This publication recently had the chance to grill the banking group about developments in a state renowned - for good or ill - for its secrecy laws, and how the picture is changing.

The following article is by Chris Hamblin, editor of Compliance Matters and Offshore Red, two sister publications to this news service. To view Compliance Matters, see here. To see Offshore Red, click here.

The Swiss Bankers' Association is the leading organisation of the "Swiss financial centre", as the financial services industry calls itself these days. It takes in all 283 banks in Switzerland – large and small, local and international. In a recent interview, Urs Kapalle of the SBA discussed the Swiss tax transparency agenda.

Kapelle did not go as far as to say that there was not any privacy for the holders of Swiss accounts any more, preferring to embark on a short history of his country's surrender to the US’s (and, later, other countries') demands to know the details of various people's bank accounts.

The annals of capitulation
In 2009, Switzerland signed up to the standards of the Organisation for Economic Co-operation and Development for the exchange of information on request. Article 26 of that standard is enshrined in the double-tax treaties of the various countries and the vast majority of Switzerland's treaties now comply with it. It still remains to be embedded in some agreements. It explicitly allows for group requests, i.e. this-or-that tax authority asking for information about a group of taxpayers, without naming them individually, as long as the requests are not “fishing expeditions”.

In 2011 came the UK-Swiss tax agreement, which promised, in Kapelle's phrase, "tax conformity for all British clients" of Swiss banks. These clients were to be subject to a one-off payment to clear past tax liabilities and/or a withholding tax on income and gains for the future, or otherwise they had to authorise their banks to provide details of their Swiss assets to HM Revenue & Customs, the UK tax authority. The one-off payment to clear tax liabilities related only to assets included in the figure of capital used in the payment calculation. In most cases, this was the account balance either at 31 December 2010 or 31 December 2012.

In 2013 the Alpine state joined the “Multilateral Convention on Mutual Administrative Assistance in Tax Matters”. This, Kapalle said, was a convention of the European Council and the OECD. There are now 80 signatories to it.

In 2013 also, Switzerland signed up to the US Foreign Account Tax Compliance Act (FATCA). The UK may have been the first to do so, but Kapalle seemed proud to say that Switzerland was the second.

The following year, 2014, saw Switzerland signing up to the OECD's "Multilateral Competent Authority Agreement (MCAA) on Automatic Exchange of Information". As we have mentioned elsewhere in our pages, this had attracted 52 signatures by November last year; the current figure is unknown.

A funny kind of secrecy
Kapalle said that "bank client secrecy" was "still in place between the clients and the bank" and cited the continued validity of article 47 of the Banking Act as proof. This, according to one offshore website, provides for criminal sanctions (imprisonment for no longer than six months or a fine of not more than SFr50,000, or nearly $40,000) for anyone who divulges confidential information entrusted to him or of which he has become aware in his capacity as an officer or employee of a bank, and against anyone who tries to induce others to violate professional confidentiality. How this tallies with Swiss bankers distributing people's bank account details to thousands of people all over the world as part of the "tax transparency" agreements is not known.

Kapalle did add that there was “no longer a tax shelter possibility for the client”. He went on to say: "This exchange of information [on] physical clients, it also applies to trusts and offshore structures. The transfer of information basically applies a look-through approach." The "look-through doctrine" in US tax law entails “looking through” an entity which owns real property to identify its beneficial owners.

"Each European Union bank should identify and document every client, or should I say bank account, to see if it is reportable under the system. The banks have a lot of information about their customers, but not necessarily in the right format," he said, adding that this was causing massive expenditures of time and treasure.

Automatic exchange of information

This entails prodigious amounts of identifying and documenting. Kapalle described it as “due diligence of all accounts by financial institutions in order to identify responsible persons and the building of reporting systems for exchange of financial account information with the authorities”.

What, then, is the timeline for the automatic exchange of information? The ordinary timeline seeks to have the AEOI “framework” (a word that Americans invariably use to mean “body of law” and Europeans invariably use to mean “thing”, with the British swaying from one to the other) in place by 1 January 2017, with what Kapalle called “first reportings in 2018 on information of year 2017”. Then there is a large group of “early adopters”, i.e. countries that want to start earlier. They want the AEOI thing in place as of 1 January 2016 with “first reportings in 2017 on information of year 2016”.

Questions and answers

When asked whether the compliance department at the average bank was responsible for FATCA-related information processing and record-keeping, Kapalle said that it varied; it was either the compliance department or the tax department or the legal department. He added: "Then there will be special procedures, and there has to be a responsible officer."

Kapalle could not guess how many Swiss bank accounts the global drive for information exchange was affecting in toto - perhaps 50 to 100 million, perhaps not. Probably 25 per cent of all accounts were affected, he thought.

When asked if there had been “asset outflows” because of these international initiatives, Kapelle did not say yes or no. He added that Italy, at the start of this year, embarked on yet another of its “voluntary disclosure programmes”, i.e. tax amnesties. He said that Switzerland had signed an agreement with the Italian government covering the handover of information about Italian citizens' accounts in Swiss banks.