Nick Shaxson ■ The Swiss banking clean-up is a mirage

The front exterior of a Credit Suisse bank branch.

For some years now we’ve heard the same message, widely reported in Swiss media, and often abroad: that Switzerland used to be a nasty tax haven, but now it’s cleaned up.

Our Financial Secrecy Index, where Switzerland ranks as the world’s third biggest supplier of financial secrecy, shows how even the laws and rules on Swiss books – let alone enforcement of those laws – are still rigged in favour of the world’s ne’er-do-wells. Switzerland also ranks 5th on our Corporate Tax Haven Index, a ranking of countries most complicit in multinational corporations’ tax abuse in particular. The impact of Swiss ‘success’ in these areas amounts to, TJN estimates, tax losses suffered by other countries of some US$21 billion a year, or enough to fully vaccinate more than a billion people against COVID.

The latest “Suisse Secrets” leaks via Germany’s Süddeutsche Zeitung and co-ordinated by the Offshore Crime and Corruption Reporting Project (OCCRP) focus on a subset of leaked records from the Swiss bank Credit Suisse.

The miscreants include a Yemeni spy chief implicated in torture; the sons of an Azerbaijani strongman who rules a private fiefdom; a human trafficker in the Philippines; a Hong Kong stock exchange boss jailed for bribery, a billionaire who ordered the murder of his Lebanese pop star girlfriend, and corrupt politicians and executives from Egypt to Venezuela to the Vatican to Ukraine.

And, of course, plenty more.

The Swiss laws might look good, to the casual observer. But practically, despite the worldwide rise of automatic exchange of information (AEOI)1Automatic exchange of information is a data sharing practice that prevents corporations and individuals from abusing bank accounts they hold abroad to hide the true value of their wealth and pay less tax than they should at home. Under automatic exchange of information, a country takes the information it has on the financial activity of individuals and businesses who are operating within its borders but are resident in, aka permanently living in or headquartered in, another country and shares that information with that country. The allows countries to know the true value of their residents’ wealth and make sure they pay the right amount of tax. Learn more. in the past decade or so, where governments are supposed to exchange relevant financial information with their peers (to help them enforce criminal and tax laws), Switzerland has carefully carved out exceptions to help their bankers – and the world’s criminal classes.

For example, Article 47 in the Federal act on banks and art. 127 Direct Federal Tax Act have not changed, despite the global rise of AEOI. Lower-income countries in particular are penalised by the exceptions and loopholes Switzerland has inserted. For instance, as Dominik Gross of Alliance Sud in Switzerland described it:

“Switzerland has an AEOI agreement with Nigeria. But if an oil trader from Nigeria works with a Swiss law firm that operates a shell company for him in Panama, there is no exchange of information between Nigeria and Switzerland because the law firm is the owner of the account.”

An undercover journalist posing as an African investor was told by the bank that secretive numbered accounts existed but were being phased out, and instead was steered towards setting up a trust, a vehicle that has long been a bugbear of transparency campaigners. And OCCRP pointed out:

“a new draft law that would allow Swiss bankers to create trusts in Switzerland for the first time.”

It is also worth highlighting, in particular, that Art. 47 is a very strong Anti-Whistleblower legislation, imposing a prison sentence of up to three years on banks and their employees if they disclose client data to unauthorised third parties. And this has chilled democratic debate in Switzerland. As OCCRP stated:

“Journalists and experts say Switzerland’s draconian banking secrecy laws effectively silence insiders or journalists who may want to expose wrongdoing within a Swiss bank. A Swiss media group was unable to participate in the Suisse Secrets investigation due to the risk of criminal prosecution.”

As with all tax havens, the deference to criminals and the wealthy makes for a topsy-turvy world. You might have thought that larger customers would be subject to more intensive checks on the source of their larger funds, but of course it’s the other way around. As OCCRP reported:

“Due diligence of customers and accounts –– say at a level of $1 million –– are very thorough,” said a former senior executive. “But when it comes to high net-worth accounts, bosses encourage everyone to look the other way and managers get intimidated about their bonuses and job security. In addition, very big accounts are kept so secret that only a few senior executives might know who owns them.”

As we have often said before, this calls into question a number of research reports into these issues, where researchers painstakingly contact representatives in tax havens, asking to set up shady offshore services, and some tax havens obtain good marks – because such approaches are often turned away – in turn because they appear to be from the ‘little fish’. Once you’re in the system, once you’re a big fish, and trusted (consider how insidious the use of the word ‘trust’ is there,) to do the right thing by the bank, the rules and laws that apply to the rest fall away.

The rise in anger across western societies is fueled by exactly this sort of thing. It is an inequality problem, a national security problem, a corruption problem, a market-rigging problem, and perhaps above all, a democracy problem.

There are, as with previous leaks, so many potential take aways here. Professor Sol Picciotto, who has followed these issues for many years, said of the Financial Action Task Force (FATF) that is supposed to be cracking down on these problems:

“I think it’s time we targeted the FATF for having failed to focus on the central issues, such as transparency of beneficial ownership, and the abuse of devices such as trusts, hiding behind the enormous apparatus of AML “regulation” which has clearly only papered over the evident faults of the system.

It should now be entirely feasible to create a digitalised system of asset ownership that would both safeguard genuine privacy and allow access to information for appropriate agencies. This would cost a fraction of what is spent today on defective and pointless KYC requirements that oblige ordinary people to produce evidence such as utility bills to open a small bank account.”

James Henry, a Tax Justice Network senior adviser, said:

“After all we’ve learned from 50 years of investigations and “the banality of exposes,” a formal International Financial Crimes Court, with subpoena and investigatory power, may be long overdue. For in many ways these institutions are facilitating the kind of resulting human rights violations that the ICC, at its best, is supposed to prosecute.”

Image credit: Cayambe, CC BY-SA 4.0, via Wikimedia Commons

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Comments • 1

  • February 28, 2022 - 2:46 pm

    It is even worse about the Swiss law for instance

    1) the anti money laundering law does not apply to lawyers and consultants (e.g. PWC)

    2) there is no whistleblower law in place in Switzerland (the Parliament turned the last law to protect whistleblowers down 2021!)

    3) Swiss journalists who report about Swiss Bank accounts are exposed to going for three years to prison based on a new law implemented by Swiss Parliament in 2015 in order to protect Swiss Banks (Press Freedom in this matter is gone down the drain!)

    4) Swiss Criminal Law is applied extra territorially (in my case to the Cayman Islands) and even though a criminal case already opened in the Caymans in my case, a second lega case for the very same crime was kowingly opened in Switzerland which is clearly against international law!

    5) Even though I won the legal case at the Federal Court of Switzerland I am charged with USD 400 000 court fees and no compensation for my solitary confinement for 220 days and my big los of income due to the fact I was “banned” from working for more than 15 years

    6) I was in my imprisonment 220 days in solidary confinment each day for 23 hours

    7) Swiss prosecution judges is a corrupt gang of insane people when they have to deal with Swiss Bank Secrecy.

    8) 17 years after confiscation of belongings of my daughter, my wife andnot all belongings have been returned even though Federal Court of Switzerland decided in 2018 that all belongings must be returned to my family immediately.

    9) etc. there is much more which makes Switzerland a pirate Islands in the Alps!

    Switzerland must be blacklisted not only due to Suisse Secrets, Swiss Leaks etc but also to the present law system and a striking example needs to be made by the European Union but also by the FATF etc. This Swiss country with the criminal law of Swiss Bank Secrecy is a big danger for global civil society!

    Stop them, I only can say or you pay the bill!

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