WORLD> Europe
Swiss bank secrecy in toughest test since Nazi gold
(Xinhua)
Updated: 2008-12-11 09:20

Political Priority

Germany, which at the start of the year paid an informant for the names of tax dodgers who parked money at LGT bank in smaller hideout Liechtenstein, is also pushing for change.

"In the end, Switzerland will have no way around declaring who its foreign bank account holders are," said Hans Eichel, who as German Finance Minister between 1999 and 2005 tried to tackle offshore havens.

"This is a business based on a criminal activity -- dodging tax in a neighbouring country."

The Swiss have already made some concessions: introducing, for example, a tax on income earned by European Union citizens in Swiss accounts.

Stuart Eizenstat, US Deputy Secretary of the Treasury under Bill Clinton, said the dormant accounts case he helped negotiate prompted the Swiss to cooperate on other fronts.

"I do think it had a catalytic effect of making the banks more open," he said. "They became strong supporters, for example, of the anti-terrorist financing measures. It did spur them to become more open on money-laundering."

But with demands from Germany that Switzerland be blacklisted by the Organisation for Economic Cooperation and Development, pressure is rising for more.

"The Americans said that if you do not cooperate, then we will make sure you cannot do business here," said Eichel. "European neighbours of Switzerland such as Germany have to consider similar measures."

Many believe an agreement between Liechtenstein and the United States this week to drop bank secrecy in cases of tax evasion could force Switzerland into similar concessions.

Prince Nikolaus, the brother of Liechtenstein's ruling monarch and the country's ambassador to Brussels, said UBS's problems and Germany's probe of his family's bank, LGT, sent a clear message to offshore havens.

"It was these two banks, the biggest in their respective countries, which were turned into a big case," he said from Brussels. "It has symbolic value. It shows the political priority."

Air Thinning for Elite

The pressure from Washington is unlikely to let up. As a senator, US president-elect Barack Obama introduced legislation early last year to make it easier to probe and prosecute tax dodging in offshore locations.

As president, he will need to fund an economic stimulus plan that analysts estimate could cost at least $500 billion.

Hug believes Liechtenstein's move shows the air is also getting thinner for the Swiss elite. And he sees the first cracks appearing in the country's usually unshakeable facade.

"There is a conflict of interest between Swiss industry and the banks," he said. "Industry wants compromise on bank secrecy so that the country's image is not spoilt."

Switzerland's banks, the liabilities of its two largest are more than seven times the country's Gross Domestic Product, have been talking up the services they offer beyond hiding customer identity.

"This is not all we have," said Urs Roth, Chief Executive of the Swiss Bankers Association. "We do have a number of traditional advantages, like the economic, monetary and social stability."

Ultimately, however, it may not be the industry but Swiss pride that is the biggest hurdle to dropping bank secrecy. A nationwide vote would likely be needed to change the rules.

Few speak out publicly on the subject. No major Swiss bank wanted to discuss it with Reuters.

"The Swiss are so brainwashed, that the bank there is untouchable," said Maram Stern, who as Deputy Secretary General of the World Jewish Congress oversaw negotiations with the Swiss banks about dormant accounts.

"This was what the normal person on the street was not capable of understanding. There were people asking me: how can you question the bank?"

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