Saturday, 20 April 2013

Global Alliance For Tax Justice





The Global Alliance for Tax Justice is a newly-formed campaign coalition of 81 NGOs in
37 countries that works on policy issues related to offshore havens, private banking,
financial secrecy, and corporate and individual tax dodging across multiple countries.

I. Our Concern – The Swiss Bank Settlement

(Swiss bankers severely punished for enabling tax-frauds)
With apologies to Private Eye 
The Global Alliance is very concerned to have recently learned that, according to several published reports and our own conversations with journalists, the U.S. may well be on the brink of signing a global settlement with Swiss authorities with respect to the prosecution of Swiss banks for facilitating tax evasion and other crimes. 

According to these reports, this agreement would constitute a global settlement of all existing federal prosecutions of scores of financial institutions – not just the 13 Swiss banks widely reported as under investigation, but up to 300 or more.

While we are obviously not privy to the details, we understand that this settlement would trade deferred prosecution agreements in exchange for billions of dollars in potential negotiated settlements and some access to Swiss bank data on those clients who are suspected of being American citizens or legal residents. 

II. A Few Key Problems

In our view, such a settlement would, in effect, put an end to the criminal prosecutions of Swiss banks for their instrumental orchestration of and eager participation in what...

1 Follow us on Twitter @globaltxjustice.
2 See for example: 
4 In addition to any client data to be required under the February 2013 Swiss-US FACTA agreement, going forward.

...can easily be described as one of the largest, most prolonged, best-organized criminal conspiracies in U.S. history.

Even on the basis of the handful of prosecutions that have already been made public, it is clear that this conspiracy facilitated tens of billions of dollars of tax evasion by wealthy Americans – at a time when ordinary Americans are struggling to make ends meet, let alone pay taxes. Of course we would love to learn that the reports we’ve been hearing are wrong. But assuming that there is something to them, we’d like to share with you our detailed concerns. While such a deal would clearly have many advantages for Switzerland, it would be very unfortunate for the U.S. to enter into such an agreement at this time, for at least four key reasons:

1. It would fly in the face of the progress that the world is finally making right now toward cracking down on tax havens.
2. It would risk dividing the U.S. from the EU and the rest of the OECD, reducing pressure on Switzerland to reform.
3. Any such settlement would require Swiss parliamentary approval that could take months. So there’s no need to rush it through right now, even as the EU, the OECD, the G8, and the G20 are considering important reforms.
4. Such a settlement might limit the use of the one penalty that Swiss banks fear most – jail time.

The rest of this document examines these objections in more detail.

1. A Swiss bank settlement would fly in the face of the dramatic progress that the world is finally making toward cracking down on tax havens. We are at an historic crossroads. In the wake of the ‘offshore leaks’ scandal and a myriad of other recent scandals, there is unprecedented worldwide pressure to crack down on havens. We are seeing huge advances in transparency and law enforcement in Europe, key policy shifts by the OECD, the G8, and the G20, and commitments by a growing number of countries to accept U.S. standards on automatic information exchange.

This is exactly the wrong time to let up on the pressure on Switzerland.

2. A Settlement Now Risks Dividing the U.S. from the EU and the rest of the OECD on Haven Reform.
In the case of the EU, Switzerland is facing the strongest united front ever with respect to the demand that it end, once and for all, its distinctive, continuing role in financial secrecy, organized tax dodging, money laundering, and corruption.

¶ By Switzerland’s own admission, it is still the world’s largest recipient of cross-border private investments. On the Tax Justice Network’s latest “Secrecy Jurisdictions Index” of 73 havens, Switzerland ranks #1, well ahead of #2 and #3, the Cayman Islands and Luxembourg.

Further, recent studies of haven wealth by TJN have shown that Switzerland’s official estimates of its offshore wealth – $2.1 trillion as of 2012 -- are far too low. The global total for offshore private financial wealth is $21-$32 trillion, not the $10-$12 trillion implied by Switzerland’s official numbers. Indeed, TJN research has recently uncovered the fact that a huge fraction of Switzerland’s investments from offshore are
simply off the books, not recorded in official wealth or bank data.

¶ Switzerland likes to pretend that it is just one of many havens, merely on a par with other “offshore financial centers” like the Cayman Islands, Jersey, the BVI, or, upstream, the U.K. and the U.S. In fact, since at least the 1970s, however, we have seen a continuing parade of scandals that underscore Switzerland’s truly distinctive role in the global haven banking system – and the distinctive role played by leading banks like UBS, Credit Suisse, Julius Baer, and many others.

¶ In just the last year we have been reminded of Switzerland’s unique role in accumulating and protecting the stolen wealth of the world’s “Politically-Exposed Persons” (“PEPs”) – from Angola’s Dos Santos to Mubarak’s Egypt to Putin’s Russia to Mugabe’s Zaire, to senior public officials in France,11 Spain,12 Greece,13 Italy, and the UK

7 The official total for private investments in Switzerland is $2.1 trillion as of 2012. See (BCG, 2012).
8 See
9 For example, vault gold, other stored valuables like currency, art collections, and precious gems, and
investments held through so-called “omnibus accounts” in the names of Swiss wealth managers or trusts.
10 See for example the investigation of Ferdinand Marcos’ diversion of at least $3.5 to $7 billion of
Philippine Central Bank loans directly to his accounts at UBS and SBC in the 1970s and early 1980s, in
J.S. Henry, The Blood Bankers. (Basic, 2005), Chapter 3. The Philippines is still servicing this “odious”
debt to this date. As of 2013, the Swiss banks involved have returned a grand total of $585 million to the
Philippine authorities.

¶ We have also seen Switzerland’s desperate attempts to negotiate so-called “Rubik deals” with its neighbors in Europe. But lately this has been running out of steam, especially with respect to key countries like Germany, France, Spain, and Italy. This is for very good reason. Upon closer analysis, these deals -- which offer estimated tax payments based on Swiss banks’ own estimates of what client assets are worth in
exchange for continued bank secrecy – are riddled with loopholes.

¶ Partly in response to the U.S. FACTA law, there is now growing support in the EU for automatic information exchange. (“AIE”) Just last week France, Italy, Spain, Germany and the UK announced that they would pilot an AIE platform that other EU countries can join. Of course Swiss banks prefer the traditional slow-motion “upon request” bilateral tax treaty-based system -- AIE is anathema to bank secrecy. But the days for relying on the outmoded bilateral request system are numbered.

¶ European tax enforcement efforts, while lagging U.S. efforts up to now, are catching up. Just this week German authorities raided at least 200 clients of leading Swiss banks, including Credit Suisse/ Clariden. French and Spanish authorities are also becoming more aggressive.

¶ All these pressures on Switzerland are coming to a head in several key EU policy venues. In the next two weeks, with the support of France and Germany, the EU Parliament’s Crim Commission in Brussels and the 47-member Council of Europe’s Parliamentary Assembly in Strasbourg will be examining fresh proposals to crack down on Switzerland’s special role with respect to PEPs. UK Prime Minister David Cameron has already announced that cleaning up tax havens will be an important theme of the June G8 in London. The September G20 in Moscow may also provide an opportunity for the world to tackle tax havens and the Swiss role in particular. All told, it appears that the EU as a whole has simply had it with Swiss chicanery. With all this momentum, this is not the time for a Swiss settlement, but for closer collaboration with the EU, other OECD countries, the G8 and the G20.

14 The UK “Rubik” deal with Switzerland, for example, omits “discretionary trusts” as well as safety deposit vault gold (as does the
US FACTA), which is massive. As you may know, “safety deposit boxes” in Switzerland may be 100 sq. meters or even larger.
15 See;
16 See

3. The U.S. Can Afford to Wait for the EU/G8/G20, Since It Is Not Even Clear That Swiss Ministers Have Authority to Conclude A Deal Precisely because of the pressures outlined above, the U.S. is in the driver’s seat. Indeed, Swiss Finance Minister Widmer-Schulmpf admitted this last month when she stated that she is very happy with what’s already on offer: “We could sign it tomorrow if the United States wants to do it.”
Anticipating such a settlement, however, just this week the Swiss Parliament severely restricted the discretion of any Minister to sign up for secret information exchange agreements without another round of parliamentary approval. In practice this means that even if the settlement were signed today, it might face at least a six-month ratification process in Switzerland’s parliament.

Given the growing opposition to “compromises of bank secrecy” on the Swiss Right, as well as popular Swiss revulsion at the 2010 UBS deal, it is not what kind of settlement deal would even survive. This implies that any agreement signed now should really be regarded simply as a marketing ploy – an attempted white wash -- on Switzerland’s part, rather than a solid agreement. Switzerland is simply desperate to be able to market itself as a clean “offshore financial center” just like any other, rather than the global leader of this
dubious industry. We can understand why the Swiss are eager for such a deal. But why should the U.S.
be a party to such a white-washing exercise?

4. What the Swiss Banks Really Fear Most Is Not Large Fines, But Jail Time, the Inability to Travel, and Ill Repute.

The large fines imposed by DOJ on UBS and HSBC were impressive. But from an economic standpoint it was almost certainly not the banks’ shareholders or senior managers who paid them. Ultimately they amounted to less than 5 percent of corporate profits, and were easily passed along to customers and clients.
On the other hand, what does seem to get the Swiss banks’ attention is the fear of actual jail time for their CEOs, senior private bankers, wealth managers, and other white collar professionals. As one reporter recently noted, Swiss bankers have lately become international pariahs, rather like some Russian senior officials. They have to stay at home for fear of being arrested if they travel abroad.

17 See:

This implies that any settlement deal with the U.S. that substantially reduces the risk of prosecutions for individual Swiss bankers will be much less effective than a deal that maintains it, even at the cost of lower financial settlements. Given what we’ve already seen in the UBS and HSBC cases, therefore, the Global Alliance is very concerned that the U.S. might be giving up its most important source of leverage for influencing future Swiss bank behavior. Is it just about the cash? At all costs, the U.S. needs avoid the perception that in the U.S., justice is for sale – that if you are a wealthy and powerful enough individual, corporation, or banking center, with influential friends in high places, your criminal behavior – no matter how recurrent – can always be forgiven with a fine.

III. Summary.
Overall, we believe there is very little to be gained by the U.S. by not continuing its existing investigations and prosecutions of leading Swiss banks for at least a few more months.

This would support U.S. allies in the EU, the rest of the OECD, and the G8/G20 in their reform efforts. It would provide an opportunity to examine and perhaps fix the glaring the “loopholes” in Swiss financial asset reporting under FATCA noted above. It would also enable the U.S. to take the lead in working more closely with rich and poor countries alike to address the glaring global PEP/kleptocracy problem -- and the offshore asset non-recovery problem associated with it that so many Swiss banks have contributed to.

The Global Alliance looks forward to supporting your efforts on this long journey toward transparency, tax justice, and honest banking – which may now finally at last be getting somewhere!

Thanks for your time. I’d be delighted to answer any questions.

Sincerely yours,


James S. Henry, Esq.
Chair, Global Alliance on Tax Justice
Senior TJN economic advisor
Sag Harbor, New York 11963


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