Cracking the Vaults Germany Attacks Swiss Banking Secrecy Practices

German Finance Minister Peer Steinbrück wants to weaken Switzerland's notorious banking secrecy laws. Now it looks like he might get his way as negotiations begin on a new tax cooperation treaty between the two countries. And if that doesn't work, Germany has a secret Plan B.


By Beat Balzli

For accountant Rainer Krieg, appointments like the one he had last Wednesday afternoon are a purely routine affair. A Swiss asset manager had phoned him up and asked him to make a "home visit" as soon as possible. Krieg is something of an emergency doctor for tax evaders who don't know what to do.

Somewhere in Zurich, in the meeting room of a private bank, Krieg eventually met up with a German businessman and his wife, both around 70, who had sweaty palms -- and over €500,000 ($725,000) in illicit earnings in their bank account.

Thirty years ago, the man had secretly diverted the money into Switzerland. Now his two children want nothing more to do with it. They don't want to inherit the sins of their parents, and they're demanding that they -- as Krieg puts it -- "get things straight."

Nowadays, there are more and more of these types of cases. "I am called to Swiss banks practically every day," Krieg says. There, he faces frightened clients, and he explains to them the "option of turning yourself in to the German tax authorities."

Panicking Clients

There is rising panic in the tax paradise. More and more tales of doom are rocking the executive suites of Swiss finance houses, which between them manage over 2 trillion Swiss francs (€1.3 trillion or $1.9 trillion) -- a quarter of all private foreign assets worldwide. Some of their less honest clients are panicking because finance ministers around the world have lost patience with the country's supposedly watertight banking secrecy practices.

Two weeks ago, the US reached an agreement with Switzerland on the disclosure of more than 4,400 UBS bank accounts belonging to US tax offenders. A week ago, the French budget minister made it known that with the help of informants he had acquired over 3,000 sets of records from Swiss banks.

The latest blow came on Tuesday when negotiations began between Germany and Switzerland at the Swiss Federal Tax Administration in Bern to hammer out new rules governing the exchange of information.

From the German perspective, the goal is clear: Tax authorities' investigations should no longer end at the border. In any future event of suspected tax evasion, the relevant authorities will obtain account details from Switzerland via official channels. For foreigners, this means the de facto end of the secret bank account.

Working Harder for Their Money

The end of hush-hush dealings is hitting Switzerland's private bankers, who have grown used to success, at an extremely inconvenient time. The financial crisis has seen the assets being managed shrink sharply; everywhere managers are slashing expensive privileges and outsourcing entire departments. "We will need to work harder for our money in the years to come," said Julius Bär chief executive Boris Collardi last week at a banking conference in Zurich.

It's possible that Collardi has recently been painfully reminded of a statement once made by the bank's former board chairman. Banking secrecy makes you "fat," but also "impotent," Hans J. Bär once wrote in his memoirs. German tax sinners alone have around 300 billion Swiss francs stashed away in Swiss accounts, according to estimates by the German Tax Union. The business model is now under acute threat.

A few months ago, the German Finance Minister Peer Steinbrück voiced regret that he couldn't send in the cavalry to his neighboring country. Now, "Peer the Whip," as the Swiss like to call him, is going for the negotiated settlement, a strategy that seven years ago ended in failure for Steinbrück's predecessor Hans Eichel.

These days Eichel, who is now retired, likes to rail against Swiss banks on television talk shows. However he was less harsh on them while in office. During 2002 negotiations on the so-called double taxation agreement (DTA), the Swiss refused to provide information on simple tax evasion. Switzerland would provide help through official channels only if German authorities had been defrauded with counterfeit accounts and documents.

Moreover, the Germans paid a high price for this concession. As a trade-off, Eichel's negotiators had to agree to exempt Swiss parent companies from tax payments on profits paid out by their German subsidiaries. The concession costs Germany some €160 million per year.


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