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(English) Switzerland Must Stand Up For Its Financial Centre, Says Geneva Professor

Philippe Braillard, University of Geneva , Emeritus Professor, 4 March 2016

A senior academic figure in Switzerland says the Alpine state needs to be more assertive in protecting its banking sector and condemns what he sees as the double standards of countries such as the US.

The following opinion item, written by Philippe Braillard, emeritus professor at the University of Geneva, argues that Switzerland must be assertive in protecting the interests of its financial industry. He writes as a recent US/Switzerland programme comes to an end; that programme required Swiss banks and other financial institutions to state if they were at risk of, or had, sheltered US persons against tax. The programme has seen banks sign non-prosecution agreements and pay fines. Professor Braillard’s views are a most welcome addition to debate and the editors here invite readers to respond. (An earlier version of this article appeared in Le Temps, and in Finanz und Wirtschaft.)

In early 2016, the programme to settle the tax dispute between Swiss banks and the US authorities reached an important milestone when the “category two” banks – of which there are around 80 – formed an agreement with the US Department of Justice under which they will face no criminal prosecution in return for paying fines in excess of $1.3 billion. The total bill, including banks in all categories and sums already paid by UBS and Credit Suisse in 2009 and 2014, will probably exceed $6 billion, a figure that excludes the huge legal and audit fees incurred by banks as a result of the US authorities’ actions, which in some cases equal the size of the fine. This is an opportune moment to take a step back and take a critical look at the programme, which has damaged the Swiss financial market because of a lack of clear-sightedness among the Swiss political authorities.

Firstly, we must not forget that the programme has not yet been completed. Swiss banks will be required to work closely with the US authorities for four years, and in particular will have to send them various kinds of data. The US will be able to use the information thus obtained to make mutual assistance requests to Switzerland, enabling the US to identify taxpayers guilty of tax fraud. Another threat remains: the US authorities are reserving the right to prosecute certain Swiss bank employees and third parties such as external advisors and asset managers.

How did we get to this position? The US government’s desire to make its taxpayers comply with their tax obligations is perfectly legitimate. However, it does not justify the unilateralism and imperialist behaviour adopted by the US: using its decisive power over the operation of financial, economic and technological networks in our globalised world, the US is seeking to force the extraterritorial application of its laws.

Moreover, although it claims to be acting in the name of virtue and universal moral values, the main aim of the US’s strategy is the pursuit of economic and political interests. It is clearly in the US’s interests to weaken the Swiss financial market, which is a formidable rival to its own. The US’s stance is therefore hugely hypocritical: there is a glaring contradiction between what it is saying and what it is doing. The US has zero credibility when it criticises tax havens and Swiss banking secrecy, since the US itself is one of the world’s largest centres of tax evasion. One just has to think of the entirely opaque legal vehicles offered by several US states (Delaware, Nevada, Wyoming, South Dakota). This was confirmed recently by a Bloomberg analysis, which said that large amounts of untaxed assets are being transferred from Switzerland and exotic tax havens to the US, which is sheltering those assets from the eyes of foreign tax authorities. In addition, the US does not want any genuinely reciprocal arrangement with other states, despite imposing full tax transparency on them via FATCA. This is why the US will not genuinely implement the OECD’s new global standard on the automatic exchange of information, for fear that it will damage the US financial market, which is sheltering large amounts of untaxed assets owned by foreign taxpayers.

A critical examination of the US Tax Program also clearly highlights the weakness and lack of lucidity shown by the Swiss authorities when it engaged with the programme in order to seek a global political agreement.

The Swiss authorities agreed to and even encouraged the delivery of information to the US concerning several thousand bank employees who had done no wrong under Swiss law. The Swiss Federal Council negotiated badly, putting itself in a position of weakness and failing to anticipate correctly the effects of the programme that the US wanted to impose on it. It was unable to denounce the hypocrisy and cynicism of its partner and to frame the argument in terms of interests and competitiveness. That resulted in Switzerland ending up as the only country to be targeted so comprehensively by the US and to have a programme of this kind imposed on it. Many of the problems currently facing Swiss banks could have been avoided if FINMA had given clear directives after the UBS affair in 2008.

In addition, after almost forcing the Swiss banking sector to take part in the programme while refusing to get involved in its execution, the Swiss authorities now want to change the law to prevent Swiss financial intermediaries from deducting their US fines against tax, even though they have already been taxed on the revenue from the activities on which they are being fined. This change of policy will only increase the damage done by the programme to the Swiss financial market.

The Swiss Federal Council must quickly learn from the mistakes it has made and remember that Switzerland is a financial centre that strictly applies international standards on transparency, and that requires its rivals to do the same, starting with those who claim to set an example. It must be resolute with its resistance in the event that this programme, which is proving so lucrative for the US tax authorities, inspires other countries attracted by the fines that they could seek to impose on Swiss banks.

It is high time for Switzerland to stop the self-flagellation and show that it is a strong financial centre, determined to defend its interests and stay competitive without apology.

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