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article imageOp-Ed: Swiss banking, lifting the secrecy veil

By Keegan Valladares     Jan 4, 2014 in Business
The US crackdown on Swiss banks to expose US clients avoiding tax, and the banks that are helping them has raised a number of questions. Principally, how can the US do anything about this and how will the world of offshore banking change?
Swiss banking has a long standing history of secrecy. In 1934 it was made a criminal offence to reveal clients' identities. This included sharing information with third parties, such as tax agencies or foreign governments. Thus Switzerland as a banking haven was born, and today Swiss banks are said to hold 27 percent of the world’s offshore wealth holdings, or $2.1 trillion.
However, over the last five years much has changed. In the past, many governments turned a blind eye to offshore banking by their citizens and although aware, never pursued lost taxes. Post-GFC, many countries are now running large deficits, and lost tax revenue is a big issue.
With pressure from the US, G20 states and other developing nations, Switzerland and other banking havens are being forced to exchange their secrecy vows for more transparent banking. Despite resistance by the Swiss Parliament, laws have now been passed enforcing the release of client information. This has essentially gone against the main ethos of Swiss banking for over 80 years. Switzerland now has bilateral tax collection agreements with the UK and Austria. In 2010, the Multilateral Convention on Mutual Administrative Assistance on Tax Matters was agreed to, requiring all consenting parties, which includes all G20 states and most European countries, to pool tax collection information. The US Foreign Account Tax Compliance Act (FATCA) signed in 2010 requires individuals to report their offshore holdings as well as the relevant financial institutions to report holdings by American clients to the Internal Revenue Service (IRS).
The US is now taking matters further with the Swiss banking deal, in an attempt to reclaim lost tax revenue. A common question has been how the US can reach so far out of their jurisdiction and impose such sanctions? US lawmakers have essentially formed an agreement with Swiss lawmakers after significant pressure, meaning the Swiss banks are facing obligations, in part, from their own government. By getting Swiss authorities on board the US has been able to go after Swiss banks, as seen with the UBS fines in 2008.
The impact on the Swiss economy and banking system will be significant. So far between 2008 and 2012, foreign bank assets worldwide declined by almost $1 billion. A number of Swiss banks have been forced to close their doors and over a dozen foreign banks have closed offices in Switzerland in the past two years. There have also been many reports of Swiss banks refusing American customers.
With the world moving ever closer together, it makes sense that areas previously considered grey or ambiguous are getting smaller. With greater exchange of information and increased transparency, the days of the once established banking secrecy of the past appear to be numbered.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com
More about Swiss banks, Swiss bank, Swiss bank accounts, US governement
 
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