Editor’s choice: This article is by Options Group and is republished, with permission, by this publication. To view a link with full tables, footnotes and statistics, click on this link. As always, the views here are not necessarily shared by this publication. This is the first half of the article. The second segment can be read here.
In this issue we bring perspectives on the changing face of Swiss offshore wealth management, the rise of the Asian offshore wealth management industry and the challenges facing all banks within this industry. Finally, we address the ways banks need to adapt in terms of relationship management expertise and how this can be addressed from a human capital perspective.
Switzerland has been synonymous with wealth management and offshore tax shelters since the country opened is first private bank in 1741. Despite significant changes in the global economy since that time, Switzerland has retained its prestigious reputation, and continues to hold the largest share of high net worth assets globally. But in recent years, and accelerated by the most recent market downturn, the historic heart of private banking - lack of full disclosure and consequent underpayment of taxes - has been subject to regulatory reforms which threaten Switzerland’s leading position.
Historically Swiss law took a somewhat liberal view towards tax evasion - it was not truly perceived as a crime. This, coupled with high-end client services, attracted some of the world's wealthiest and most discerning clients. They preferred that their assets not be heavily scrutinised by regulatory authorities, a situation which was afforded to them by the Swiss “numbered account” banking model. It also meant that Swiss banks were unable to assist authorities in any investigation. This is no longer the case. 2009 saw the beginning of legal action being taken against banks suspected of helping clients to hide money in Swiss accounts. The US Department of Justice led the charge, levying a $780 million fine against a Swiss bank, in exchange for a deferred prosecution agreement and the provision of client details to the IRS.
The domino effect of the US agreement meant that the UK, Italy, France, Germany, India and Australia all followed suit - attempting to persuade their wealthy citizens to report their offshore accounts in return for waived or lowered penalties, tax amnesties and immunity from prosecution. Some reports indicated that these attempts delivered billions of dollars in “lost” taxes.
Since 2009, there has been a significant increase in the number of Tax Information Exchange Agreements (TIEAs) being signed. The TIEA was conceived as an agreement to promote international cooperation in tax matters through exchange of information, to address "harmful tax practices". Between 2000 and 2004 only thirteen TIEAs were signed, but as a consequence of the economic downturn and ongoing repercussions, almost 500 have been signed in the last three years. Within these were a large number of so-called black and grey “tax havens”, including Bermuda, Bahamas and the British Virgin Islands, as well as Switzerland and Liechtenstein.