SWISS BANKS / THE FINANCIAL TIMES LEX

Swiss banks

Published: August 3 2009 14:49

“Please leave the door ajar.” Swiss private bankers have long believed that bank secrecy is a fiction, albeit a useful one; the war against drugs and money laundering saw to that. Even so, UBS’s out-of-court settlement with the US has now broadcast the fact. The details of some 5,000 secret account holders will reportedly be handed over by the Swiss bank to the US tax authorities. UBS may also be fined – as much as SFr5bn. More important than the number of names or the size of any eventual fine, however, is the basis on which these tax evaders will be disclosed. That affects who might be handed over to other tax authorities in the future, and so the industry as a whole.

These parameters are already spelt out in a new double-taxation agreement with the US. Although its contents are not yet public, the Swiss parliament is expected to vote on the agreement early next year. It may then go to referendum. The parameters are likely to be demanding, as polls suggest that the Swiss support banking confidentiality; otherwise, the law could be publicly voted down. De jure the change to Swiss banking privacy may therefore be small. De facto, the perception among its clients may be otherwise.

This won’t spell the end of Swiss private banking. After all, more than half the industry’s new money comes from the developing world. Ukrainian oligarchs, say, bank in Geneva not because they want to escape high domestic tax rates, but because they value Swiss financial professionalism.

However, more than half the €1,700bn currently managed by Swiss private banks belongs to western accounts, where tax considerations may be important. It would only take a fraction of those funds to run scared for a lot of money to leave.

Copyright The Financial Times Limited 2009