Transcript Swiss Banking Secrecy - International Trade Relations

Swiss Banking Secrecy
Katie Frawley
Gillian Gonzalez
Cristine Gollayan
Outline
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Overview
Trade Issue
Legislation
Major Problems
One Issue
Proposal
Conclusion
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What is it?
Swiss Bank Secrecy:
Legal principle under which Swiss Banks
are allowed to protect personal
information about their customers
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What is at Issue?
At Issue:
– Deters Accountability
– Instrument for Tax Evasion
– Aids in Underground Economy
– Facilitates Money Laundering, Organized
Crime
• In light of Financial Crisis, governments
necessitate transparency and accountability
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Definition
• Swiss Bank Secrecy prohibits Swiss banks
from revealing the existence of one’s account
or disclosing information about it without
one’s consent
• Covers all business relations with the bank
• Not limited in time
• Concerns all the people who work for the bank
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Limitations
• Exceptions
• Regulated by Law
• Criminal Matters
– Drug Trafficking
– Gun Smuggling
• Private Matters
– Inheritance
– Divorce
– Bankruptcy
• In terms of divorce or
inheritance, plaintiff
faces long, difficult, and
costly procedure.
• No undertaking has
been successful
• Bankruptcy falls under
Federal law
• Rare
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History
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Over 300 years
First known dates back to 1713
Until 1934, civil and labor code
1934, criminal domain
Why?
– Nazi Spies
– Pressure from French
• 1984, Swiss elected by overwhelming majority
in favor of maintaining bank secrecy
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Legislation
• Banking Act of 1934
– Codified 8 November 1934
– Privacy is statutorily enforced
– Swiss law strictly limiting any information
shared with third parties, including tax
authorities, foreign governments or even
Swiss authorities, except when requested by
a Swiss judge’s subpeona
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Key Provisions
• Regulated by both civil law and criminal law
• 2 Articles of the Swiss criminal code regulate
Swiss bank secrecy:
– Article 162 takes punitive action against the
disclosure of trade secrets or confidential business
information.
– Article 320 deals with occupational confidentiality.
• Article 98 al. 2 of the Swiss Labor Code
– Anyone who contravenes an obligation to abstain
from action owes damages by the very fact of
contravention
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Key Provisions
• Article 47 of the Swiss Federal Banking Act of
8 November 1934
– Reveal = Imprisonment of 6 months or
50,000 francs
– Negligence = 30,000 francs
– Termination = Still Punishable
– Provisions of federal and cantonal legislation
to be obligated to inform authorities and
testify in court
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Major Problems
• The Swiss do not feel it is their position to be
the global babysitter
• Swiss banks are not just institutions in which
money is stored. The banking industry
accounts for 10% of Switzerland’s GDP, so
they are heavily invested in maintaining their
clients satisfaction
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Swiss Banking Association
• 360 Members: USB, Credit Suisse, and 358
other banks of various sizes
• 16,340 individual members
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Tax Evasion
• Failure to declare earnings of non-Swiss
citizens (tax evasion) is not a crime in
Switzerland, and therefore Swiss banks see no
reason to offer information
• Sharing client information with other parties,
where no crime is suspected, is an offence
under Switzerland's banking laws
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United Bank of Switzerland
• UBS -- the world's biggest banker to the rich -had to write down $49 billion when it was hit
by subprime woes as part of a disastrous
expansion into investment banking
• Other problems for UBS include giving names
to the US Dept. of Justice and now it may face
charges in Switzerland for violating Swiss
secrecy laws
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Wegelin and Co.
• Wegelin and Co. announced it would stop
doing business in the United States and with
Americans
• The bank has over $17.9 billion in client
assets under its management but claims they
have been put in an 'untenable situation' by
the requirements of the IRS
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Other Issues
• There are many major issues for the US and
the Swiss banking institutions. As the US
makes it harder for the Swiss to do business
with Americans they are faced with a choice of
perhaps not doing business at all
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Criminal Elements
• Money laundering and links to terrorist funds
• The Swiss do not want to tarnish their
reputation
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One Issue
• Due to banking secrecy and lack of
information exchange, Swiss banks have acted
as tax havens and allowed for US firms and
individuals to commit tax evasion
http://www.koreatimes.co.kr/upload/
news/090824_p09_cartoon.jpg
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Issues Involved
• Tax Evasion
– A person who owes taxes forgets to pay or conceals
tax-relevant information
– Different from tax fraud
– Not a criminal offense in Switzerland
• Tax Haven
– No taxes or nominal taxes within the jurisdiction
– Lack of transparency
– Laws or practices prevent information exchange
– Black list – “Uncooperative tax havens”
• Information Sharing
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Why is this a problem?
• Government revenues – loss of $100 billion/year
• Economic crisis
• Switzerland is a major player
– $2 trillion of global wealth held abroad
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Proposal
Three prong approach to promote greater
information sharing
• Unilateral
– Domestic Legislation
• Bi-lateral Approach
– US – Swiss Tax Treaty
• Multi-lateral Approach
– G-20
– OECD
http://www.onepennysheet.com/wpcontent/uploads/2009/08/SwissBanks
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Unilateral Approach
Domestic Legislation
• Stop Tax Haven Abuse Act (HR 1265 and S 506)
Limit use of offshore tax havens to “inappropriately
avoid federal taxation”
– Impose restrictions on foreign jurisdictions, financial
institutions, or international transactions that
interfere with US tax enforcement
– Greater period for IRS review of tax returns involving
offshore secrecy areas
– Require financial institutions to report certain
information about owners of accounts in offshore
secrecy areas
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Bilateral Approach
U.S. – Swiss Tax Treaty
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New treaty agreed upon in June 2009 and formally signed in September
2009
“This treaty will increase our ability to enforce our tax law and will help
bring an end to an era of offshore accounts and investments being used for
tax evasion.” – Timothy Geithner
Revised existing treaty based on the rules set out by the OECD Model Tax
Convention – Article 26
Allows for greater information exchange
Still room for more improvements – automatic information exchange
• When making a request under new treaty, requesting state must still
provide “information sufficient to identify the person under examination
or investigation”
• Name, address, account number
• “a request for information basically must include the name, rank, and
serial number of suspected tax evaders, when in fact the end-game of
many tax investigations is to discover the identity of tax evaders” –
Raymond Baker, Global Financial Integrity director
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Article 26 of Model Tax Evasion
1. The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant for carrying out the
provisions of this Convention or to the administration or enforcement of the domestic laws concerning taxes of every kind and
description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the
taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Articles 1 and 2.
2. Any information received under paragraph 1 by a Contracting State shall be treated as secret in the same manner as information
obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and
administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, the
determination of appeals in relation to the taxes referred to in paragraph 1, or the oversight of the above. Such persons or
authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in
judicial decisions.
3. In no case shall the provisions of paragraphs 1 and 2 be construed so as to impose on a Contracting State the obligation:
a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting
State;
b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the
other Contracting State;
c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade
process, or information the disclosure of which would be contrary to public policy (order public).
4. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall use its
information gathering measures to obtain the requested information, even though that other State may not need such
information for its own tax purposes. The obligation contained in the preceding sentence is subject to the limitations of
paragraph 3 but in no case shall such limitations be construed to permit a Contracting State to decline to supply information
solely because it has no domestic interest in such information.
5. In no case shall the provisions of paragraph 3 be construed to permit a Contracting State to decline to supply information solely
because the information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary
capacity or because it relates to ownership interests in a person.
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Multi-Lateral Approach
• OECD
• Model Tax Convention
• Global Forum on Taxation
• Model Agreement on Exchange of Information on Tax Matters
• Tax Information Exchange Agreements
• G-20
– “…stand ready to take agreed action against non-cooperative
jurisdictions, including tax havens. We stand ready to deploy
sanctions to protect our public finances and financial systems.
The era of banking secrecy is over.”
– London Summit
– Monitoring proposals
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Implications
US - Pro
• “Crack down on illegal overseas tax
evasion” (Obama)
• Reduce “the amount of taxes lost to
tax havens” (Obama)
• Sets a precedent for pursuing similar
treaty revisions and agreements with
other tax haven nations
US – Con
• “There has been a steady erosion of
the Fourth Amendment” – US
shouldn’t be able to police activities of
its citizens outside borders (Cato
Institute)
Swiss – Con
• 11.5 percent of GDP from financial
sector
• Fear of losing business – hurting
industry and overall economy
Swiss – Pro
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Staying away from the black list of
un-cooperative nations
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Implications –
Rest of the World
“Any success by the US tax authority could
encourage tax authorities in other jurisdictions
to pursue a similar strategy” – Merrill Lynch
analysts
France and Germany
Countries agreeing to follow the OECD Model
Tax Convention – now they must actually make
the agreements
Liechtenstein, Andorra, Monaco
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Progress Made as of
13 July 2009
• Jurisdictions that have substantially implemented the
internationally agreed tax standard
• 12+ Agreements Signed
Argentina
France
Korea
Seychelles
Australia
Germany
Luxembourg
Slovak Republic
Bahrain
Greece
Malta
South Africa
Barbados
Guernsey
Mauritius
Spain
Bermuda
Hungary
Mexico
Sweden
Canada
Iceland
Netherlands
Turkey
China
Ireland
New Zealand
United Arab Emirates
Cyprus
Isle of Man
Norway
United Kingdom
Czech Republic
Italy
Poland
United States
Denmark
Japan
Portugal
US Virgin Islands
Finland
Jersey
Russian Federation
CRS Report: The OECD Initiative on Tax Havens
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Jurisdictions - Agreements
CRS Report: The OECD Initiative on Tax Havens
Jurisdiction
Andorra
Monaco
Antigua and Barbuda
Montserrat
Aruba
Bahamas
Neth. Antilles
Belize
British Virgin Islands
Panama
Cayman Islands
St Kitts and Nevis
St Lucia
Dominica
Samoa
Grenada
Liberia
Turks and Caicos Islands
Liechtenstein
Austria
Malaysia
Belgium
Philippines
Brunei
Singapore
Chile
Switzerland
Costa Rica
Uruguay
Guatemala
Year of Commitment
2009
2009
2002
2002
2002
2002
2000
2002
2002
2002
2000
2002
2002
2002
2002
2002
2007
2002
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
Number of Agreements
0
1
7
0
4
1
7
0
11
0
11
0
0
1
0
1
0
0
1
2
0
6
0
5
0
0
0
0
0
0
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Conclusion
• US and International Effort
• New agreements = progress
• Still more work to be done…
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Sources
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http://switzerlandisyours.com/e/banking/secrecy/index.html
Dixon, Kim. “U.S., Swiss formally sign new tax treaty.” Reuters. 23 September 2009.
Hilzenrath, David. “Treaty Conveys Little Power to Break Swiss Bank Secrecy.” Washington Post. 8 July 2009.
Jackson, J.K. (2009, July). Congressional Research Service: The OECD Initiative on Tax Havens. Retrieved November 2009 from
opencrs.com/document/R40114/2009-07-24/download/1013/
Switzerland Eases Banking Secrecy (2009, March). Retrieved November 2009 from http://news.bbc.co.uk/go/pr/fr//2/hi/business/7941717.stm
Article 26 of the OECD Model Tax Convention on Income and Capital. Retrieved December 2009 from
http://www.oecd.org/document/53/0,2340,en_2649_33747_33614197_1_1_1_1,00.html
HR 1265 and S 506. Retrieved December 2009 from http://thomas.loc.gov/cgi-bin/thomas
Banking Secrecy and International Tax Issues: Switzerland’s Viewpoint (2009, June). Retrieved November 2009 from
www.efd.admin.ch/themen/00796/01377/index.html?lang=en.
Danzinger, M.P. (2009, Sept). Information Exchange Shortcomings in US-Swiss Tax Agreement. Retrieved November 2009 from
http://www.gpif.org/index.php?option=com_content&task= view&id=263&Itemid=70
US, Swiss Formally Sign New Tax Treaty (2009, Sept). Retrieved November 2009 from
http://www.reuters.com/articlePrint?articleId=USTRE58M55S20090923
US, Swiss Complete Tax Treaty (2009, June). Retrieved November 2009 from
http://www.cbsnews.com/stories/2009/06/19/business/main5097360.shtml
Swiss Banking Wins Libertarian Friends in US (2009, June). Retrieved November 2009 from
http://www.swissinfo.ch/eng/swissinfo.html?siteSect=43&sid=10828236&ty=st
Banking Secrecy Faces an Uncertain Future (2009, Feb). Retrieved November 2009 from
http://www.swissinfo.ch/eng/swissinfo.html?siteSect=43&sid=10383979&ty=st
Jucca, L. (2009, Feb). UBS Tax Deal Is Swiss Bank Secrecy’s Waterloo. Retrieved November 2009 from
http://www.reuters.com/articlePrint?articleId=USTRE51I1ZP20090219
Protocol Amending the Convention Between the United States of America and the Swiss Confederation for the Avoidance of Double
Taxation with Respect to Taxes on Income. Retrieved November 2009 from www.ustreas.gov/press/releases/docs/US-SwissProtocol.pdf
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Sources
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Bowning, Linnley. “U.S. Reports Agreement With UBS in Tax Case.” New York Times, 12 Aug. 2009. Retrieved Dec 2009 from
http://www.nytimes.com/2009/08/13/business/global/13ubs.html
“Financial crisis: Why the Swiss economy is still as safe as – er – a Swiss bank.” Telegraph.co.uk. 20 Oct 2008. Retrieved November
2009 from
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3198667/Financial-crisis-Why-the-Swiss-economy-is-still-as-safeas---er----a-Swiss-bank.html
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Foulkes, Imogen. “Clock ticking for Swiss bank secrecy.” Retrieved November 2009 from
http://news.bbc.co.uk/2/hi/business/7901832.stm
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Swiss Bankers Association. Retrieved December 2009 from http://www.swissbanking.org/en/home/portrait.htm
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“Switzerland’s Oldest Bank Rejects the US.” 26 Nov. 2009. Retrieved Dec. 2099 from
http://www.getirshelp.com/irsblog/686/switzerlands-oldest-bank-rejects-the-us/
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