the good graces of the international community—and may do what it can to look as though it is complying with international norms—in practice the nation is not yet ready to give up its ways.

Second, the dialogue between India and Switzerland betray and unsettling truth: developing countries do not have the same resources or standing to pursue tax evaders that the United States and other developed nations have. As a result, any international dialogue on tax matters, including automatic tax information exchange, must include developing nations, as well.

Should the world make real progress with Switzerland on the issue of tax, developing nations must be included. Without them, we will have no hope of alleviating poverty and inequality through tax exchange and Switzerland’s promises of transparency will continue to be just that. Promises. And nothing more.

Written by Ann Hollingshead

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