Switzerland Ponders Case For Changing Bank Secrecy - Finance Minister

Tom Burroughes

6 March 2009

Switzerland is working on how to modify its banking secrecy to make it more acceptable to other countries, looking at the distinction between tax evasion and tax fraud in Swiss law, the finance minister said yesterday, according to media reports.

Hans-Rudolf Merz, the Swiss president, told reporters that the country's banking secrecy remained intact and that it respected privacy rather than protected fraud.

"The Federal Council is currently considering the question of the distinction made between tax evasion and tax fraud," Mr Merz said, adding that Switzerland would be prepared to negotiate with other countries and consider concessions.

Swiss banks are forbidden by law to divulge information on clients unless it is suspected that a Swiss criminal law has been broken. Under Swiss law, tax fraud is a criminal offence, but tax evasion is not, although it can result in financial penalties. In jurisdictions such as the UK or US, tax evasion is a felony.

Media reports did not elaborate on how Mr Merz or his government colleagues intended to resolve this issue.

The country’s biggest bank and the world’s largest wealth manager, UBS, is locked in a legal wrangle with US tax authorities over the latter’s demand that UBS hand over details on up to 52,000 US clients who had banked with the Zurich-listed firm. UBS is resisting such demands. Last month, UBS agreed to pay a $780 million sum to the US to settle a criminal case that it helped wealthy US citizens evade taxes. This week, UBS chairman Peter Kurer announced he would not be standing for re-election as chairman.

The stakes for Switzerland in the row about client privacy are high. Switzerland is the world's biggest offshore financial centre, managing nearly one-third of an estimated $7 trillion in offshore wealth, according to a figure cited by Reuters.

Tax authorities are chasing undeclared wealth that is stashed abroad in a global crackdown on tax cheats, and in the process, are getting tough with secretive private banking sectors in places like Switzerland, Luxembourg, Austria and the Channel Islands.

While so-called tax havens have come under noisier rhetorical assault and government pressure, defenders of low-tax jurisdictions with strict bank privacy laws argue that such places provide refuge not just for the wealthy, but also for groups fleeing oppression and government theft of their wealth. Bodies such as the US-based Cato Institute think tank also argue that tax havens provide countries with an incentive to keep their own taxes down, which boosts overall economic growth.