Strategy

Swiss Banking Must Be More Competitive If Secrecy Goes - Industry Group

Tom Burroughes Editor London 18 March 2009

Swiss Banking Must Be More Competitive If Secrecy Goes - Industry Group

Switzerland’s financial industry must boost its competitiveness to ensure any erosion of its historic bank secrecy laws does not damage the country's economy, the Swiss Private Bankers Association has warned.

While bank secrecy will not erode immediately, the trade body said last week’s decision by the Swiss government to adopt the Organisation of Economic Co-Operation and Development’s tax information-sharing rules would hurt the country’s banks unless action is taken to make the financial system more attractive to existing and potential clients.

The significance of the issue lies in how Swiss banks account for an estimated 12 per cent of the country’s gross domestic product, while the nation is estimated to hold about a third of the world’s total offshore assets. On some estimates, a total of $7 trillion of money is held in undeclared accounts worldwide. It is feared by the Swiss industry that if clients become anxious, rival financial centres such as Singapore and Dubai will benefit.

Supporters of the crackdown on so-called tax havens say these places encourage the wealthy to dodge legitimate taxes that have been voted for by electorates, leaving less well-off citizens to pick up the bill. On the other hand, defenders of low or no-tax locations say these places create an incentive for governments to keep taxes down, therby raising economic growth overall.

“The Swiss Private Bankers Association approves this decision taken in principle but points out that its application will need to be closely monitored and that Switzerland will need to quickly adopt measures aimed at restoring the competitiveness of its financial centre,” the group said in a statement.

As a result of Switzerland’s decision, when the country signs double taxation agreements with third countries, it will agree to the exchange of information in cases of tax evasion as well as tax fraud. Up until that point, Switzerland ruled that tax fraud was illegal but that evasion was not – a distinction not accepted in jurisdictions such as the US and UK.

The Swiss move coincided with similar steps taken last week by Austria, Belgium and Luxembourg. Far East financial centres including Hong Kong, Singapore, UK Crown dependencies and offshore territories such as the Cayman Islands, Jersey, Guernsey and Isle of Man have also entered exchange-of-information agreements. Liechtenstein, another long-standing tax haven under pressure from neighbouring countries, has also followed suit.

“These countries and territories are at risk of appearing on a G20 black list, a draft of which has been prepared by the OECD Secretariat - which, in the process, has shown itself not to be working for all of its members but only for the most powerful among them,” the Swiss PBA said.

“The consequences of this kind of blacklisting could not be underestimated. They appear in black and white in bills ready to be voted on (particularly in Germany and the United States). Not one of the above mentioned jurisdictions under threat dared defy the economic risks involved. In view of the balance of power involved, this attitude is understandable,” it said.

The SPBA noted that in the near term, “nothing will change”, pointing out that none of Switzerland’s domestic laws defining Swiss banking secrecy will be amended.

It adds that affairs will only change for foreign clients once the dual tax agreement which links Switzerland to their country has been reviewed.

The association added that Swiss policymakers must ensure that other countries comply with such laws to prevent tax fraud.


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