Swiss Banking Secrecy: reasons to worry? and if yes, what can be done?
- Switzerland
- 03/17/2009
- Secretan Troyanov Avocats - Switzerland
The 1934 Swiss Banking Secrecy Law has not been changed and will not be changed. This was repeated by the Swiss Finance Minister and published on the official site of the Swiss government on March 14, 2009 1. The law provides for imprisonment (up to 5 years) for any bank employee who divulges confidential client information as well as for anyone who attempts to persuade such an employee to violate banking secrecy (art, 47.1a and 1b, and 47.3 LB. The prosecution takes place even if no individual client has filed a criminal complaint 2. This is what makes Swiss Banking Secrecy so special. Switzerland has even jailed in the past a French Customs Agent who tried unsuccessfully to access to client data by exerting pressure on a Swiss bank employee.
However, foreign clients should worry about the most recent developments because the Swiss secrecy law also provides that bank secrecy does not apply when there is a statutory duty to inform the Swiss authorities (art. 47.5 LB). This is where there has been a recent change, even if Swiss law and Swiss banks will continue to offer a worldwide unique protection, provided appropriate steps are taken in due course. A duty for the banks to inform the Swiss authorities exists in particular in case of Swiss criminal investigations. In case of suspicion of money laundering, banks not only have to answer questions from the Swiss authorities, but there is even a duty to report spontaneously suspicions as to a possible criminal origin of the funds. The criminal origin targeted by this law concerns funds originating from criminal organizations (mafia style) 3, or from activities designed to conceal the criminal origin of the funds (money laundering) 4. The list of crimes was expanded in 2003 to include to a limited extent the financing of terrorism 5. A crime is a violation of the law punishable by at least three years imprisonment. Money laundering is a crime under Swiss law even if the criminal activity took place outside of Switzerland, provided it is also considered to be criminal there. This is the principle of double criminality in both Switzerland and the other concerned country. This principle has now been removed for tax matters.
Switzerland has accepted to grant judicial assistance to foreign states for the last 20 years, both under domestic laws 6 as well as by way of various treaties. In all these cases banks have to answer questions from the Swiss authorities, who may then transfer the information received to the requesting foreign authorities. Swiss banking secrecy provides no protection in those cases. The Federal Law on International Judicial Assistance in Penal Matters excludes however judicial assistance in tax matters, which are not also considered to be fraudulent under Swiss law (Art. 3.3 EIMP). But Switzerland grants not only judicial assistance but also administrative assistance under the treaties concluded to avoid double taxation. Initially Switzerland granted assistance only if a client of a bank was requesting the benefit of the treaty to reduce his tax exposure. But over the years, Switzerland was forced to grant administrative assistance even in other cases, if a fraudulent activity was involved. This required an activity considered fraudulent both in Switzerland and in the foreign country (principle of double criminality) and since not declaring assets to the tax authorities is not fraudulent per se in Switzerland, it limited considerably the scope of information foreign authorities could obtain in Switzerland 7.
This is what is about to change, since the Swiss Federal government has publicly stated that the distinction between tax evasion or avoidance and tax fraud will be abandoned in the new tax treaties negotiated by Switzerland . In the future, information may be exchanged on a case-per-case basis in response to specific and justified requests for administrative assistance in tax evasion matters 9. The government has also stated that the changes will only enter into force once the treaties have been renegotiated, and without retroactive effect, i.e. information will be exchanged if and when the amended treaty enters into force, but not for matters regarding the period before the new treaty has entered into force. A Swiss referendum may even be launched against such amended treaties to give the opportunity to all Swiss voters to decide whether or not to accept these new terms. Therefore, the new policy will not enter into force overnight. Foreign clients should accordingly not panic, even if the renegotiated treaties are likely to be accepted, because nothing will be changed for the Swiss residents. Banking secrecy will continue to protect Swiss taxpayers against inquiries from the Swiss tax authorities. This is possible because all Swiss source dividend or interest income is subject to a 35% withholding tax, without loopholes, contrary to what is the case in most other countries. Taxes are therefore collected very efficiently for Swiss domestic purposes.
Therefore, residents around the world with Swiss bank accounts do not need to worry for their assets at the present time. However, they should seek advice as to ways to improve their protection in light of the new Swiss policy. Nothing about their confidential asset holdings will be disclosed by Switzerland in the near future to their home tax authorities, but they need to take in due course appropriate measures to adjust to the new situation.
Some US residents are however threatened in the near future because in their case the Swiss Federal Authorities decided that certain banking information had to be provided to the US authorities without the protection provided by Swiss law to avoid a major damage to the Swiss economy as a whole 10. The reason for that unprecedented move is the US threat to withdraw the US banking license of UBS Inc., which would have put the Swiss parent bank in deep financial trouble, since the US subsidiary bank represents a large asset of the Swiss bank, asset which would have lost its value overnight without a US banking license. This decision concerns some 350 clients who are US taxpayers and whose names were apparently already disclosed to the US authorities in the course of the investigations pending there. This decision was sharply criticized in Switzerland, including by the Swiss Federal Court in charge of deciding whether information may be forwarded abroad, because the Swiss banking supervisory authority, called FINMA, ordered the transfer of this information despite the fact that the Swiss Federal Administrative Court has received appeals filed in opposition to the forwarding of such information to the USA. The Swiss government continues to oppose requests from the US authorities to divulge some 30’000 additional client names without proper Swiss administrative and judicial control to determine if those cases relate to “tax fraud and the like” or only to tax avoidance, which would not make a transfer of information possible under the present Swiss-USA treaty.
A separate article will deal with what is considered as similar to “fraud” by Swiss Courts in the context of information requested by the US authorities. It will also deal with the content of information forwarded abroad, and ways to protect efficiently privacy and confidentiality under the new Swiss regime 11 12 13.
www.stswiss.com
Eric W. Fiechter – Partner Secretan Troyanov –Geneva - Switzerland
1 www.efd.admin.ch
2 www.admin.chl
3 www.admin.ch
4 www.admin.ch
5 www.admin.ch
6 www.admin.ch
7 www.ejpd.admin.ch
8 www.efd.admin.ch
9 www.efd.admin.ch
10 www.efd.admin.ch
11 International double taxation – Swiss government press releases
12 Banking secrecy – Swiss government press releases
13 Geneva newspaper comment
