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Swiss
bank secrecy in toughest test since Nazi gold |
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FRANKFURT/ZURICH(December
12,2008) - More than a decade after holocaust survivors
won compensation from Swiss banks for emptying Jewish accounts that
had lain dormant since the war, the pressure is on again to dismantle
Swiss banking secrecy.
This time, the tax collector is leading the charge.
With Washington joining Germany to press for an end to a code they
believe helps tax dodgers, many see it as only a matter of time before
the Swiss lift the cloak guarding the secrets of the world's wealthy.
"The challenge to bank secrecy is a thunderstorm which has been
brewing since the holocaust money," said Sebastian Dovey of consultancy
Scorpio Partnership. "It is a hot potato and I don't think the
heat is going to be turned down."
Nearly one-third of wealth kept abroad globally is in Swiss banks:
the Swiss Bankers Association and consultants estimate this at $2.2
trillion, making the Alpine state the globe's biggest offshore centre
ahead of Britain and Luxembourg.
But its code of secrecy -- which local myth inaccurately claims was
introduced to protect fleeing Jews -- is as controversial as it is
protective.
Laid down in a 1934 law, it has spawned plots for bestselling thrillers,
but also real-life intrigues such as that of Gizella Weisshaus.
Shortly before her father was murdered by the Nazis during the war,
he told his children about gold coins and jewellery he had stowed
away as Germany's army marched towards their home in Romania.
"I found the money and his gold watch hidden in the roof of my
house," she told Reuters by telephone from New York. "And
there were some pieces of paper. It didn't mean anything to me."
Decades later, the Auschwitz survivor was still trying to unravel
the riddle of those long-discarded papers which likely contained the
numbers of Swiss bank accounts.
But like many others who travelled to Zurich to trace her father's
money, she was turned away repeatedly.
She later became central to a series of legal actions taken against
the banks and in the mid-1990s under pressure from Washington and
Jewish community group the World Jewish Congress, they finally paid
$1.2 billion for accounts they had sucked dry.
Now Switzerland faces its toughest assault since. In an escalation
of a U.S. investigation into its biggest bank, Raoul Weil, head of
UBS's wealth management business, was recently charged with helping
Americans hide billions.
"With the UBS case, Switzerland is under huge international pressure
and pretty much back in the situation it was then," said Swiss
Social Democrat party official and historian Peter Hug.
"Holding onto bank secrecy is not going to work in the long term.
Switzerland is small and it cannot afford to help tax evasion in its
neighbouring countries."
POLITICAL PRIORITY
Germany, which at the start of the year paid an informant for the
names of tax dodgers who parked money at LGT bank in smaller hideout
Liechtenstein, is also pushing for change.
"In the end, Switzerland will have no way around declaring who
its foreign bank account holders are," said Hans Eichel, who
as German Finance Minister between 1999 and 2005 tried to tackle offshore
havens.
"This is a business based on a criminal activity -- dodging tax
in a neighbouring country."
The Swiss have already made some concessions: introducing, for example,
a tax on income earned by European Union citizens in Swiss accounts.
Stuart Eizenstat, U.S. Deputy Secretary of the Treasury under Bill
Clinton, said the dormant accounts case he helped negotiate prompted
the Swiss to cooperate on other fronts.
"I do think it had a catalytic effect of making the banks more
open," he said. "They became strong supporters, for example,
of the anti-terrorist financing measures. It did spur them to become
more open on money-laundering."
But with demands from Germany that Switzerland be blacklisted by the
Organisation for Economic Cooperation and Development, pressure is
rising for more.
"The Americans said that if you do not cooperate, then we will
make sure you cannot do business here," said Eichel. "European
neighbours of Switzerland such as Germany have to consider similar
measures."
Many believe an agreement between Liechtenstein and the United States
this week to drop bank secrecy in cases of tax evasion could force
Switzerland into similar concessions.
Prince Nikolaus, the brother of Liechtenstein's ruling monarch and
the country's ambassador to Brussels, said UBS's problems and Germany's
probe of his family's bank, LGT, sent a clear message to offshore
havens.
"It was these two banks -- the biggest in their respective countries
-- which were turned into a big case," he told Reuters by telephone
from Brussels. "It has symbolic value. It shows the political
priority."
AIR THINNING FOR ELITE
The pressure from Washington is unlikely to let up. As a senator,
U.S. president-elect Barack Obama introduced legislation early last
year to make it easier to probe and prosecute tax dodging in offshore
locations.
As president, he will need to fund an economic stimulus plan that
analysts estimate could cost at least $500 billion.
Hug believes Liechtenstein's move shows the air is also getting thinner
for the Swiss elite. And he sees the first cracks appearing in the
country's usually unshakeable facade.
"There is a conflict of interest between Swiss industry and the
banks," he said. "Industry wants compromise on bank secrecy
so that the country's image is not spoilt."
Switzerland's banks -- the liabilities of its two largest are more
than seven times the country's Gross Domestic Product -- have been
talking up the services they offer beyond hiding customer identity.
"This is not all we have," said Urs Roth, Chief Executive
of the Swiss Bankers Association. "We do have a number of traditional
advantages, like the economic, monetary and social stability."
Ultimately, however, it may not be the industry but Swiss pride that
is the biggest hurdle to dropping bank secrecy. A nationwide vote
would likely be needed to change the rules.
Few speak out publicly on the subject. No major Swiss bank wanted
to discuss it with Reuters.
"The Swiss are so brainwashed, that the bank there is untouchable,"
said Maram Stern, who as Deputy Secretary General of the World Jewish
Congress oversaw negotiations with the Swiss banks about dormant accounts.
"This was what the normal person on the street was not capable
of understanding. There were people asking me: how can you question
the bank?"
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