Last week, an American client of the Swiss bank UBS admitted to filing a false tax return and concealing millions in Swiss bank accounts. For some people, his plea will just confirm their impression of Switzerland as a haven for criminals or dictators who want to protect their funds from taxes or oversight.
But for us here in Switzerland, our financial privacy laws are a foundation for individual dignity and basic property rights.
Unfortunately, the confidentiality that is the hallmark of Swiss banking is coming under increasing pressure. The global economic crisis has led some governments to intensify efforts to seek tax revenue abroad — and Switzerland, which accounts for nearly 30 percent of all offshore private wealth, is a natural target.
Earlier this year, Switzerland was put on a “gray list” by the Organization for Economic Cooperation and Development and threatened with financial sanctions, leading the government to provisionally renegotiate tax agreements with a dozen countries so far. Most of those agreements would require Switzerland to hand over individuals’ financial information for tax purposes in accordance with the organization’s standards.
The United States Justice Department went even further and filed a lawsuit against UBS, seeking the names of 52,000 account holders suspected of hiding money from the Internal Revenue Service. (The United States and Switzerland agreed in principle on Friday to settle the matter out of court.)
Switzerland, which is home to an impressive number of global corporations, has also come under fire from the European Union for offering too-favorable tax rules, including exemptions for income earned abroad. But what critics forget is that these practices also benefit other countries. Swiss firms alone employ hundreds of thousands of people in the United States and Germany, for example. Subsidiaries of multinational corporations usually pay income taxes where they operate, so having their headquarters in Switzerland can help companies avoid multiple taxation in high-tax countries, thereby safeguarding productive capital for investment.
Until recently, the Swiss government had steadfastly insisted on Swiss sovereignty and refused to provide assistance to other governments in cases of tax evasion — that is, cases in which a taxpayer failed to declare income, either intentionally or unintentionally. While tax fraud is considered a crime here, tax evasion is not (though it can be subject to fines).
This Swiss peculiarity of considering tax evasion as a mere administrative offense has a long history. We think government exists to serve us, not the other way around. We understand that we have to pay taxes — and we do, with numerous studies showing that the Swiss are extraordinarily honest about paying what we owe — but we do not think it is the government’s role to intrude on our privacy and wrench them from us.
This attitude goes back to Switzerland’s founding in the 13th century. The original Swiss communities’ resentment of what they saw as the Hapsburgs’ oppressive taxes helped push them to claim their independence in 1291.
Today, Swiss citizens continue to vote on any tax increases in referendums (and sometimes even accept them). These healthy curbs on government contrast with the Orwellian concept of the “transparent citizen” whose every act is known to government. We see our system as a social pact between citizens and the state.
Swiss privacy laws help preserve basic property rights. Bank secrecy was introduced in 1934, most notably to protect the identities and assets of Jews in Nazi Germany. (Unfortunately, those same rules made it difficult for some heirs to gain access to these accounts without proper documentation, leading to an out-of-court agreement in 1998 by Swiss banks to pay $1.25 billion to settle Holocaust-related lawsuits.) Corruption, expropriation, crime and the persecution of various minorities remain risks in most of the world. For people threatened by such risks, financial privacy can protect their legitimate property.
Some would argue that Swiss bank accounts offer the same protections to criminals, but in fact Swiss provisions against money laundering are tough. Swiss bankers are required to know their clients and the origin of the funds they accept. They must alert the regulators if they suspect criminal behavior.
Banking confidentiality enjoys overwhelming support in Switzerland. According to the latest annual survey by the polling firm M.I.S. Trend, 78 percent favor maintaining the laws as they are, and 91 percent are shown to value their financial privacy. This is especially relevant since Swiss citizens are expected to vote eventually on the renegotiated tax treaties in a referendum.
If the government fails to convince a majority of voters, the treaties won’t enter into force. But if they are ratified as planned, the Swiss government should agree only to an exchange of information in individual cases with reasonable suspicion of tax fraud.
Other governments should see this as a fair compromise. We will not solve the global problem of tax evasion by punishing honest depositors and destroying Swiss traditions
Pierre Bessard, the president of the Liberales Institut, a research institution.