Financial Privacy Wars
Swiss banks are now expecting withdrawals of hundreds of billions of Swiss francs according to the head of wealth management at UBS, Jürg Zeltner, as a result of steps to stop foreigners using secret accounts to evade taxes. Although a long time coming, this is entirely consistent with the extensive investigations carried out by the ATCA 5000 Research and Analysis Wing (A-RAW) and the mi2g Intelligence Unit (mIU) as well as the Socratic dialogue we have subsequently initiated at the highest level in regard to the flight-of-capital from Switzerland.
Zeltner has essentially acknowledged and criticised international pressure for this large scale capital exodus in his interview with “Swiss Bank.” UBS and Credit Suisse — Switzerland’s two biggest banks and amongst the world’s largest wealth managers — alone may suffer outflows of 60+ billion Swiss francs as a result of accelerating international efforts to crack down on the usage of Swiss bank accounts for tax evasion and avoidance.
Also not immune to the reversing tidal flow are Switzerland’s smaller private banks. They are also being affected by the growing international pressure to clamp down on tax evaders and avoiders. Echoing the concern of Zeltner at UBS, a study by the German financial consultancy Zeb Rolfes Schierenbeck (ZRS) estimates that hundreds of billions of Swiss francs may drain away from Swiss banks over the coming few years out of the nearly three trillion Swiss francs held by its offshore banking industry at present.
In recent years, Swiss banks have been heavily criticised as cash-strapped governments around the world have sought to fight tax evasion carried out by their citizens and corporations.
[ATCA 5000 References: Switzerland: End of Banking Secrecy? Comment & Interview 3rd May 2012; and Swiss Banking: Asymmetric Threats Mount? 13th July 2012]
UBS and Credit Suisse
Jürg Zeltner, the chief executive of UBS wealth management, has said the largest Swiss bank would see a drain of 12 to 30 billion Swiss francs, as an increasing number of international wealthy clients run scared from Swiss banks. Some insiders say that this may be an exceeding conservative estimate based on wishful thinking on the part of UBS. In May this year, Zeltner said that European clients took out around 10 billion Swiss francs in the previous quarter from their UBS accounts. He’s expecting to see more losses of significant assets adding that the European offshore business could face outflows for “quite a while yet!”
Recently, a former UBS banker was paid 104 million dollars by the US Internal Revenue Service (IRS) for revealing systematic efforts by the largest Swiss bank to help rich Americans evade taxes in their home country, which resulted in UBS paying 780 million dollars in fines, penalties, interest and restitution to settle charges in 2009 that it helped 17,000 US clients hide 20 billion dollars.
David Mathers, the chief financial officer at Credit Suisse, told investors in New York last week that since 2009, Europeans had withdrawn 32 billion Swiss francs from their accounts at the second largest Swiss bank and cross-border transformation including new tax treaties could result in outflows of up to 35 billion Swiss francs over the next few years. This would be more than ten percent of the total European assets under management at the Swiss bank. However, some private bankers suggest that this estimate may yet prove to be exceedingly conservative.
The US is investigating eleven Swiss banks since last year on suspicion of helping US citizens evade and avoid taxes, and in January-February this year, the American authorities indicted Wegelin, the oldest Swiss private bank, for allegedly helping Americans to evade paying taxes on 1.2 billion dollars of their assets.
The eleven banks on the radar of the US tax authorities and the Department of Justice (DoJ) are:
1. Credit Suisse (including Clariden Leu);
2. HSBC Holdings;
3. Basler Kantonalbank;
4. Wegelin & Co;
5. Zuercher Kantonalbank;
6. Julius Baer Group;
7. Bank Leumi Le-Israel;
8. Bank Hapoalim;
9. Mizrahi-Tefahot Bank;
10. Liechtensteinische Landesbank; and
11. Neue Zuercher Bank (NZB).
[ATCA 5000 References: What Really Happened To The Oldest Bank in Switzerland? Wegelin: Death Throes of Swiss Banking Secrecy & Asymmetric Risk to Swiss Banks 1st February 2012; Eleven Offshore Banks On The US Radar: What Happens Next To Swiss-Based Private Banking? 12th Feb 2012; and Swiss Banking Saga Takes Another Surreal Twist? 1st July 2012]
The accelerating flight-of-capital from Swiss banks over the past two years has been exacerbated by the repeated purchases of stolen Compact Discs or CDs containing details of German and other European citizens’ private client data and account information by German tax authorities and their secret services. While these intrusions into European citizens’ privacy may have prompted some Swiss bank clients to provide information on previously undeclared assets to European authorities, there has also been speculation that other European citizens may have been moving assets to non-European financial centres such as Singapore, increasingly known as the Switzerland of Asia.
Since August 2011, the United Kingdom and Austria have struck agreements with Switzerland, entitling them to receive:
a. one-off penalty charges; and
b. a withholding tax
on previously undeclared assets held by their citizens in Swiss banks. Switzerland is hoping to conclude similar accords with Italy and Greece at present. However, the tax deal with the biggest economic power in Europe — Germany — is still pending ratification in that country, as it faces opposition from Social Democrats who see it as too lenient on alleged German tax evaders.
According to the agreements hitherto inked between European powers and Switzerland, foreigners with non-declared funds in Switzerland can keep their anonymity, but their assets are taxed by Switzerland, which in turn transfers a portion of the earnings on their assets to their country of origin. [ATCA 5000 Reference: Smuggled Cash, Gold & Silver Seizures Soar at Italy’s Borders — Eurozone Crisis Escalates — Diamonds Are Forever? 15th August 2012; and Cash Is King? Swiss Bankers’ New Safe Haven: Safe Deposit Boxes Full Of 1,000-Swiss-Francs Banknotes 17th August 2012]
Switzerland has been the centre of off-shore private banking and wealth management for more than a hundred years. It has been extensively used for capital preservation strategies by ultra rich individuals and corporations during times of war and peace. Switzerland now finds itself at the epicentre of an evolving financial world war.
The Swiss simply don’t have the muscle to engage on equal terms or to fight back with the tax and justice authorities of the world’s only remaining super-power, the United States, and the largest European economic power, Germany. Multiple pressures from around the world on tax evasion and the potential for flat-rate taxes are all making Swiss banks less attractive with each passing day.
Up until recently, the Swiss banks’ vow of silence was so attractive to rich foreigners eager to avoid taxation at home that they did not mind that their accounts did not generate any income for them as long as the capital was preserved and the currency held its purchasing power. The income generated via their Swiss bank accounts went primarily to the Swiss banks and the clients had relatively little income to show for their deposits. However, now Swiss banking secrecy is no longer there and some would argue that it is gone forever, a new narrative is being born in regard to private wealth management.
The experts in private wealth management state that the new centre for off-shore private banking and wealth management is on-shore! So, transparency is increasingly the order of the day. Does the future for ultra high net worth individuals (UHNWIs) seeking Swiss-style private banking lie in on-shore customised private wealth management solutions configured as Private Investment Offices with significantly reduced fees?
What are your thoughts, observations and views? Please join the Socratic dialogue on ATCA 5000 at https://www.yammer.com/atca. We look forward to hearing from you! The ATCA Research & Analysis Wing and the mi2g Intelligence Unit can furnish further details upon request at the ATCA roundtable.