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Swiss Banks in the Firing Line


Swiss banks, once a byword for secrecy and for so long the gold standard for wealth management, have been in the firing line from international organisations, governments and tax authorities for years. Even worse, their pre viously impenetrable defences have been completely undermined by employees stealing confidential information and selling it to foreign tax authorities. The light that this data has shed on Swiss banking practices has not been flattering. As a result, certain Swiss banks have been indicted in the US, charged with conspiracy to defraud the IRS, obliged to pay massive fines and hand over client names. Bankers have been arrested and jailed-some have also been handsomely rewarded on release for shopping their customers. Outside the US, Switzerland has been obliged to enter into a number of bilateral agreements and treaties to “regularise” accounts of foreign nationals.

The most recent bank to be ushered into the spotlight is HSBC in Switzerland, which has been heavily criticised and much embarrassed by allegations that it assisted UK taxpayers to conceal assets and avoid (or evade) UK tax. A BBC documentary made reference in particular to undeclared accounts’ owned by British residents. The reality is there is no such thing as an undeclared account. The UK tax system works on the basis of self-assessment. This means that anybody resident in the UK must file a return that details all income and capital taxes due and payable. A UK tax form does not ask for details of individual accounts, assets or sources of income. In other words UK taxpayers don’t need to declare accounts. Those who are resident but not domiciled in the UK are only taxable on UK-source income and foreign income that is actually remitted to the UK. If a “non-dom” has a bank account in Switzerland that generated income they would not be required to declare that income unless they remitted it to the UK.

There may be many legitimate reasons for opening accounts with a Swiss bank. First and foremost is that they have a level of international experience and expertise that is hard to find in the UK. Swiss banks have traditionally been focused on investment business and generally don’t take risks by funding speculative ventures or making Loans. Swiss banks are therefore safe and secure and generally have long track records of generating good returns. Switzerland has a reputation of being one c the most stable countries in the world. Swiss banks rarely go bust and there is seldom any government interference in the running of a bank, Let alone any sequestration of assets by the Swiss government. You only need to look at what happened in Cyprus. When the Eurozone crisis struck, the government imposed a 3O°, haircut on accounts held in Cypriot banks to help pay off its national debt. In other countries banks simply go bust and everyone loses their money. These things don’t happen in Switzerland. That is why people like Swiss banks.

The problem with HSBC is that it appears to have gone much further than simply allowing UK persons to open accounts. The allegation is that it knew that certain of these accounts were funded by money upon which tax should have been paid but had not. That could well be classed as money laundering because tax evasion is a criminal offence in the UK. Happily for the Swiss, tax evasion, unlike tax fraud, is not a criminal offence in Switzerland, so handling the proceeds of tax evasion is not classed as money laundering. Internal memos would seem to suggest that HSBC knew that UK taxpayers were not making correct tax declarations for the income they were earning on their Swiss accounts and, further, it seems to have gone to great lengths to assist those taxpayers to receive the money in cash deliveries. Again, it is arguable that this is not their problem but assisting the taxpayer to conceal the account for the stated purpose of escaping tax is surely conspiracy to defraud HMRC. Advising the taxpayer that they should declare any income generated on their account and refusing to handle any monies on which it knew that tax had not been paid would have been both legal and ethically correct.

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This blog is Created by CA Anil Kumar Jain.