- A Swiss bill unveiled last week would allow banks
to provide non-client information to US tax authorities, to
settle disputes regarding US offshore accounts;
- Irrespective of whether the bill passes, the US
is winning its fight against Swiss style secrecy, meaning the
country’s bank model will change;
- Client due diligence will now include
confirmation of home-country tax compliance and damages for
breach of contact;
- The developments jeopardises
Zurich’s future as a banking hub, with some
predicting the sector’s funds under management
to decline by up to one quarter, or even one
- The bill also jeopardises other banking centres
that had agreed to become more transparent if Switzerland,
the bank secrecy benchmark, does so.
Last week’s bill permitting Swiss banks to
share certain information with US tax authorities will prompt a
new Swiss banking model – even if the bill is not
It also marks an inflection point for global bank secrecy
policies, which are based on the Swiss benchmark.
Unveiled on Wednesday, the federal
bill will help Swiss banks by allowing them to settle tax
disputes regarding US depositors. But it compromises other bank
secrecy centres, many of which had agreed to become more
transparent if it created a level playing field.
"That presumption that the Swiss would never fold, and other
countries would not have to live up to their commitments, has
obviously now come unstuck," said Griffith University Professor
Jason Sharman, who specialises in offshore finance.
For Swiss banks, a new and strong focus on customer due
diligence – especially in relation to tax evasion
– is inevitable.
"Irrespective of whether the bill is passed, the new banking
model will concern itself with clients’
home-country tax issues," said one Zurich-based partner.
"Swiss banks will not be as prepared to take
foreigners’ money without the client confirming
that they are in compliance with their own tax laws," he
Banks are looking to ensure clients comply with their
national tax laws. This includes confirmations by new clients
in their relationship agreement (with yearly confirmations
thereafter) and penalties including damages for breach of
"These kind of compliance issues are now being discussed
among the banks, with some having already changed policies,"
the partner added.
Swiss style secrecy under threat
The controversial bill has become highly politicised, and
partners in Switzerland note the many hurdles to its passage.
But the proposal in itself will prompt banks to change back
Laws that forbid banks to share client details have helped
Zurich become the world’s fifth
biggest financial centre. But these same laws have
prevented its banks from negotiating settlements with the US
Department of Justice (DoJ), which has undertaken a five-year
criminal probe of the sector to obtain information on US
The Swiss government’s
May 29 bill represents a solution. It creates a new law
that temporarily relaxes criminal sanctions in the Swiss Penal
Code to allow its banks to cooperate with the US DoJ. This
includes revealing information about 'business relationships
concerning US persons and details on people who were involved
in the US business of the respective bank.’
Contrary to reports by other media outlets, the bill does
not change the country’s bank secrecy laws, which
are contained in the Banking Act. The bill expressly excludes
information about clients.
"Bank secrecy has nothing to do with the announced bill.
Bank secrecy legal provisions do not relate to any these
discussions," said Swiss Bankers’ Association
spokesperson Sindy Schmiegel Werner. She believed there has
been some confusion of which legal provisions last
week’s bill will amend.
According to Schmiegel Werner, it is too early to know if
the proposed changes will impact Switzerland’s
future as a banking hub. She said this couldn’t be
assessed until the 'programme’, pursuant to which
banks can settle claims with the US DoJ, is known.
But within the context of mounting US pressure on Swiss
banks, Sharman predicted the sector’s funds under
management to decline by up to one quarter, or even one
Since the 1990s, offshore banking participants have often
claimed that certain global regulatory initiatives were the
death knell of their industry. These include
exchange-on-request and then automatic-exchange under the OECD’s
Harmful Tax Competition initiative.
These concerns, however, generally proved to be
"That means my initial response is to think that predictions
of doom and gloom for the Swiss banking industry are
overblown," he said. "But it does seem like the Swiss banking
industry is running into a pretty serious problem now."
"The combined effect of the pressures applied to Switzerland
and the concessions it has made will do significant damage to
the Swiss banking industry in a way that these other regulatory
initiatives have not," Sharman added.
Given Switzerland is the historical benchmark for bank
secrecy, last week’s bill and subsequent changes
to the country’s bank model will impact other
offshore centres that boasted bank secrecy benefits.
A number of governments had agreed to relax their bank
secrecy laws on the condition that Switzerland did so as well.
Many did this to gain credit for cooperating, without actually
having to make changes because they presumed Switzerland would
not cave to international pressure.
The Swiss bill stipulates that settlements will be 'based on
a framework specified by the DoJ’. The Swiss
government agreeing to, in effect, US-imposed changes
jeopardises these other countries’ policies.
Singapore, another bank secrecy centre, has already
taken steps to make banks responsible for ensuring the
money they hold complies with the relevant
client’s home-country tax laws.
Given the US authorities’ hard line tactics
have worked against Switzerland, other national enforcement
agencies are tipped to follow.
Changes under last week’s bill are just the
latest assault. US authorities’ first big success
against Swiss secrecy was the 2009
settlement with the Swiss cabinet, which forced UBS to hand
over the names of 4,500 US account-holders.
"That model showed how to hold Swiss banks’
feet to the fire to get information, and it’s a
precedent not just for the US but also European countries too,"
The Zurich-based partner noted that many European
governments are in need of funding, and so tracking down
citizens that hold money in overseas accounts could now be a
It’s thought the bill would comply with the US
Foreign Account Tax Compliance Act (Fatca).
The Swiss Federal Department of Finance did not respond to
IFLR’s request for comment. Its press
release is available
here and the bill is available
Switzerland’s success as an
The end of banking secrecy
Austria-Switzerland tax treaty
BITs: easing the pain of Fatca compliance
How China’s state secrecy laws
challenge HK independence