In the fallout from the financial crisis, Switzerland is coming under increasing pressure to withdraw its banking secrecy laws. In addition to the calls for banking transparency, financial services institutions and governments around the world are fighting to increase their income, a battle which could now threaten Switzerland's dominant position as a wealth management center.
Cuckoo clocks, chocolate, beautiful alpine scenery and banking secrecy. Is nothing sacred anymore? Switzerland is under mounting pressure to rescind its renowned banking secrecy laws, which the country has long held so dear - and helped make it so rich. In yet another fallout from the financial crisis that has beset the world, Switzerland may have to re-examine the way that its wealth management businesses operate.
One agent pushing for change is that beleaguered pillar of Swiss wealth managers, UBS. Not only has UBS suffered the indignity of enormous losses, but the bank is currently before a US Senate committee to answer questions regarding its offshore banking practices, including the possible charge that it conspired to defraud the US government of taxes owed by its American clients (which the bank has declined to name).
Susan Ellis* explains: “The difficulty lies in the nature of Swiss banking privacy laws.” The US government needs to provide significant evidence to back up its suspicions that any individual client is guilty of tax fraud, as without it the Swiss authorities will not assist in any foreign investigation, instead protecting the privacy of Swiss bank clients. Susan Ellis points out that "significant evidence" can be difficult to find during the course of an investigation. She says: “Especially when only some of this information is not available to the investigator. In the context of interlinked global financial markets, Swiss banks - and the Swiss authorities - need to accept the laws of the country in which their banks are operating,”
The new CEO of UBS, Oswald Gruebel, has publicly stated that Switzerland needs to change its banking secrecy laws. In fact, he is admitting that it will no longer be possible to protect clients in the way that Switzerland has done previously, given the pressure that is being applied not just from the US authorities, but also from Germany and the UK.
There is contention over what lies at the heart of the pressure on Switzerland, Susan Ellis gauges: “Is it governments wanting to ensure that they get the taxes they are rightfully owed, or is it because the financial crisis has put pressure on the industry to challenge Switzerland's dominant position as a wealth management center so that dollars can be pumped back into other global financial centers?” Either way, the result is the same. Ellis adds: “Banks and countries are short of cash, and the wealthy need to spread it around - legitimately.” For Switzerland, the price will be high, as a fall in the financial sector's share of GDP will have a significant impact upon the wealth of the nation.