By Armando Mombelli
More than ten Swiss banks are in serious trouble in the United States for allegedly having helped thousands of clients avoid paying taxes.
The banks had thought that they could always count on banking secrecy – a tradition that Switzerland still retains.
Security, quality and trust… and banking secrecy. These are the qualities that have made the Swiss financial centre so successful. But it’s this very banking secrecy that is threatening the future of Swiss banks.
Eleven Swiss banks are under scrutiny by the US authorities for allegedly aiding tax evaders. An investigation launched in January helped bring down Switzerland’s oldest private bank, Wegelin.
A hearing into the Wegelin case opened in New York on Friday, but – as had been widely expected – no-one from the bank or from its legal team showed up. The US side is now considering what its next moves will be. The bank is now legally considered a fugitive.
Other Swiss banks could face the same problem. “The US considers tax evasion a very serious crime. Don’t forget that [in 1931, gangster] Al Capone was convicted of and served a long sentence in prison for tax evasion and not for any of his other crimes,” said Robert Vogler, a banking historian.
But why do banks allegedly continue to support tax evasion? “They have in some way been blinded by tradition,” believes economic historian Tobias Straumann,
For a long time the Swiss authorities have only given administrative assistance to other governments in cases of tax fraud but not evasion. It’s a subtle legal difference, incomprehensible for other countries, but one on which banking secrecy has long thrived.
“Swiss banks thought until now that Swiss legislation would be enough to defend their actions and that Switzerland was able to defend its own legislation. They thought that they were invincible, otherwise they would not have continued to violate other countries’ laws,” Straumann said.
Political leaders also believed this, firmly convinced of the Swiss “special case”– that banking secrecy would not be broken.
“It’s not just the banks which have easily earned a lot of money thanks to banking secrecy, but also the authorities, which have eagerly banked massive tax revenues from the banking sector. Politicians therefore weren’t interested in asking too many questions,” Vogler underlined.
Straumann added: “what is surprising is that politicians, once the attacks became stronger, just threw in the towel and Swiss legislation no longer seemed to offer any refuge”.
“The politicians have had enough of always getting the banks out of a tight spot,” he said.
Swiss banks also benefited from the long-standing passivity of foreign governments. “For decades it was a given that other countries’ laws weren’t respected and that the authorities in these countries didn’t get involved. The US law forbidding banks to consort with tax evaders dates from the 1930s, but until now there haven’t been any consequences,” Straumann said.
“The same thing happened in Europe. When Austria and Luxembourg strengthened their banking secrecy based on the Swiss model in 1979 and 1981 respectively, there was no reaction from other European countries. Perhaps because tax evasion had reached the upper political and economic echelons.”
Until the economic crisis, there had only been isolated attacks on banking secrecy. The European Union, the US and the Organisation for Economic Co-operation and Development (OECD) have now launched a concerted action against the practice.
Big Swiss banks Credit Suisse and UBS have been in the Americans’ sights since 2008.
The big banks have underestimated the strength of the US fight against tax evasion, Straumann said.
“Some bosses realised what was happening but didn’t adopt the necessary extraordinary measures. They asked their employees to adapt to the new American regulations, but at the same time continued to reward the acquisition of new assets.”
UBS and CS have had to abandon their practices. Many US customers were instead taken on by Wegelin and other Swiss banks – which are now under US scrutiny.
“Perhaps they told themselves: there is a new regulation, but if we are clever, we can find holes in it and be successful again. They thought that there would be another legal grey area, but even a grey area is very dangerous.”
Swiss banks are now calling on the Swiss government to negotiate a deal with Washington.
“We need to stop accusations against other banks, which would threaten the reputation of our financial centre. Therefore we are calling for a comprehensive accord to once and for all come to terms with the past,” said Rebeca Garcia, Swiss Bankers Association spokeswoman.
But does this mean Swiss banks want an end to banking secrecy? And could the Swiss financial centre continue to be as successful without it?
Vogler is convinced it can. “It wasn’t necessarily banking secrecy that encouraged many Europeans to deposit their money in Switzerland in recent years, but fears over the weakening of their own currencies and suspicion of their own banks and states,” he said.
“Swiss banks represented above all a secure place where their savings maintained their value. And even today, in the euro crisis, the same phenomenon exists.”
(Adapted from Italian by Isobel Leybold-Johnson)