Commentary: London Will Win From Squeeze On Swiss Bank Secrecy

Maurice Ephrati

Bedrock

28 March 2012

Editor’s note: Maurice Ephrati, managing partner and co-founder of Bedrock, the Geneva and London-based private investment office, talks about a new law proposed by the Swiss government under which Swiss banks will be forced to deal only with tax-compliant money. As always, the views expressed by this contributor are not necessarily shared by this publication.

The turbulent financial crisis since 2008 has led US and European countries to create an unprecedented level of public debt. In order to save their financial system, these regions are now looking for ways to reduce their deficits, one of which is collecting more taxes and putting in place policies and actions to fight against tax evasion both at private and corporate level.

Over the past few years, Swiss banks have come under pressure from the US tax authorities who suspect some of them of helping wealthy US clients to evade their tax obligations. The US has created the Foreign Account Tax Compliance Act, or FATCA, that aims at identifying US persons who hold assets offshore and to impose a 30 per cent withholding tax on withholdable payments from the US, unless financial institutions enter into an agreement with the Internal Revenue Service to disclose these US investors.

Last week, French presidential candidates from all parties proposed measures to tax their citizens on a worldwide basis, providing they had left the country for tax purposes. Some countries, such as France, are not only going after their own citizens but also targeting other countries. Over the last few years, vast campaigns have been launched to intensify pressure against some countries believed to have too favourable tax treatments for foreign companies or foreign residents.

Swiss action

It is clearly under this sort of pressure and in this peculiar environment that the Swiss government has been drafting a new law that should be issued in September to force Swiss banks to deal only with tax-compliant money. Working with non-tax compliant money is currently not a criminal offence in Switzerland.

We think this new law will be a game changer for the Swiss banking industry. It will create a large opportunity for the UK, and London in particular, to reaffirm itself as the leading European financial centre, especially within the asset management and wealth management spaces where Switzerland was once a large competitor.

The disappearance of banking secrecy in Switzerland will reduce the Swiss appeal to international investors, especially Europeans, and the current lack of legal harmonisation between the EU and Switzerland does not provide a proper environment to manage European assets or funds from Switzerland.

There has been a tainted image developed of Switzerland in the last five years, which started with the US case against UBS, now spilling over to a further 11 banks. It reached a climax last month with the sale of veteran Swiss private bank Wegelin in a matter of one weekend. Events like this emphasise the volatility that surrounds Switzerland and cause a growing concern for the future.

London, however, has always been seen internationally as the financial centre of Europe. It is the European city that has managed to develop the largest and widest reach in the industry and has always enjoyed an impeccable reputation and image. It is the most cosmopolitan European city and is clearly the European hub for the very affluent around the world. With this new law in Switzerland, it will only give more reasons to do business in London.