Finance

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Franka Bruns/AP
German Finance Minister Peer Steinbrueck

Switzerland at Odds with Neighbors Over Banking Secrecy Laws

March 17, 2009 10:30 AM
by Anne Szustek
German Minister of Finance Peer Steinbrueck is pressing for Switzerland to more decisively open its banking sector to scrutiny.

Germany Calls for Greater Openness in Swiss Banks

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In response to calls by the G20 group of developed and emerging market nations and the Organization for Economic Cooperation and Development, Switzerland announced on Friday that it would take steps to lessen longstanding rules on banking secrecy.

Other European countries with a reputation for banking secrecy, including Luxembourg, Austria, Monaco, Belgium, Liechtenstein and Andorra, agreed late last week to make moves towards opening up their banking sectors.

Switzerland, unlike Andorra and Liechtenstein, is not on the OECD’s list of countries deemed to be “uncooperative tax havens,” as Agence France-Presse put it. However, despite the measures the country took last week, it may soon join those others on the list.
“The secretariat general of the Organization for Economic Cooperation and Development (OECD), without informing us, drew up a proposal for a new blacklist on March 5. I have learned that Switzerland was on it,” Swiss Minister of Finance Hans-Rudolf Merz was quoted by AFP as saying in Swiss paper Le Temps.

Should Switzerland fail to comply with OECD’s requirements for opening up its banking sector, the country could face economic sanctions that would probably be implemented during the G20’s upcoming meeting, scheduled to take place early next month.

But some of Switzerland’s neighbors, particularly France and Germany, are looking for what they perceive as more substantive action.

“There’s still a difference between announcements, concrete agreements and measures backed by legal action,” Germany’s finance minister, Peer Steinbrueck, told reporters, arguing that when European countries act as tax shelters, it infringes on Germany’s sovereignty and shrinks its tax base.

Such nations need to disclose the identities of people doing banking business in the country and allow “access to information in normal tax cases, even when there’s no concrete suspicion of tax evasion,” Steinbrueck said in an interview with Der Spiegel magazine.

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Background: Swiss banking secrecy

Switzerland’s pledge of neutrality has translated into centuries of political and financial stability and provided an investment climate that has allowed its famous banking industry to flourish. Accounting for some 15 percent of the nation’s economy, the financial sector is one of the main factors in Switzerland’s prosperity.

Switzerland is the world’s largest center for offshore banking. Roughly one-third of the world’s cross-border wealth filters through the Alpine country’s financial institutions. The Swiss banking sector has suffered somewhat due to the current recession, as well as from other countries’ tax amnesties and stricter regulations on offshore accounts. 

Opacity is a cornerstone of the Swiss banking sector’s operations. A tradition held since the Middle Ages and codified in a 1934 banking law, banking activities in Switzerland are granted a level of privacy similar to that between a physician and a patient. In the case of a criminal investigation, however, a judge or prosecutor may ask for a “lifting order” to gain access to information on a Swiss bank account.

Switzerland already applies a 35 percent tax to bank accounts held in the country by EU citizens, due to pressure from the 27-country bloc. Italy and Germany also approved tax amnesties for citizens who repatriated their Swiss bank account funds.
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