Banking Row
July 9, 2009
The anger is practically dripping from Kristin Stroemstad's voice when she talks about the fallout from the Swiss-US banking dispute over tax evaders that is hitting Americans with Swiss bank accounts, including personal friends.
"It's putting everyone into one basket (with the evaders), and it's not fair," said Stroemstad, a Norwegian-American who lives in Geneva and heads the American International Club there.
Two of Switzerland's biggest banks, UBS and Credit Suisse, along with other smaller financial institutions, are asking Americans to either move their accounts into specially created units registered with the US Securities and Exchange Commission, or to close them altogether.
Several Swiss banks are not willing to abide by stepped-up rules imposed by the US to counter tax evasion. They consider the new reporting regulations too complicated and time consuming, and therefore their American clients are just no longer worth it.
It is not known exactly how many people are affected, but some 30,000 Americans live in Switzerland, according to Geneva-based American Citizens Abroad. One of the group's founders, Andy Sundberg, says he gets calls every day from Americans asking: "What do we do?"
"What is happening, either willfully or by neglect, is that the US government has turned Americans overseas into toxic clients for banks," he said. He calls it a crusade by overzealous US tax officials that is punishing American expats and stirring up resentment in Europe, for little reason.
Disclose, disclose
The US tax authority, the Internal Revenue Service (IRS), is putting increasing pressure on Americans to disclose their offshore accounts in a bid to recoup what it estimates is $50 billion in unpaid taxes. US citizens have until Sept. 23 to make the disclosure or face high fines and possible jail time.
UBS, Switzerland's largest bank, said last July it planned to stop all offshore banking and investment services for people subject to US taxes, unless they were in the special US-registered units.
Americans have also had difficulty opening investment accounts at Bank Zweiplus and Raiffeisen Switzerland. Private bank Mirabeau & Cie. is closing its "few remaining" accounts held by Americans, according to Bloomberg.
"We have to be prudent," said Pierre Mirabeau, senior partner of the bank.
Escalating row
The conflict between the US and Switzerland over banking secrecy, on a slow boil for some time now, is rapidly heating up.
The US Justice Department has filed a lawsuit against UBS demanding the names of about 52,000 Americans who are suspected of using confidential UBS accounts to hide nearly $15 billion in assets and evade US taxes. A court hearing in Miami is scheduled for July 13.
But on Wednesday, July 8, the Swiss government vowed it would prevent UBS from handing over its client information to US authorities, saying it would be against Swiss law.
"The IRS now inappropriately seeks to provoke international conflict through this civil proceeding," Swiss authorities said in a statement.
The clash, which is straining relations between the US and Switzerland, takes place amid the backdrop of a concerted campaign by countries such as Germany, France and the US to crack down on tax havens such as Switzerland and Luxembourg.
UBS did admit to wrongdoing in February of this year, disclosing the names of some 250 clients and paying a fine of $780 million in order to avoid tax fraud criminal charges. While tax fraud is a crime in Switzerland, tax evasion is not.
Banking secrecy
Switzerland says that fact does not undermine the legitimacy of Swiss banking secrecy on the whole. But the US Justice Department has up to now been unmoved by such arguments.
"The vital national interest of the United States in fighting attempts by US taxpayers to avoid and evade their tax obligations outweighs the general Swiss interest in maintaining the secrecy of its banking relationships," the department said in a brief filed with the court in Miami.
However, Swiss officials have said there is still room for a deal, or an out-of-court settlement, which could involve a multi-billion-dollar fine for UBS.
The worst-case scenario, according to Marc Maurer, a banking expert at Switzerland's ZfU International Business School, would involve UBS losing its banking license in the US.
"I don't think it will go that far," he said. "I see this more as a power play between the US and Switzerland."
The development is yet another case of international pressure coming down on Switzerland's cherished banking secrecy system, which still has broad support at home. However, Mauer said that many in the Swiss banking industry think the system has a limited shelf life.
But even if banking secrecy rules are changed, according to him, it will not mean the end of Swiss banking.
"This traditional discretion is not the only pillar that banking stands on," he said. "There are other things, such as stability, quality, good communication, etc., that will still draw banking customers to this country."
Author: Kyle James
Editor: Michael Knigge