Swiss banks may be insisting that the legal wrangles with foreign tax authorities are done and dealt with. Recent examples show that nothing could be further from the truth.
Foreign tax inspector at regular intervals are knocking on the doors of Swiss bank branches to search the premises, supported by their countries' judiciary. The latest example was UBS in Germany, where investigators this week sifted through documents and computers.
Credit Suisse (CS), Switzerland’s second big bank, is also a favorite haunt of foreign tax inspectors. The Dutch authorities in April launched the public phase of their attack against the local CS-branch.
Insurers Under Attack
Banks are not alone anymore: Swiss Life recently was approached by the U.S. judiciary, which wants to vet the business with so-called «Wrappers», life-insurance policies designed to reduce the tax bill. The U.S. says that foreign (i.e. U.S.) customers bought such policies to evade paying taxes.
Three separate companies in three different countries – ample proof that the Swiss financial market still has plenty to worry about when it comes to tax avoidance. The banks' protestations that they are in the clean is wishing thinking: countless sets of data are still in the hands of receivers eager to make a quick buck by selling them to foreign tax authorities. Further investigations, law suits and costly settlements will follow.
Banks must be concerned about the all-too-public investigations and searches of premises, because they further tarnish their reputation. And shareholders dislike the payments to foreign authorities because they adversely affect the financial situation of the companies.
Walter-Borjans and Birkenfeld
The key events, which set the ball rolling are closely linked with the names of a German and a U.S. citizen. The first was Norbert Walter-Borjans, a former finance minister of North Rhine-Westphalia. He bought eleven CDs with information stolen from Swiss banks, passing on the stolen data to the other 27 European Union member states.
Based on the information received from Walter-Borjans, several countries got in touch with the Swiss tax authorities requesting legal assistance. France for instance launched a law suit against UBS, which has yet to be concluded after the bank rejected a settlement.
The second key event came a decade ago when former UBS banker Bradley Birkenfeld handed over information about thousands of offshore accounts to the internal revenue service of the U.S. Rich U.S. citizens had stashed away assets on accounts, hidden away from their tax authorities.
U.S. Program: Awaiting a Conclusion
This was the beginning of the UBS tax investigation and the program instigated by U.S. authorities, whereby Swiss banks chose one of the categories set up by the justice department. Most banks chose category 2, looking for a settlement through the payment of a fine. Together, the companies paid several billion U.S. dollars in fines.
The category 2 settlements have been dealt with. But the non-prosecution agreement entails a cooperation commitment for four years. During this period, the banks are liable to provide further information about staff and clients to the U.S. judiciary and further legal wrangles remain a possibility.
Some banks in category 1 though still haven’t been able to reach an agreement with the U.S. – including Zuercher Kantonalbank, Basler Kantonalbank, Pictet, Rahn+Bodmer as well as half a dozen other companies.
It all goes to show that foreign tax authorities seem to have an almost endless reservoir of data in store that they keep processing slowly, showing up on the premises of Swiss banks at regular intervals and maintaining pressure on the management.
