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The end looms for numbered accounts

The G20 considers blacklisting Switzerland and other countries offering banking secrecy.

Swiss President and Finance Minister Hans-Rudolf Merz talks to media on the Swiss banking secrecy during a news conference after the weekly meeting of the Federal Council in Bern, March 6, 2009. (Ruben Sprich/Reuters)

GENEVA — There is a growing panic here that time may be running out for Switzerland’s time-honored bank secrecy.

Hans-Rudolf Merz, who is serving both as Switzerland’s finance minister and as president, convened an emergency meeting on Sunday with his counterparts in Luxembourg and Austria. It was a last-ditch attempt to mount a counterattack in what is beginning to look like a doomed battle.

All three countries are up in arms over the prospect that the G20 meeting of leading global economies, which is scheduled to take place in London on April 2, may decide to include Switzerland and other countries offering banking secrecy in a new blacklist to be shunned by respectable economies. With banks everywhere feeling the pressure, the threat is not something the Swiss are taking lightly.

Switzerland is not part of the European Union or the G20, but Merz is determined at all costs to have Switzerland included in the discussions. Above all, Switzerland wants to avoid having its respectable banking industry lumped together with shadier offshore operations in the Bahamas or the Cayman Islands that may really be involved in illegal tax evasion and money laundering schemes.

An advance preparatory meeting of finance ministers will take place on March 14, and Merz wants to use the occasion to meet U.S. Treasury Secretary Timothy Geithner and plead his case that U.S. pressure will only make the current crisis worse.

The stakes for Switzerland are not small. By some estimates Swiss banks hold up to one third of the world’s offshore funds. The banking industry has traditionally accounted for roughly 10 percent of Switzerland’s GDP, and it employs about 5 percent of the population.

The U.S. assault on Switzerland’s bank secrecy started with an IRS crackdown on the country’s leading bank, UBS, which was accused of actively recruiting customers in the United States with various schemes intended to shield their finances from the IRS. While fraud is a crime in Switzerland, tax avoidance is not. A major problem, which the Swiss are trying to deal with now, is that even in Switzerland the line between tax fraud and tax avoidance has not been clearly identified.

In the case of UBS, however, the IRS had convincing evidence that the bank had knowingly set out to help various Americans break U.S. law. Intercepted e-mails indicated that Swiss bank officers had used codes to conceal deposits by Americans from the U.S. government, and UBS, which bought the U.S. investment house, Paine Webber, in 2000, had simply ignored a pledge that it had made to withhold millions of dollars of taxes on earnings.

To avoid a court case, UBS paid a $720 million fine in February and agreed to turn over the names of between 250 and 300 American clients of the bank. The concession appears to have opened a Pandora’s box. The Justice Department immediately upped the ante by demanding that Switzerland turn over the names of 52,000 Americans believed to have accounts in Switzerland. The IRS believes that those accounts could be worth up to $14.8 billion. So far, the Swiss have refused.

As a preemptive measure, Swiss banks have reacted by trying to dump as many American accounts as possible. UBS says that it closed 47,000 offshore accounts held by Americans or American companies. Americans trying to open new accounts from outside Switzerland are being told that at least for the time being they are not welcome. The crackdown at UBS has been so complete that high school children with American passports on the French side of the border have been told that they have to shut down their starter savings accounts. Despite these preventive measures, hardly anyone expects the crisis to go away.

http://www.globalpost.com/dispatch/commerce/090309/the-end-looms-numbered-accounts