The Swiss Bank Secrecy Law of 1934 was enacted to protect the assets of Jews and other persecuted Germans from Adolf Hitler’s Nazi henchmen. The law made it a crime punishable with jail to reveal financial information about Swiss bank clients.
There is no dispute that the 1934 Bank Secrecy Law always,and to this day, has had solid majority support among the Swiss — and the financial privacy it afforded has been a major attraction for the trillions of dollars Switzerland holds and manages for the world.
Yesterday the Swiss government did the once inconceivable; they repealed the 1934 Bank Secrecy Law as it applies to U.S. persons with Swiss financial accounts.
A respected law that defeated the Nazis could not stop the combined political power of the seemingly disparate interests of a tax-hungry U.S. IRS and profit-hungry Swiss bankers. This radical Swiss capitulation came no doubt after heavy political and financial pressure from 11 Swiss banks currently under investigation by the U.S. Department of Justice and the U.S. Internal Revenue Service for aiding Americans to evade U.S. taxes.
The Swiss government desperately has been trying to get the U.S. to drop tax investigations against 11 banks, including Credit Suisse and Julius Baer, in exchange for a general amnesty and payment of fines and surrender of U.S. client names. The politicians also want to shield the rest of 300 plus Swiss banks and financial institutions from U.S. prosecution.
Such a deal would be a shameful replay of 2009 when UBS was forced to pay the U.S. a $780 million fine and release the names of American 4,500 clients to the IRS to settle a lawsuit that threatened to shut down UBS U.S. operations with its over 30,000 employees. That deal was the first major crack in the 1934 Bank Secrecy Law.
In 2009 the Swiss government was forced to seek, and got, parliamentary approval for the UBS-IRS settlement after the Swiss Federal Administrative Court twice ruled that the deal was illegal because it violated the 1934 Bank Secrecy Law.
Yesterday’s announcement cites the U.S. Foreign Account Tax Compliance Act, FATCA, as the reason for the Swiss-IRS agreement. Switzerland’s State Secretariat for International Financial Matters claimed in a highly questionable statement that a Swiss refusal to implement FATCA would cause “major disadvantages” for Swiss banks – whatever that means.
The Swiss bureaucrats actually had the gall to suggest the fiction that the world financial community would stop doing business with a country that controls an estimated one third of all the world’s private assets, over $6 trillion, if it did not surrender to IRS and its FATCA demands.
“The prohibitive withholding tax of 30% on all payments from the U.S. and the likely consequence that foreign financial institutions would terminate their business relationships with Swiss financial institutions in the medium term would result in exclusion from the world’s largest capital market,” the Swiss bureaucrats added, presumably with a straight face.
The ever efficient Swiss opted for a streamlined deal with the U.S. government that allows Swiss banks to hand over data about American clients directly to the IRS. This route compares to passing information through the Swiss government as a conduit as is the procedure in pending FATCA agreements between the IRS and the governments of the U.K., France, Germany, Spain and Italy. “This better takes into account the particular characteristics of the Swiss financial center,” crowed the Swiss Bankers Association that welcomed the sellout of traditional Swiss bank secrecy.
In the famous legend of William Tell that every Swiss knows and respects, Tell represents the common man who respects authority but is quick to fight for his rights once authority turns despotic. Thus a modest peasant became a nation hero.
Swiss Finance Minister Eveline Widmer-Schlumpf and and her wimpy colleagues on the governing Swiss Federal Counsel don’t even rise to the “modest peasant” level. They have forgotten the example of William Tell. But they certainly have not forgotten their demanding friends at UBS and Credit Swiss.
Source: Bob Baumon – Sovereign-investor