Safe Swiss Passage

INDIA’S LACK OF WILL AND CLOUT IS PROTECTIVE ARMOUR FOR THE COUNTRY’S TAX EVADERS, FINDS SHANTANU GUHA RAY IN GENEVA

Shifting attention Worldwide, the media’s focus has shifted from UBS secrets to economic crises Photo: REUTERS

MODERATING ONE of the panels at the recent conference on investigative journalism at Geneva’s Global Centre — close to the majestic United Nations building — Swiss reporter Myret Zaki, who sacrificed three months’ salary to probe the UBS financial scandal, was both prophetic and cryptic. “India will never get to know the names of those having accounts in banks across Switzerland. New Delhi has neither the will, nor the clout,” Zaki told TEHELKA. “You have to be very rich to investigate,” she said in her presentation.

On the German Swiss side, Lukas Haessig also investigated UBS as a freelance reporter. But after several months of looking for a book deal, he ended up writing for a publisher on the global financial crisis — not the actual UBS mess. “Banks love secrecy,” says Haessig.

New Delhi has never debated the occasional demands from certain quarters — mostly by the Left parties — to seek details of the account holders, whose total worth is rumoured to be close to $1.5 trillion. On their part, the Swiss banks have routinely informed the Indian government about their willingness to cooperate in the fact-finding exercise, but matters have not progressed beyond the customary exchange of letters. A similar fate awaits banks in Liechtenstein, a microstate and a tax haven in western Europe, where Indians have substantial savings. New Delhi has not asked the banks to furnish details of the account holders despite repeated reminders.

With no request forthcoming, the chances of Swiss banks responding are minimal. Worse, an influential lobby group, Economie Suisse, is now asking the Swiss government to face down mounting pressure from countries like the US that are seeking account details. The move, say experts, reflects a growing impatience with the country’s political leaders over the contentious banking regulations. Switzerland last year agreed to renegotiate a host of tax treaties with other nations while brokering a deal with Washington to hand over confidential data of UBS clients.

The increased global pressure has set off a new trend across Switzerland. Recent newspaper reports indicate a slow, yet steady shift of accounts from bigger to smaller banks. “With the big banks under pressure, many accounts are shifting to the relatively lesser known banks,” says Aline Jaccottet, a Genevabased freelance journalist. “They are the new lot who feel the smaller banks are much easier to handle. The new money that is coming into Switzerland is heading for smaller banks because the chances of their comming under global scrutiny are much less.”

Besides pressures from Washington, a long-standing feud with the European Union (EU) over corporate tax rates still remains unresolved, and there is a good chance of Switzerland getting isolated — and eventually even excluded from the EU alternative investments market — if the latter presses hard for new protectionist regulations.

In a recent interview, Economie Suisse President Gerold Bührer told swissinfo.ch, a local portal, that it was time to draw a line in the sand. “We should be more ready to take the offensive when communicating Switzerland’s positive contribution, particularly with regard to the EU,” he said. “We have tackled issues too defensively.”

Bührer was also critical of other countries for transferring their own problems onto Switzerland following the global financial crisis and subsequent recession. “If you look at the enormous debts of other countries, I can understand why their finance ministers are still looking in a very skeptical, even hostile way, towards Switzerland,” he said. “We are handling our public finance issues relatively well, while other countries are doing the opposite, creating an inherent cycle of problems.”

The lobby has already found support from Switzerland’s embattled Finance Minister, Hans-Rudolf Merz, who recently created a flutter by saying his country would not bow to foreign demands for an automatic tax data exchange. His remarks drew instant flak from Washington, Paris and Bonn. Diplomatic tensions are already high after France and Germany announced that they obtained stolen data from Swiss banks.

FOR MANY in Switzerland, the banking sector that — till recently — remained extremely lucrative with secrecy policies, is now slowly becoming contentious.

It all started after UBS was forced to pay a $780 million fine last year, and hand over confidential details of clients following its admission that it aided tax evaders in the US. The bank — which exploited loopholes in tax compliance regulations, known as the Qualified Intermediary (QI) accord — announced in 2008 that it would stop offshore activities in the US. The Swiss Bankers Association (SBA) and the Swiss Funds Association (SFA) were happy that the US law did not single out Switzerland and was applicable to all countries.

And now, realising the pressure on its banking sector — especially from the international front, including the US — Switzerland has just made an important step in the direction of reform by publishing an expert report that wants the banks to increase their capital stock and spread their risks. The move follows an advice from economists of the International Monetary Fund to strengthen reforms by giving more powers to the Swiss National Bank and the Swiss Financial Market Supervisory Authority (Finma). In some ways this is the first step to what could eventually become the biggest clean-up of the Swiss banking sector.

But will that help the illegal trillionplus dollars to make its way back to India? Unlikely, say insiders. •

WRITER’S EMAIL:
shantanu@tehelka.com