Swiss bank secrecy is under uncomfortable scrutiny again. A US Senate report goes after UBS AG and LGT Bank of Liechtenstein for helping customers to conceal money in offshore tax shelters. But the real targets appear to be the governments themselves, Switzerland in particular.
The congressional investigators estimate offshore tax evasion costs the US $100 billion (Rs4.28 trillion) a year. Probes by the US justice department and the internal revenue service into UBS’ practices are also gathering pace.
The US lawmakers stop short of accusing UBS of breaking any laws, but say it used “the cloak of bank secrecy laws” to set up offshore accounts.
That will be a fillip to Germany and France, which have been trying to crack Swiss banking practices for years in an effort to protect their tax bases.
Switzerland has hidden behind semantics. The country will cooperate with overseas regulators in cases of tax fraud, but not those of tax evasion. Swiss banks have also agreed to collect tax on interest earned in Swiss accounts of European Union citizens, and remit three-quarters of the proceeds to the individuals’ home countries. But that has been little consolation to European governments, which want far more help from Switzerland.
It also might not just be the US and Europeans putting pressure on Swiss banks to divulge client names and to help foreign investigations. Battered by the credit crisis and anxious to disentangle itself from US regulators, UBS could be tempted to break ranks.
Swiss officials are sticking to their usual line of dismissing this groundswell as little more than media sensationalism and self-interest of foreign politicians. They did the same when it came to outcries over money laundering and Holocaust reparations—until public pressure became too much to bear.
The din could prove intolerable this time as well. One of the sponsors of the tough US anti-tax-haven legislation is Barack Obama. Before long, he may be hard to ignore.