Switzerland - bank secrecy and fiduciary services

Switzerland- bank secrecy and fiduciary services.

Swiss banking secrecy has a long history going back for more than 300 years but it was only in 1934 that bank secrecy became enshrined in Swiss federal law. This was in response to moves made by Adolph Hitler in 1931against Germans with foreign capital and French moves to obtain information on Swiss bank accounts held by French nationals.

More recently a Swiss referendum in 1984 produced a majority of 73% in favour of maintaining bank secrecy. In 2009 a poll produced a majority of over 80% in favour.

Switzerland has been synonymous with first class banking services and confidentiality as a consequence but times change and this position is under attack. So what has changed and what does the future hold for Switzerland, its banking and fiduciary services?

We are all too well aware of the financial crisis to hit the banking sector in 2008 and the subsequent financial scandals of Madoff and Stanford to name but two. As with most of the world’s banking system Swiss banks were not immune although the most high profile Swiss banks, UBS and Credit Suisse, suffered the most damage. Add to this the UBS debacle in regard to its US clients and Swiss banking appeared to be in crisis – or was it?

The financial crisis gave rise to the G20 summit in London in April 2009 and as part of that a focus on tax evasion arose; so much so that the G20 let it be known that a “black list” of countries considered to assist tax evasion through non disclosure would be drawn up. This threat led to a whirlwind of activity by a number of jurisdictions not least Switzerland who before the meeting agreed to adopt Article 26 of the OECD model convention in all renegotiated double tax treaties and any new treaties.

This led to Switzerland along with Singapore and Luxembourg entering a “grey” list with the stipulation that they must negotiate 12 such agreements by the calendar year end to enter the “white” list.

So what is the effect of Article 26 being included in Swiss tax treaties and how does it affect banking secrecy? Article 26 agrees that the countries subject to the tax treaty will exchange information in the case of tax evasion. Previously there could only be exchange of information from Switzerland in a case of tax fraud. Evasion of foreign taxes is not a crime in Switzerland unless a fraud can be proved.

However this exchange can only take place if the individual can be identified, the bank account can be identified and sufficient evidence to prove evasion is provided to the Swiss courts. There is no automatic exchange of information and “fishing trips” are specifically excluded.

Switzerland’s process of renegotiating/negotiating treaties will take time and some bargaining will take place on specific clauses in treaties where Switzerland perceives it appropriate to redress the balance. Nonetheless there will be more transparency as a consequence but the power still resides with the Swiss courts to instruct a bank to release information. Consequently there is no explicit change to Swiss bank secrecy law despite the large amount of inaccurate reporting of the position.

What will be the effect on Swiss banks of these changes? Probably very little because Swiss banks did not seek out “tax evasion” business and even with UBS this was limited to a few of its operatives acting outside the banks remit. The attraction of Swiss banks to the wealthy are the quality and breadth of service and the quality of the personnel which is second to none.

So where do the challenges of the future lie in this “new” world? I believe the challenges lie more in other areas of financial services particularly tax advisers, lawyers, family offices and fiduciaries. It is clear that wealth and succession planning have to be carefully thought through to provide robust structures to protect wealth and pass it to future generations.

The challenges will be on the investment front, tax compliance with mitigation and effective compliance with anti money laundering legislation. For fiduciaries in particular a greater regard to tax compliance requirements in foreign jurisdictions and appreciation of the tax effects on beneficiaries will become even more relevant. There will be more transparency but no capitulation to the demands from foreign tax authorities wishing to embark on “fishing trips” and confidentiality will be preserved.

Recent events will undoubtedly shape the future of the fiduciary world not just in Switzerland but in all jurisdictions. The client is becoming even more discerning in the choice of fiduciary provider, bank fiduciaries are reassessing the benefits versus risk of providing services to those deemed less than high net worth and small independent fiduciaries may find the compliance demands erode profits.

Louvre Trust (Suisse) SARL is part of the Louvre Group an internationally based independent fiduciary company. Its diversity of knowledge and experience enables it to evolve and handle the current changes as they arise. Its independence is its strength in bringing together clients and service providers.

Paul Broxup – paul.broxup@louvregroup.ch
Louvre Trust (Suisse) SARL
Geneva

Switzerland - bank secrecy and fiduciary services

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