Secret Swiss bank accounts- turned-tax havens under siege

The legendary Swiss bank accounts, as secure as the Alps, are under siege by many Governments bent on eliminating these veritable tax havens. A leading Swiss bank, UBS, has reportedly agreed to take the lid off more than 4,400 secret accounts of American customers accused of alleged tax evasion by Inland Revenue Service (IRS) of USA. The hallowed Swiss tradition of banking secrecy is seriously eroded according to financial experts. Too many tax dodgers may have used Swiss banks as a lock-box for their clandestine deeds. Germany, Italy and other countries are also prying to bust these accounts.

After a recent probe by the United States, pressure on Swiss banking secrecy is increasing just as the financial services sector attempts to secure its international standing. The battle will be fought fiercely, many believe as some of the smaller banks are fighting to keep the secrecy intact. So, just what is behind Swiss banking secrecy and will it survive the assault?

The UBS Bank. Picture by Thelondondailynews.com

A practice coming down from the days of Louis XIV, to the days preceding the French Revolution and on through both World Wars, through Hitler's holocaust and other suppressive Governments may end soon. To the discerning depositor, Switzerland may not be the most secure vault it used to be.

Swiss banking till now had developed almost a mystical persona, an urban legend based squarely on the fact that Switzerland has very sophisticated legislation and regulations in place, dictating specific parameters for its banks and favouring the confidential-keeping and securing of its foreign-deposit accounts. Swiss banks offer unprecedented professionalism and utter reliability in arguably the most stable banking environment in the world.

Many believe that the much sought after secrecy has been misused by some with their questionable operations allegedly like the notorious Pathmanathan alias KP, self declared LTTE kingpin. Thousands of US customers are now reportedly unnerved by the news of UBS disclosure of the secret bank accounts.

Secrecy un-impregnable

Swiss banking was considered the ultimate in keeping accounts under cover. That attracted trillions in foreign deposits and was considered beyond breach. Some smaller banks are reportedly trying to ward off the attempt by IRS to get the names of all tax evaders. New and more devious methods may now be needed to keep the accounts safe from 'raid' by governments bent on catching depositors who defy the tax laws in their own countries.

IRS is pursuing the matter seriously and is all out to get the names of the tax evaders. American authorities have made clear that their pursuit of tax evaders will not stop at UBS. I.R.S. commissioner, Douglas Shulman, stated on US media channels that it is a major step forward in piercing the veil of bank secrecy. UBS will provide the names of account holders to the Swiss tax authority, which will forward them to the I.R.S. Under a new tax treaty with Switzerland, it could take more than a year for most of the names to be disclosed. Media reports also stated that soon the bank will start to notify clients, who can appeal the disclosure in Swiss Courts.

IRS is only interested in getting the names of the tax evaders. President Obama during the election campaign promised to unearth the shady accounts of off-shore financial entities taking cover in Swiss banks to carry on sham operations, depriving millions in revenue to the US.

The agreement with the banks is a feather in the cap of the IRS and the Justice Department in the outstanding case against UBS, which paid $780 million and admitted to criminal wrongdoing in selling offshore banking services that enabled tax evasion. Recently, some of the larger Swiss banks like UBS and Credit Suisse curtailed banking services for US millionaires in response to the increased scrutiny.

The smaller banks, that are reportedly rejecting tax evasion as immoral, are reportedly trying to keep the secrecy going as long as they can in order to attract American money. Banking is a key ingredient of Switzerland's massive financial establishment. A legal battle is being fought by the small Swiss banks to shield their clients and have already contacted legal experts to thwart the efforts of the prying tax and regulatory bodies.

There is a Swiss law that penalizes failure to disclose assets up to 50 percent of the highest annual balance of each account for each of the last three years. That would be devastating for most investors depositing money in Swiss banks if the law is enforced fully. The law allowed investors who came forward before September 23 face a reduced penalty of five percent to 20 percent, depending in part on whether the wealth was inherited. They will also be hit with the penalty just once, on the highest balance in the accounts during the last six years. So the battle is going on and may take months to be resolved.

Strategy to nab tax evaders

Meanwhile, the US Justice Department opened criminal investigations of 150 UBS clients, and is likely to bring more indictments on top of the four it brought in recent months. Only clients who are prosecuted are likely to have their names become public.

IRS is determined to bring all culprits to book and the landmark deal with UBS may be only the starter. It is considered a road-map to nab the tax evader for good.

Smaller Swiss banks are also determined to keep the IRS off limits and are trying to help still clients hide their accounts through complex structures in offshore havens in the Caribbean, Panama, Luxembourg, Singapore and Guernsey in the English Channel. KP was reportedly in one of those arrangements trying to hang on to his millions in foreign accounts.

The crackdown is bringing to surface a large number of lawyers, accountants and financial advisers trying to help Swiss banks bent on attracting clients. US Justice Department was also reportedly going after these aiders and abettors.

The Department was preparing criminal cases against some of the Swiss agents and intermediaries who set up offshore entities for clients and funnel their money to private banks. These entities make good money as they charge a referral fee in the process - sometimes up to 50 percent.

World map of aiders and abettors

The I.R.S. program known as the Offshore Identification Unit is helping to build a map of this world. It recently began tracking all disclosures of wealthy Americans who, unnerved by the UBS situation, have come forward to declare their assets and account details, often naming the private banks and intermediaries they used.

Glimpses of the network were revealed recently when one UBS client, Jeffrey P. Chernick, of Stanfordville, N.Y., pleaded guilty to criminal charges of evading taxes on $8 million he put into UBS accounts in the Cayman Islands and Zurich. Chernick worked with and received advice from a Swiss lawyer and a bank executive at a small private bank in Zurich, neither of them UBS employees, according to court records.

There are many bankers and financiers who still sing the praises of the Swiss secrecy methods. They maintain that Switzerland has not traditionally considered tax evasion to be a crime. Supporters of secrecy in banking like Micheloud & Cie, which have offices in Lausanne and other Swiss cities, have reportedly helped clients set up accounts at the biggest private banks in Switzerland. There are web sites describing such accounts as the ultimate symbol of wealth, personal achievement and privacy. Clients use many numbered or code-named accounts like and advises clients on how to set up numbered accounts with code names like "Diva", "Octopussy" and "Cello".

So the future of Swiss banking secrecy is in the balance. Switzerland was known for its neutrality during World War II which even the Nazis respected. But has the discreet, secure and purely commercial being over-taken by the covert operations of international money-laundering groups.

It is not only those who believe that taxation is heavy-handed and should not be permitted who are rushing to Swiss banks, everyone who may have amassed wealth in devious ways are also in that group.