There was for example the purchase by the German tax authorities of bank data stolen by an employee from Credit Suisse and disclosures to US authorities by former UBS banker Bradley Birkenfeld about the bank’s efforts to target US citizens.
The US has made inroads on the Exchange of Information front and Switzerland has declared a willingness to meet or even exceed OECD standards in this area. In 2010, the US introduced the ‘Foreign Account Tax Compliance Act’ (FATCA). FATCA requires Foreign Financial Institutions to enter into legal agreements with the IRS according to which they would have to comply with due-diligence, information reporting and tax withholding obligations to their US accounts.
Swiss banking secrecy
Swiss banking secrecy is the legal principle under which Swiss banks are allowed to protect personal information about their customers. Swiss law (Banking Act of 1934) strictly limiting any information shared with third parties, including tax authorities, foreign governments or even Swiss authorities, except when requested by a Swiss judge’s subpoena.
- Covers all business relations with the bank
- Not limited in time
- Concerns all the people who work for the bank
- Regulated by both civil law and criminal law
- Privacy is statutorily enforced
- Reveal equals imprisonment of 6 months or 50,000 francs
- Negligence equals 30,000 francs
Due to banking secrecy and lack of information exchange, Swiss banks have acted as tax havens and allowed for US firms and individuals to commit tax evasion. This was clearly proved by SwissLeaks. The leaked files reveal how HSBC Swiss private bank colluded with some clients to conceal undeclared accounts from domestic tax authorities across the world and provided services to international criminals and other individuals. This leak sheds some light on some 30,000 accounts holding almost $120bn of assets. Of those, around 2,900 clients were connected to the US.
FATCA puts pressure on banks outside the US to comply with reporting obligations outlined in the US law. The primary goal of FATCA is simple: raise revenue. Investigating foreign banks is a time consuming task often revealing limited relevant information and recovering only a fraction of lost tax revenue.
A new measure, the Common Reporting Standard (CRS), developed through the OECD is designed to introduce a more general global automatic exchange of financial information from 2018, and has been putting further pressure on Switzerland. Like FATCA, the CRS will require financial institutions around the globe to play a central role in providing tax authorities with greater access and insight into taxpayer financial account data including the income earned in these accounts.
FATCA legislation is likely to have a significant impact on international banking secrecy laws. While the mandatory disclosure requirements will hinder Swiss banks ability to help clients evade their tax responsibilities. By 2018, Switzerland has committed to automatic exchange of information about individual accounts, taxes, assets and income along with 50 other nations. This information exchange has been announced as the end of banking secrecy.