A whistleblower leaked account details from thousands of customers of HSBC’s Swiss unit in early 2015, prompting calls for tax authorities to step up investigations. Credit Suisse and UBS, Switzerland’s two largest wealth managers, have cut deals with the U.S. government and admitted they helped Americans cheat on their taxes. UBS agreed in 2009 to turn over account details on 4,700 clients after a banker caught in the act revealed the use of clandestine accounts, shell companies and other techniques to help rich people avoid detection. The settlements offer a roadmap to another 13 banks facing U.S. criminal probes, and about 100 more — about a third of all Swiss banks — that are cooperating with the U.S. Justice Department. BSI paid $211 million to become the first of those to settle in March. The banks want to avoid the fate of Wegelin, the country’s oldest lender, which was forced to close in 2013 after a guilty plea. Individual bankers and taxpayers have also faced charges, sending at least 45,000 offenders into the arms of a U.S. amnesty program. Switzerland avoided being blacklisted by the OECD by bowing to political pressure and agreeing to adopt international standards used by 60 countries to exchange information on account holders. A new U.S. law is also fostering bank-to-government data sharing designed to throw light on difficult-to-trace accounts.
Banking secrecy wasn’t invented by the Swiss: Italian bankers used similar discretion as far back as the 16th century. Switzerland built its brand with a 1934 law making it a crime for banks to reveal a client’s identity. Prudent bankers offered confidentiality on a par with doctors, lawyers or priests. They touted the country’s history of neutrality in European conflicts, and even suggested that the law helped stop the Nazis from uncovering Jewish wealth (an argument later debunked). Bankers also pointed to the country’s relaxed approach to tax evasion, which is not a criminal offense for Swiss taxpayers. Deposits from France, Germany and Italy swelled, particularly during periods of high taxes, even though Swiss banks charged high fees. Before the UBS settlement, account information was revealed only occasionally to governments tracking terrorists and organized crime. Amid the probes, Switzerland’s share of offshore deposits has held steady at about a quarter of the world total. It’s facing more competition from Hong Kong and from Singapore — which has its own bank secrecy rules — as wealth creation booms in Asia.
The U.S. and other countries argue that Swiss banks actively marketed tax-evasion services and lawmakers say the settlements should provide more names of clients who broke the law. Swiss bankers are trying to protect their tradition, arguing that cross-border deposits were attracted by the country’s stability and investment expertise, qualities that will continue to lure rich families. They say they can’t just flout Swiss laws by squealing on their clients in response to vague, broad requests for information by the U.S., and it’s difficult to cooperate fully with foreign tax authorities’ demands until domestic rules and tax treaties are clarified. As the iconic haven in book and film, Swiss banks see themselves as a convenient scapegoat for a global problem. Other notorious tax shelters include British Crown dependencies such as the Channel Islands, they note, and Miami, a haven for Latin American money.
The Reference Shelf
- The International Consortium of Investigative Journalists published a series on the leaked HSBC documents in February, 2015.
- Boston Consulting Group’s annual survey on global wealth.
- A Tax Justice Network report on Switzerland
- U.S. Senate Subcommittee report on offshore tax evasion and the Justice Department website on its Offshore Compliance Initiative.
- “Inside Swiss Banking,” a 2009 book by Beat Guldimann, a former employee of UBS.
- Mark Henley’s film-noir-inspired photographs of Swiss banks on Zurich’s Paradeplatz were turned into a film.