The Swiss claim that the wealthy will continue to harbor their money in Swiss financial institutions even after Swiss bank secrecy fades into history. Emma Thomasson, Swiss stability anchors banks in choppy tax waters (Reuters 6/4/13), here. Maybe. Maybe not. But, in my view, the Swiss bankers will have to compete like other global businesses because the competitive advantage Switzerland had was secrecy for those perceiving the need for secrecy (not just tax cheats). With secrecy going away, they have nothing to offer than other stable countries can't offer; hence, even if they can compete, they won't get the Swiss bank secrecy premium.. And, of course, the stability of Switzerland will not make Swiss Bank guided investments in a global economy subject to the instabilities beyond the Swiss borders.
1. Consider this wishful thinking from the article:
"The worn-out cliche has it that the sector was built on banks offering shelter to tax frauds and illicit money. This is a gross distortion," former Deutsche Bank head Josef Ackermann told the Reuters Global Wealth Management Summit in Geneva.
Ackermann, now chairman of Zurich Insurance, said the success of the Swiss financial industry was a result of enduring political, economic and social stability, as well as factors such as low taxes and a multi-talented workforce.
"That is why the scope and quality of Switzerland's financial sector has been, and continues to be, difficult to replicate abroad," he said.
"The unique blend of factors, much more than tax-related motives, have defined the competitive edge of Swiss private wealth management."2. Quickly followed by this:
Strict secrecy laws, which protect the identity of bank clients, have helped Switzerland to become the world's biggest offshore financial center, with $2 trillion in assets.3. And, later, these somewhat inconsistent statements:
UBS, Switzerland's biggest bank, has warned that it could lose up to 10 percent of its European assets of 300 billion Swiss francs ($314.6 billion) as clients come clean about untaxed accounts.
But Juerg Zeltner, head of the UBS private bank, said that trend was not leading to an exodus of clients.
"Most keep the assets where they are ... we are very happy with the retention rate," Zeltner told Reuters, adding that clients wanted to keep their Swiss accounts to diversify their exposure or because they were happy with their advisers.
"Sometimes we sell short the advantages we have here in Switzerland," he said. "There are very, very many good reasons for many, many wealthy clients to bring money into Switzerland."
Though UBS and other global players are likely to attract the fortunes of the newly rich in growing markets such as Asia and Latin America, smaller Swiss banks face a struggle to adjust to life without tax-evading Europeans.Certainly in the competition for global wealth, the U.S. will benefit from the loss of bank secrecy because it offers the expertise and stability to compete for that business where it is not placed at unfair advantage by countries, such as Switzerland, who formerly could help their clients cheat.
Switzerland -had- three advantages. Aiding and abetting as an accepted business practice, secrecy, and all of these offerings were locked away in an Alpine nation.
ReplyDeleteAiding and abetting - This is all but gone for 1st world customers. You are still welcomed if you are from the 3rd world, failed regimes, etc. Advantage #1 gone.
Secrecy - Gone for everyone. Advantage #2 gone.
Sovereign Nation - Gone. The beginnings of this happened when they opened the books on the Nazi accounts. This is to not pass judgement or get involved with the moral discussion on the legacy accounts, but it is simply accepted within Switzerland's borders that the beginning of the end was buckling to the pressure to open the books. The next event was when Credit Suisse and UBS came to the USA. CS and UBS then had a presence in the USA and opened themselves to forfeiture, indictments, etc. Switzerland, like the USA, will do whatever it takes to save their TBTF. The death blow was UBS buckling to the USA and Switzerland endorsing it...
(Excuse the example, it is the best way to make the lasting impression)
Switzerland is now experiencing what a new punk in prison experiences. Switzerland is hoping the first rapist (USA) will be done soon. They just need to let the USA finish and then everything will go back to normal - "Its only 5000 UBS accounts". The rapist likes the new punk and comes back for more - "Give us all the account information or we will indict you all". When the USA finishes and the punk is broken... Germany will enter, England will enter, India enters, etc etc. Soon the punk realizes that that the raping will not end until they do something... but it is too late at that point.
Who benefits? The megabanks of the USA, UK, and Germany. All of the TBTF stand to gain huge inflows of cash when Switzerland is destroyed. To assume this is merely over tax dollars is foolish. An additional hundred million (or much less) in yearly compliance is nothing when your budget/debt is as high as the USA. Additionally, it has cost billions to get that money and will cost many more billions to implement FATCA.
Are we to continue believe this is about tax dollars from a very, very, very small percentage of tax (non)-payers? While at the same time the USA allows corporations to do the same things individuals are doing with impunity...
Of course the banks in other countries benefit. For a non-US person opening a bank account in the US, interest is not taxed by the US, not reported to other countries, no 1099 is filed. A foreigner needs to simply fill out IRS form W-8BEN. This form is kept by the bank but not forwarded to the IRS. Since the IRS has no information on foreign account holders, it has nothing available to disclose to foreign governments.
ReplyDeleteThe form and instructions, both for the bank requesting the form and the foreigner filling it out, are on the IRS website.
The situation is similar in other countries. Whether or not they have secrecy laws on the books, they offer untaxed unreported accounts to foreigners.