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Tags: tax | probes | secrecy | bank

Swiss Banks Break Ranks as US Tax Probe Bites

Swiss Banks Break Ranks as US Tax Probe Bites

Friday, 31 May 2013 01:54 PM EDT

The unified front with which Switzerland's banks have defended their culture of secrecy is breaking down as some prepare to hand over data in a U.S. tax evasion probe, leaving others at greater risk of prosecution.

The Swiss government is trying to push through a law that would allow banks to release the information on clients, helping 13 banks under formal investigation to avoid criminal prosecution including Credit Suisse and Julius Baer.

Although the move could deal a further blow to Switzerland's waning status as a discreet parking house for undeclared wealth, the government hopes it will head off more determined action by U.S. prosecutors.

But some banks not named in the investigation, along with thousands of tax lawyers, custodians and small asset managers, fear the government is hammering out a deal that ignores their concerns and leaves them exposed to potential criminal lawsuits.

"This isn't a deal at all," said the Swiss Association of Asset Managers in a statement. "Swiss banks which have sinned are buying forgiveness by denouncing the independent asset managers, custodians, and lawyers they worked with in order to avoid being criminally prosecuted."

The investigation is focusing for now on the 13 Swiss banks suspected of abetting tax evasion by American citizens, but industry experts say as many as 80 financial institutions could face charges.

This would suggest an industry-wide response is needed to ensure smaller players do not collapse under onerous U.S. fines or career-destroying criminal sentences.

At first the industry tactic was to strike individual deals with U.S. authorities, beginning with private banking giant UBS, which agreed to a landmark $780 million settlement in 2009 that involved handing over information that enabled American officials to pursue other Swiss institutions.

That became less tenable when the investigation took in a growing number of banks, including British bank HSBC's Swiss arm, privately held Pictet in Geneva and smaller players such as LLB's Swiss unit and local government-backed Zuercher Kantonalbank and Basler Kantonalbank.


Swiss banks had found themselves barred by Swiss law from cooperating with U.S. prosecutors and have been mostly pulling out of the U.S. private client business.

Credit Suisse welcomed the new legal framework announced on Wednesday: the 13 banks hope it will end years of legal wrangling that has already driven one bank out of business.

They still face a share of fines that could total $10 billion, according to sources familiar with the talks.

The bill caps two years of efforts by the Swiss government to resolve the tax dispute. It wants to push through the legislation in June for fear that U.S. authorities could bring criminal charges against large banks and open new probes into many others.

But a risk of criminal sentences for people and institutions not covered by the pending settlement will remain. Switzerland has roughly 35,000 tax lawyers, financial custodians and other groups supporting a financial industry that generates 6 percent of the Alpine nation's gross domestic product.

"There is no legal certainty in any of this. Who is going to agree to something they know nothing about, except that it will cost an arm and a leg?" said one Zurich-based small asset manager on condition of anonymity.

The extent of Washington's resolve in pursuing cases beyond the banks themselves became clear last month when U.S. authorities charged Edgar Paltzer, a Swiss attorney and partner with venerable Zurich law firm Niederer Kraft & Frey, with helping American clients hide millions of dollars in offshore accounts to avoid paying taxes.

Banks also fear criminal action against their own employees once data on staff who handled U.S. accounts are turned over to American officials.

The divisions exposed by the settlement show through in comments from the Swiss banking lobby, which represents 347 firms. It urged the government to "find a solution that stands in proportion to the transgressions being alleged."

A union representative for Swiss bank employees told Thursday's Tages-Anzeiger newspaper that U.S. officials could charge as many as 50 Swiss bankers in an initial phase.

Some industry experts agree the draft law is unappealing to banks not directly involved in the probe, yet insist it is still preferable to no deal at all.

Looking further out, the damage to the Swiss reputation for banking discretion, consistency and reliability is harder to assess.

"Legal certainty is extremely important for clients, and they aren't getting that with this deal," said Alexandre Zeller, former head of HSBC's Swiss arm and now chairman of the Swiss stock exchange.

© 2023 Thomson/Reuters. All rights reserved.

The unified front with which Switzerland's banks have defended their culture of secrecy is breaking down as some prepare to hand over data in a U.S. tax evasion probe, leaving others at greater risk of prosecution.
Friday, 31 May 2013 01:54 PM
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