Accept End to Bank Secrecy; Hand Over U.S. Citizen Data (NeueZuercherZeitung,
Switzerland)
"Bank secrecy made us rich, but also slow, overconfident and
uncompetitive. ... Very soon, bank secrecy will no longer exist in its previous
form - neither for domestic customers, nor for foreign ones, but will be
replaced by various bilateral and multilateral solutions. ... For the game to
continue, finding a definitive solution to the problem with the United States
is essential. And for that to occur, data must be delivered and fines must be
paid."
"Unacceptable
blackmail," "brutal economic warfare," "Switzerland in grip
of a boa constrictor," "unacceptable for a democracy" - tones
that have long been critical became even more shrill since last Wednesday. From
a Swiss point of view, that’s understandable, considering that developments
surrounding the tax dispute with the United States have repeatedly caused painful
wounds and left deep scars. The situation, which leaves almost no realistic room for
maneuver, profoundly hurts our Swiss soul, but could soon reach a culmination
that may simultaneously be a point of departure for a new era.
[Editor's Note: The government of Switzerland is considering how to settle a tax dispute with U.S. authorities over Swiss banks that helped wealthy Americans evade billions of dollars in taxes. A deal to settle the issue is expected to involve fines of up to $10 billion and a handover of U.S. citizen client names. But sealing the deal with the Swiss parliament will not be easy, given that nation's long history of strict bank secrecy, and a $2 trillion offshore financial industry.]
The
interactions of banks, taxes, and politics is like a complex game, a mixture of
chess (who can see the most moves in advance?), poker (who is the best bluffer?),
Monopoly (Who is most quickly able to occupy strategically-important positions?),
and football (Who has the most powerful team?). In the foreground, the stakes
are differing tax philosophies, classifications of tax offenses, and concepts
of information sharing. In the background, however, financial centers are being
relocated, income sources tapped, and political positions defended.
For
a long time, the game went superbly for Switzerland. For decades, it was
possible to benefit from a "cake and eat it, too" situation. Although
the financial sector and its banking secrecy were viewed with suspicion - and
occasionally criticized - by the world, to some extent there was admiration,
and above all, tolerance. Large amounts of investment capital poured into
Switzerland, bringing enormous profits to the financial center and the country,
and the opportunity to develop considerable financial expertise. It was the
proverbial "golden age." We can stand by our actions, since any other
financial center in the same situation would likely have done the same.
Hans
J. Baer's 2004 comment on the subject was accurate: bank secrecy made us
rich, but also slow, overconfident and uncompetitive. This became clear when
the game was redefined. The global community became less and less tolerant of
untaxed funds, with international bodies like the OECD and the G-7, or later the
G-20, beginning to discuss and intervene, with informants and data thieves
suddenly being generously compensated for the sale of CD’s containing bank
data. [The author refers to data on American citizens avoiding taxes by holding
money in Swiss bank accounts]. Switzerland was unprepared for this. Its initial
reactions was always to ignore, defend, and deny - to create an impenetrable
barrier against the adversary.
The
first third of the newly-redefined game ended in 2010. Switzerland didn’t make
a very good showing. A combination of bad luck (financial crisis as catalyst, with
[whistleblower] Brad Birkenfeld as super-joker for the U.S.), unfortunate
action on the part of the government (initially remaining on the sidelines in
the developing OECD discussions, non-responsiveness to U.S. requests for
information in 2008), implementation of the emergency law (data-delivery to the
U.S. in February 2009), and a complicated legal process (involving the Federal
Administrative Court, Federal Court, and Parliament) before the
agreement [between the U.S. and Swiss Federation] on UBS could finally gain traction, resulted in a constant defensive position
- along with some immoderate self-criticism in the local press. The reputation
of the financial center received a few scratches.
The
second third of the game, from 2010 to 2013, went a little better for
Switzerland. With the creation of the State Secretariat for International
Financial Matters (SIF), the Swiss
government brought calm and competence to the negotiations, and
professionalized the game by involving the most senior political levels. The
opposition players weren’t idle and mounted a power play on all fronts: the Foreign Account Tax Compliance Act,
global solutions, withholding taxes, "white money"
strategies, automatic information exchange, etc. - there were constantly
changing objectives and positions and at times, one hardly knew if someone was
on the home team, the opposition team, a referee, a coach, a spectator, a
supporter, or member of a supervisory body. The Swiss Federal Council and the SIF did everything possible to rectify the completely
out-of-control situation, but had to admit that Switzerland cannot dictate the
rules. No wonder politicians and the press temporarily lost control.
Posted By Worldmeets.US
We've
now had the kick-off of the last third of the game, and if Switzerland adapts
to the new situation, it has a good chance of altering the course of the match.
It’s clear that in the future, we will be able to eat or have our cake - not
both. Very soon, bank secrecy will no longer exist in its previous form -
neither for domestic customers, nor for foreign ones, but will be replaced by
various bilateral and multilateral solutions. So what? Whether it be a "white
money" strategy, automatic information exchange, or withholding tax: What
matters most is the struggle for a "level playing field." The Swiss
financial center is in a strong position and can live with any solution, as
long as it applies to all players in equal measure. To achieve this, we must actively
fight for it - with one voice and with all of our power on every level -
political, economic, and scientific, as well as from a communications
perspective.
For
the game to continue, finding a definitive solution to the problem with the United
States is essential. And for that to occur, data must be delivered and fines
must be paid. Relatively speaking, this is still the best option, and it
corresponds with the legal framework of agreements on double taxation. Who
authorizes the data delivery - Parliament or the Swiss Federal Council - is
secondary. Harsh words will be exchanged during political debate and parliamentary
deliberations. These may be important and have a cathartic effect. But the goal
should be to resolve the issue once and for all. Drawing a line under the whole
business is vital to the Swiss national interest, the interest of Switzerland
as a financial hub, and well as the game of banking, taxation, and politics as
a whole.
*Dr. Alfred Mettler is a professor of finance at Georgia State
University in Atlanta (USA); he has been a U.S. resident since 1998.
