Rearming tax haven Switzerland?

By a significant majority, the Senate referred a motion to the Government this autumn calling for a level playing field in the international treatment of tax evasion. The Government must now work out legislative proposals as to how Switzerland can catch up with the USA and the UK in the areas of trusts and opaque corporate structures. In other words, in the battle of the tax havens, Parliament wants Switzerland to upgrade its arsenal. Switzerland is already having to relax its banking secrecy – and the idea now is that it should be able to secure the business of handling undeclared foreign assets by other means. The House of Representatives had already approved the motion, introduced by the centre parties the CVP (Christian Democrats), EVP (Evangelical People’s Party) and Green Liberals, last March.

Government’s warning unheeded

The Federal Council itself has come out repeatedly and clearly against the motion. In its international policy, Switzerland must indeed counter British and US offerings of trusts, bogus companies and so on, it argues, but the problem is that Switzerland would lose legitimacy if it introduced these same instruments. Regrettably, the Federal Council did not prevail. The anger in Parliament seems to be too great over the fact that, of all countries, the UK and the USA are the ones pressuring Switzerland over its banking secrecy. There is a suspicion that the two world political heavyweights simply want to eliminate competition in the management of foreign tax-evading funds.

The fact is that trusts and front companies can be set up easily and quickly in various US federal states and in the British Channel Islands and Overseas Territories. Effectively, these structures can fulfil the same function as strict Swiss banking secrecy: they can be misused by foreign tax evaders and corrupt dictators to prevent their assets from being traced. A recently published World Bank report shows that the trails of stolen assets lead not only to Switzerland, but often also to the USA – after which they can no longer be followed. The same goes for the money trails of tax evaders. In its Financial Secrecy Index of 2009, the international Tax Justice Network, of which Alliance Sud is a member, declared the USA to be the world's biggest tax haven.

Misguided motion

The Swiss Parliament’s motion is misguided, however. The OECD and the Global Forum on Transparency have not been blind and passive vis-à-vis the USA and the UK. Their country reviews have revealed various shortcomings with respect to financial transparency, which both countries are now supposed to correct quickly. The first progress reports should be available as early as next year. Switzerland is a member of the Forum's Steering Group, and could therefore demand further concessions from the USA and the UK when these reports are published. For the time being, however, it is in too much of a glass house to be in a position to start throwing stones.

Moreover, at its recent summit in Cannes, the G20 called on the OECD in clear terms to step up its efforts to combat the use of trusts and front companies as vehicles for international tax evasion. Attempts by Switzerland to introduce such vehicles now would quickly backfire. Instead of trying to find new loopholes for foreign tax evaders, the Parliament should be working for the consistent and rapid introduction of the international standard on administrative assistance in tax matters vis-à-vis developing countries as well. So far, those countries have come away largely empty-handed when it comes to renegotiating Swiss double taxation agreements and introducing administrative assistance in tax matters.

Mark Herkenrath, Alliance Sud

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Trusts instead of banking secrecy

In a sense, trusts are the Anglo-Saxon counterpart of banking secrecy. As Nicholas Shaxson states in his book «Treasure Islands», they can create forms of secrecy that can be even more slippery and harder to penetrate than the straightforward discretion of Swiss bankers. A trust is a three-way arrangement whereby the original owner signs over his or her assets to a trustee, often a lawyer bound by the duty of confidentiality, to manage on behalf of third party beneficiaries. But many trusts, especially offshore trusts, allow the subterfuge to take place where the original owner apparently separates themselves from their assets – creating a legal separation between owner and assets that can form the basis for an impenetrable secrecy barrier – while finding devious ways to effectively still be the beneficiary of the trust. In short, the trust helps them pretend to give away their assets, while in reality they retain control. Trusts needs not even be officially registered in many countries.

Mark Herkenrath, Alliance Sud

Article published in: Alliance Sud News No. 70, Winter 2011/12