G-20 leaders to target nations harboring tax dodgers
Under threat of sanctions, Switzerland and other tax havens are starting to rethink their secrecy laws.
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Bowing to the pressure, Switzerland agreed on March 13 to adopt the OECD's definition of tax evasion and to be more cooperative with other countries seeking information about their citizens who may be hiding money from tax authorities in Swiss accounts. Liechtenstein, Austria, Andorra, Singapore, and most recently Monaco have now all agreed to adopt the OECD guidelines.Skip to next paragraph
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"This sea change creates a positive environment for debate. But now we want to see rapid implementation," says Mr. Owens.
Estimated $7 trillion in off-shore accounts
Movies such as the Bourne spy thrillers romanticize the use of anonymous numbered bank accounts in Switzerland, where cash, jewels, weapons, and documents can be safely stashed away from the prying eyes of governments. While Bourne may ignite imaginations, the reality is not always so glamorous.
Secret bank accounts are often used to stash drug money, the proceeds from organized crime, funds for terrorists, as well as slush funds from political parties and corporations. Of course, wealthy individuals also use them to hide income.
And the economic impact is significant. The OECD estimates that at least $7 trillion is tucked away in secret off-shore accounts, a third of that believed to be in Swiss banks. That's more than enough to finance the stimulus plans and bank bailouts of the world's major economies.
UBS pays $780 million to settle case brought by US
The US brought charges against UBS, Switzerland's largest bank, and the bank agreed last month to pay $780 million to settle the case. The US alleged that UBS helped 17,000 American citizens stash billions of dollars in assets to avoid paying income tax. UBS still refuses to hand over details on another 52,000 anonymous accounts.
An industry has grown up in the US around publishing books and manuals on how to hide your money legally from tax authorities such as "Secrets of Swiss Banking: An Owner's Manual to Quietly Building a Fortune" by Hoyt Barber.
Banking a lifeline for Liechtenstein, Switzerland
Switzerland is not the only country under scrutiny. Last year, a former employee of a bank in Liechtenstein sold the German intelligence agency a CD with bank records of thousands of German citizens. The case resulted in the high-profile arrest, trial, and guilty-plea of the former CEO of Deutsche Post, the leading German postal company, for tax evasion.
But countries like Switzerland and Liechtenstein say their citizens feel as strongly about banking secrecy as Americans do about the Bill of Rights.
"Banking secrecy is in our DNA," says Gerlinde Manz-Christ, spokeswoman for the Liechtenstein government.
In the end, it's about economics. With such a small country – you can literally drive past it if you're not paying attention – Liechtenstein has little industry and turned to banking as a source of income. Its banks managed about $52 billion in assets in 1995, but that figure has grown to more than $150 billion recently.
The Swiss created their banking secrecy laws in 1934, in the uncertainty and upheaval before World War II when investors and wealthy individuals were looking for a way to safeguard fortunes. Swiss banks now have more than $2 trillion in foreign assets under management, which makes managing foreign investment a key pillar of the Swiss economy.
That's why Pierre Mirabaud, chairman of the Swiss Bankers Association, calls the whole debate an economic war. Mr. Mirabaud told the Washington Post: "The whole question is about dividing market share among important financial centers. When the whole cake becomes smaller, the fight among financial centers becomes more fierce."