April 1, 2009 (the date of publication in Russian)

Marine Voskanyan


Disclosure of Swiss bank accounts could help Europe and Third World to deal with the crisis

During the last month, the contradictions between the governments of Germany and Switzerland, concerning anonymous accounts in Swiss banks, repeatedly exacerbated. Berlin insists on revision of the Swiss banking legislation which enables tax-evading German individuals to illegally export their capitals.

In an interview to Sueddeutsche Zeitung, German Finance Minister Peer Steinbrueck complained that in some messages he receives from Switzerland, he is labeled as a neo-Nazi. "That is absolutely unacceptable", the Minister said. Obviously, he referred to the recent statement of Swiss MP Thomas Mueller who relegated the minister to "the generation of Germans who wore leather coats, jackboots and armbands". At the same time, a number of European media ridiculed Steinbrueck, describing his demands to Switzerland as a "personal crusade" against tax havens.



Steinbrueck used his own metaphors. Recently, he compared the Swiss with "Indians, escaping from the cavalry". At the October 2008 OECD conference in Paris, he urged to include Switzerland into a new black list of states that don't comply with anti-money-laundering legislation (today, it includes Andorra, Liechtenstein, and Monaco). He claimed that the policy of Swiss banks tempts well-to-do German taxpayers to ship their money to Switzerland, evading taxes at home. "Switzerland does not provide information that could prove illegal export of capitals. We have to combat this practice, using not only carrots but also sticks", he said.

In February 2008, Mr. Steinbrueck similarly attacked Liechstenstein, and the debate around hundreds thousand millions euro, evaded from the German budget, grew into an international scandal. It is noteworthy that Liechtenstein's Prince Hans-Adam also labeled Germany "the Fourth Reich".

Swiss officials insist that their nation cannot be compared with "professional offshore states" like Cayman Isles or Nauru. Thomas Sutter, spokesman of the Swiss Banking Association, argues that Switzerland is not a "tax paradise", reminding that Bern has signed information exchange agreements with around fifty states, including EU members.

However, Swiss law necessitates disclosing privacy of bank accounts only in case of serious crimes. This category, according to the national legislation, does not include tax evasion. Swiss MPs recommend Germany to reduce taxes and thus to discourage citizens from exporting capitals.

Still, the threat of financial ostracism has worked. The examples of punished island states forced Andorra and Liechtenstein to suspend the veil of secrecy from banking accounts. Austria and Luxembourg have also expressed commitment for relevant concessions. Eventually, after sounding rhetoric of a number of politicians, Switzerland agreed to negotiate with the German Ministry of Finance. The Swiss are ready to concede on information exchange from now on, but demand amnesty for today's clients.

Germany and France, the major fighters against shadowy capitals in the EU, have conveyed their ideas to their colleagues at the G-20 summit. Under the conditions of the international financial crisis, EU's tax regulations were amplified with the definition of "prejudicial tax competition", meaning a tax rate significantly differing from the average European level. The category of "prejudicially competing" states includes, particularly, Cyprus.

In case the G-20 fails to arrive to an accord on tax evasion, Germany will continue its own line. In particular, BaFin, Germany's finance-supervising authority, is going to demand that German banks "give up non-transparent business transactions", meaning particularly deals with doubtful Liechtensteinian financial entities. Trespassers are supposed to undergo special audit.

This decision of the German watchdog was made after scrutiny of 31 German banks that have branches in Switzerland. Calculating the number of Liechtenstein-based financial companies among these branches' clients, the agency found out that several hundred of such entities possessed accounts in Deutsche Bank, Commerzbank, and Dresdner Bank. Spokesmen of these major German banks are reluctant to comment.



Great Britain's tax regulations used to be mild, and that was one of the reasons for London's transformation into a global financial center. However, the incumbent British government was also forced to combat tax evasion, as soon as the crisis descended on The City. On the eve of the G-20 summit, the government published a document containing proposals on regulation of the financial market. Britain's Financial Services Authority (FSA) is now going to regulate the earlier "classified" hedge funds and offshore havens.

Offshore financial operations have been criticized on the top level of the US State Dept as well. In 1999, Vice President Al Gore raised the issue of combating offshore companies as a convenient facility for money laundering, but this view was not shared by the administration of George W. Bush, even though after 9/11, similar demands were raised also over sponsorship of terrorism.

Last year, Washington officially demanded that the Swiss-based UBS bank provide information about US individuals suspected of tax swindle and other financial machinations. The amount of related money on bank accounts was estimated at almost $15 billion. According to the Department of Justice's Tax Office, UBS's top manager Raoul Weill and other top functionaries were involved in evasion of around $20 billion in the period between 2002 and 2007. During the same period, around 20,000 US citizens became clients of the swindlers. In February 2009, the bank eventually agreed not only to disclose information concerning persons involved in trans-border operations but also to pay a $780 million fine to the US government as "compensation of damage and unpaid interest". Only after that, DOJ lifted its sanctions. Peter Kurer, then-UBS head of board, assured that "guarantees of privacy provided to UBS clients, are not going to protect the activities or names of those who use it for criminal purposes".

In any case, Swiss banks are expected to undergo increasing international pressure in the present situation of financial crisis. Earlier, UBS managers insisted that tax fraud should be differentiated from tax avoidance that is not criminal. However, what owners of accounts don't regard as crimes can be interpreted otherwise by European tax officials who now insist that in the conditions of crisis, Switzerland should comply with universal rules of the game.

Thus, Swiss banks are likely to lose their ace of trumps: after privacy of accounts is removed, they'll have to compete with other European banks on equal terms. Der Spiegel's review of the issue is characteristically entitled "The End of Swiss Banking as We Knew it?".

According to the calculations of the US Congress, the annual damage from offshore trade for the American economy amounts to $100 billion per year. As Senator Carl Levin then claimed, "Tax havens are engaged in economic warfare against the United States and honest, hardworking American taxpayers".



Today, the United States and Great Britain, as well as the continental European powers, are economizing on every cent of revenues. Under current conditions, tax evasion is viewed as a much more serious crime than before. Even those who formally don't violate the laws, exporting capitals into offshore areas, are chastised for "unfriendly" behavior towards their nations. Thus, it is quite probable that the G-20 will eventually demand that "tax oases" like Switzerland, Liechtenstein, Andorra, and Caribbean isles, disclose the whole amount of related information.

It is noteworthy that the global community and the IMF will have to deal with the problems of the poorest states where the situation is going to deteriorate. The money, extracted from the "shade", is supposed to be helpful for those purposes. According to Oxfam, a British charity, developing nations annually lose $124 billion in evaded taxes syphoned out to offshore zones. During recent years, the amount of evaded money exceeded the financial rescue from the global community. Oxfam's expert John Slater believes that the world needs a higher level of tax transparency, for the sake of survival of poorer nations.

The amount of shadowy finances, harbored in offshore areas, exceeds $7.3 trillion. Over one fourth of this money, according to Boston Consulting Group, is stored in Switzerland. Experts admit that in the situation of crisis, troubled companies may try to use offshore financing to escape measures of domestic financial regulations introduced by governments.

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