Court Ruling Is Another Blow To Swiss Banking Secrecy

One of Switzerland’s biggest international banks has the green light to disclose confidential client financial information to the US Internal Revenue Service (IRS).

The decision is another crack in the nation’s banking secrecy armour which has drawn a veil over suspected tax avoidance in secret accounts for decades.

The law is loosely framed to let the IRS demand the bank gives information over about alleged tax dodgers.

The ruling in the Swiss high court puts an end to wealthy bank customers trying to delay the bank disclosing details of their accounts to the US.

The judges rolled over to an American request to frame the law in such a way that any US citizen who opens a Swiss bank account is a suspected tax avoider until proven otherwise.

Banks under spotlight

In the back of their minds was probably the closure of Switzerland’s oldest private bank earlier in 2013 after a New York court agreed the firm helped tax evaders avoid paying taxes in the US.

Wegelin Bank was fined £36 million for aiding 100 US taxpayers hide £1.2 billion from the IRS for a decade.

Many other Swiss banks are under investigation for similar tax evasion charges, including Credit Suisse, Julius Baer and the Swiss arm of HSBC.

During the case, it was also disclosed several Israeli banks face such inquiries as well, including

Bank Hapoalim, Mizrahi-Tefahot Bank and Bank Leumi.

The US, UK, Germany and Austria have brought huge pressure to bear on Switzerland to stop providing succour to tax evaders with great success.

The three European countries all have tax compensation agreements in place with the Swiss banks worth billions of pounds.

Tax havens

The action is seen as part of the US rolling out of the Foreign Account Tax Compliance Act (FATCA) by January 1, 2014.

The act requires any foreign financial institution doing business in the US, which is just about all of them, to report on the holdings of any US citizen with more than $50,000 in an account.

Germany is the latest major nation to indicate that a FATCA agreement will shortly be signed with the US. The Phillipines has also joined the growing list of US tax allies.

Meanwhile, a United Nations study claims that despite a crackdown on tax havens by the US and many other developed economies, their use is increasing.

The report alleges that foreign direct investment in offshore financial centres has mushroomed from around $15 billion a year between 200 and 2006 to a massive $75 billion a year since 2007.