Logic falls apart in Switzerland’s “Trust Us” White Money Strategy

Switzerland, now recognising that its poisonous “Rubik” spoiler strategy to protect financial secrecy is dying, has rapidly swiveled its position, and its politicians and bankers are now pushing hard for what is being calling a “White Money” (Weissgeld) strategy to try and persuade other countries to go easy on the secrecy that it provides. The clear and regular message now is ‘don’t worry about our secrecy: we’re going to take care of this ourselves.’ Trust us.

Now who could argue against a “White Money” strategy for Swiss banks? Not me, certainly. Unless, of course, that label is a fig leaf: a dose of reassuring Alpine spin layered over a world of business as usual.

So which is it? Alpine spin, or real change?

Start with this headline from a Swiss online newspaper, which reflects the thrust of a number of articles currently out there. Tax evaders become pariahs for Credit Suisse. The mighty Swiss bank is going to be turning away tax evaders from its doors, apparently:

Credit Suisse does not intend to allow tax evaders to remain on as clients, he stressed. If potential clients refuse to report their assets to the tax authorities in their countries, “the bank will clearly tell them that it does not want their business,” Rohner said, adding that the bank would also ask existing clients to leave if they did not declare their assets.

It sounds good, but consider the first problem. What happens when the “client” is, say, a Liechtenstein foundation or a (more Anglo-Saxon-style) discretionary trust? Under Swiss rules, there is literally no beneficial owner at all for these structures. Germans who stash money in these things — which are bread and butter structures for the tax evasion industry — place themselves firmly outside the scope of legislation that is supposed to relate to Germans. These assets are not, from the Swiss banks’ perspective, “German.” They are, to be precise, legally “ownerless”, even if ultimately some Germans have the power to enjoy the income. (For a further explanation of the slippery nature of these structures, see Section 3.1 here). So if this money has no owner, who is going to declare it to their tax authority? Nobody: ownerless money doesn’t have a home tax authority. That is, of course, the whole point.

But one can go a lot further than this.

Consider how, exactly, The Swiss banks are supposed to refuse tax evaders (who haven’t made their assets ‘ownerless’ as above.) Look at this, from Suddeutsche Zeitung (translated here):

“Not all banks go so far. Especially smaller private banks are balking at a self-declaration, and they are supported by the Swiss Bankers Association. According to the trade association, this system [self declaration] does not exist anywhere else in the world. It also offers no guarantee against new black money. If someone is prepared to deceive their own tax offices, then it will not be hard for them to lie to the bank. The banks have to take the information provided by their customers at face value: they cannot, may not and should not check the declarations.

That bit in bold is key. And this brings us to the following wonderful piece of logic.

Take a European tax evader with assets in a Swiss bank. Under the European Savings Tax Directive, they have two options: either they submit to the ‘declaration’ option whereby information about their income will be transmitted automatically to the home country’s tax evader, or they choose the ‘withholding tax’ option, where tax is withheld but their identity is kept secret from their home tax authorities.

Consider each option in turn. First, if the client opts for ‘declaration’ under the current system, then the ‘self declaration’ described by Credit Suisse is quite pointless. They are already declaring.

As for the ‘withholding’ option, consider this. What client is going to want to declare their income to their home tax authorities (and hence be taxed) – then get the Swiss bank to withhold taxes on it? What ever would the point of that be? If you choose the information exchange option, you don’t get the taxes withheld.  So you would certainly not do this for tax reasons, and you would not do it for non-tax confidentiality reasons either: the client has already declared that they have broken confidentiality by self-declaring.

To conclude: if you see Switzerland subsequently handing over any money to Germany from this withholding tax option, you will know that the white money strategy is a hoax.

So what ever could the point of this white money strategy be?

Not a whitewash, surely!

If Switzerland were serious about having ‘white money’ in its banks, the solution would be very simple indeed: sign up for full automatic information exchange under the EU Savings Tax Directive.

And why not renounce banking secrecy while they are at it? Then we can start talking about white money.

  1. #1 by jon livesey on November 29, 2012 - 9:58 pm

    I guess I missed the step in the logic that shows that Swiss banks are responsible for enforcing German domestic law, or that Germany is entitled to carry out espionage on Swiss soil.

    It seems to me that there is really nothing “special” about Swiss Banks. Concealing part of your income so that you can put it into a Swiss Bank is no different to concealing part of your income so that you can bury it in a box in your back garden.

    The real issue here, which the author seems to ignore, is that the crucial step here is the “concealing part of your income” step. Once you have done that, what you then do with the concealed income is irrelevant.

    It is the job of the German tax authorities to put structures in place that make it difficult or impossible to conceal income, and if they are incapable of doing that, it’s not the job if the Swiss taxpayer or Bank shareholder to do the job for them.

  2. #2 by Clarissa Smith on December 1, 2012 - 4:41 pm

    Switzerland has been doing that for a very long time, it’s actually part of their tradition. Maybe the mountains kept them safe, it wasn’t even possible to invade them with military forces. You couldn’t even get them into the E.U. — probably because they couldn’t offer that secret banking then any longer.

    People are too smart to not find new ways to conceal income. Laws to make it impossible are impossible. ;)

  3. #3 by Clarissa Smith on December 1, 2012 - 4:48 pm

    By the way, did Mitt Romney also get a letter from Switzerland? Right after he lost the election…. And Ann Romney again said, “Stop it, this is hard!”

    Well, he has a great big yacht and can ship all the bucks from Switzerland to the Cayman Islands money laundry.

  4. #4 by Moin on December 5, 2012 - 6:20 am

    These resources are not, from the Europe banks’ viewpoint, “German.” They are, to be accurate, lawfully “owner-less”, even if eventually some Spanish people have the energy have fun with the earnings-For a further description of the slick characteristics of these components.

  5. #5 by Mark Winkle Consultant One on December 7, 2012 - 9:40 pm

    Dear EU Observer staff, December 7, 2012

    As the premier Financial Consultant behind Euro Bonds, the EU Monetary Reserve, a United European Union, etc. since July of 2011, as well as being the father of the present austerity, you may view my advice archive that the EU, the IMF, and the UN use to make decisions at winklepublishing.blogspot.com

    I am an Financial, Environmental, and Legal Research Consultant and am also the drafter of a Proposed United European Union Constitution (see blog). It is my advice which won the European Union the Nobel Peace Prize this year (2012).

    Mark Winkle
    Winkle Institute of Worldwide Economic Stability

  6. #6 by Dmitry on December 29, 2012 - 1:20 am

    It’s time any country complicit in helping to stash away criminally earned (e.g. from Russian bureaucrats) or criminally hidden (for tax evasion) should be tainted with the same brush – as CRIMINAL. Don’t give us your bull about your rule of law, freedom etc etc etc. You facilitate hiding (and spending) of criminal money – you are IN CAHOOTS WITH THE CRIMINALS.