Switzerland is known around the world for its centuries-long history of ensuring privacy for those using it as their financial hub.
But that could be fading away.
A long running legal dispute between the French tax authorities and investment bank UBS could be the catalyst for a drastic change to the country’s financial services industry.
The Swiss federal supreme court has ordered UBS to share a list of its clients who allegedly failed to disclose they had accounts in Switzerland to the French tax authorities.
The risk is that this decision could create a legal precedent that would undermine Switzerland’s reputation as a financial safe haven.
Danger: fishing expeditions
“Thwarted by Switzerland’s strict secrecy rules of the past, some revenue-hungry governments are now requesting administrative assistance, along the official channels, to see if they can get historical evidence of their citizens trying to hide money from their tax authorities,” Anne Liebgott, founder and chief executive of wealth management firm Americans Welcome – Switzerland, told International Adviser.
And this is precisely what the Swiss Bankers Association (SBA) is concerned about.
Namely that foreign countries are going to jump on the opportunity created by UBS’ defeat to get their hands on as much data as possible.
“The Swiss Bankers Association views the decision with scepticism. Under certain circumstances, it may mean that administrative assistance in tax matters is no longer limited to purely administrative assistance,” it said.
“The hurdles for pure evidence-gathering activities could be lowered, thus increasing the risk of fishing expeditions.
“The use of data for purposes other than tax could also be permitted, which could fatally weaken the principle of speciality. Compliance with that principle is key and is an internationally recognised standard.
“We trust that the federal authorities will accord the highest priority to compliance with that principle by France.”
Willing to help
But this does not mean that Switzerland is uncooperative when it comes to helping other countries with tax investigations.
In 2017, the country enacted the automatic exchange of information (AEOI) agreement to share data of existing bank accounts with foreign states, as part of a global crack down on cross-border tax evasion.
“Bank and safekeeping account information is automatically submitted to the tax authorities in the participating countries on an annual basis,” Liebgott added.
“Therefore, bank-client confidentiality cannot be abused by foreign account holders to evade taxes in their country of residence.”
When talking to IA, investment management firm Vontobel emphasised its regulatory compliance, suggesting that many Swiss firms pride themselves on being fully in line with the local requirements, regulations and laws.
Legacy still standing
Confidentiality, however, is still embedded in the way the Swiss financial services industry works, and its professionals are eager to stick to those principles.
“Due to Switzerland’s long-standing and ingrained respect for privacy, the banks are not happy when they are forced to hand over client data to the foreign authorities,” Liebgott said.
“However, Swiss banks are neither babysitters nor policemen when their clients decide to cheat on their taxes.”
But client information is still safe.
“Even with the introduction of AEOI, because the tax authorities are bound to data protection, the data remains well protected,” Leibgott added.
“Furthermore, bank-client confidentiality is still preserved as a professional confidentiality, meaning that Swiss banks continue to uphold the confidentiality of their customers and their bank and safekeeping accounts.
“The protection of privacy remains an important feature of the Swiss banks.”