Switzerland’s strict bank secrecy laws have made it the place the wealthy and powerful hide money for three-quarters of a century. The Swiss economy depends on its banking industry—with its ostentatious banks and their marble-lined hallways in Geneva and Zurick—although it’s unclear exactly how much of the nation’s lucrative private wealth management sector relies on individuals seeking to evade taxes.
But recently the Swiss banking industry has become a target of foreign regulators seeking to crack down on international tax evasion. With the euro in crisis, European nations such as Germany, Austria and Britain have sought agreements with the tiny Alpine nation, requiring it to withhold taxes from accounts belonging to their residents. The United States has also garnered settlements valued at hundreds of millions of dollars from Swiss banks that have been found to help U.S. residents cheat taxes.
As a result, many Swiss bankers are anticipating a day not far in the future when they will open their files to international tax authorities, and the nation will no longer be the global hiding place for tax evaders.
“You can hardly understate what is happening,” Luc Thevenoz, director of the Center for Banking and Financial Law at the University of Geneva, told the Washington Post. “Switzerland has created this image that the big value that Swiss bankers brought their clients was secrecy. It was an attractive proposition, especially with regard to tax issues.”
Without the promise of secrecy, Swiss bank accounts lose much of their allure. Economists speculate the measures taken to provide transparency to other nations could decrease the country’s gross domestic product by as much one percent. Last Week UBS—formerly known as United Bank of Switzerland—announced it would eliminate 10,000 jobs, mostly from investment banking.
One of the fears is that there could be a slow death for Swiss banks down the road,” Scheherazade Rehman, an international business and finance professor at George Washington University, told the Washington Times. “A lot of Swiss banks have disappeared, really you just have a few left.”
However, Swiss banking giants UBS and Credit Suisse say they can make up for the loss of European and American investments with new business from developing countries, particularly in Asia, where customers may not seek tax evasion but instead a safe place to deposit their money. In fact, total deposits to Swiss banks have increased in the last year even though Western Europeans have withdrawn money.
UBS chief executive Sergio Ermotti recently told a Swiss newspaper bank secrecy in his nation should be eliminated entirely, and many agree international standards will soon require all banks to fully disclose all information about their depositors to other nation’s tax authorities. Current Swiss banking code deems it a crime for any bank employee to divulge any client information unless a serious crime is involved—tax evasion is not on that list.
“Banking secrecy has been associated here with basic Swiss values, like neutrality and discretion,” Mark Herkenrath, a sociologist at the University of Zurich who works on tax equality issues, told the Post. “People were shocked” when Switzerland was briefly placed on the Organization of Economic Cooperation and Development’s gray list of tax havens in 2009. Citizens started to realize the nation’s prestigious banking reputation may have earned a global stigma.
And since the United States may penalize a foreign bank’s U.S.-based profits up to 30 percent if the bank does not disclose information on even one U.S. account, many Swiss bankers are voluntarily giving up on Americans.
“For American customers, Swiss banks pretty much tell you, ‘Listen, don’t come to us unless you have a lot of money,’” Rehman said. “They won’t take you. You’re too much work for them.”