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Swiss banks sweat tax fall-out

Aug 12 2012 15:30 Reuters

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Zurich - Swiss banks hoping to atone for decades of complicity in tax evasion may be left to sweat it out for months as the United States and Germany ponder the right level of punishment.

Switzerland has long dodged US accusations of hiding money for wealthy Americans. But now eleven Swiss banks are under investigation in the United States and there is pressure too from Europe where burdened taxpayers want scalps after numerous banking scandals. The Swiss need a deal to remove the taint from their financial industry.

However, Washington must factor forthcoming elections into its thinking, and Germany is delaying ratification of a tax deal key to Switzerland’s efforts to strike similar agreements elsewhere in Europe. So the Swiss may be in limbo for a while.

The wait is painful for a country which counts on banking for 7% of its economic output: until Swiss banks know how much information they need to share with foreign tax authorities they will struggle to attract new clients.

As a result the share prices of its top banks - Credit Suisse and Julius Baer are among those being investigated - are falling as investors fret about earnings.

“We are prepared to sign a settlement with the US for the Swiss banks today. We feel we have made a constructive proposal to the US but it is up to them to accept it or not,” said Switzerland’s Finance Minister Eveline Widmer-Schlumpf.

“This depends on whether the US is willing to reach a settlement before or after their elections, which is unclear at the moment,” she said.

Both Widmer-Schlumpf and chief negotiator Michael Ambuehl have dampened expectations for a US deal by November, stoked as recently as last month by the finance minister herself.

“There is an open window after the summer lull, but it’s relatively tight. Otherwise, I think we’re looking at next year,”  said Martin Naville, chief executive of the Swiss-American Chamber of Commerce in Zurich.

'Mice before a snake'

Switzerland’s efforts to spur along a deal include tentatively agreeing with the US Foreign Account Tax Compliance Act, an anti-tax evasion law known as Fatca.

The rules on enforcing Fatca have yet to be finalised, but many Swiss bankers see it as a crippling blow that effectively prevents their clients from investing in US securities.

Acquiescing to Fatca was a tactic to build goodwill for a Swiss bank deal, a source close to the talks said.

But the strategy doesn’t seem to be paying off.

Washington is now pushing banks in Switzerland to divulge names and financial details of wealthy Americans hiding money in their accounts, spurred on by success in 2009 when UBS handed over data to avert a criminal indictment.

“Contrary to what may appear as inactivity, the US is in fact keeping the pressure on Swiss banks, which are like mice before a snake,” said Martin Janssen, professor of finance at the University of Zurich.

“The US is really maximising its position here.”

The tension is such that Swiss bankers are afraid they will be personally targeted by US officials if they leave the country, after Credit Suisse and Julius Baer handed over employee names to US authorities.

Originally a gesture towards cooperation, the move now has many Swiss bankers hunkered down at home, fearful of arrest and extradition if they leave Switzerland.

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us  |  europe  |  tax evasion
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