Thu Oct 18 2018
Ray Pierce (598 articles)

A court ruling knocks another hole in Swiss banking secrecy

DURING HIS decade-long legal battle with the Swiss authorities, Rudolf Elmer, a bank whistleblower, has endured 48 prosecutorial interrogations, spent six months in solitary confinement and faced 70 court rulings. None, though, has been more important than the decision by Switzerland’s supreme court on October 10th, which set strict limits on the country’s famous bank-secrecy laws.

Mr Elmer had leaked data from Julius Bär after being sacked by the Cayman Islands affiliate of the Zurich-based bank. The court, dismissing an appeal by prosecutors, ruled that because he was employed by the Cayman outfit, not its parent, he was not bound by Swiss secrecy law when he handed data to WikiLeaks in 2008. The 3-2 ruling followed a rare public debate among the judges, held in only 0.3% of supreme-court cases, underlining the national importance of the issue.

The ruling matters because Swiss banks are among the world’s most international. They employ thousands of private bankers offshore, and many more in outsourcing operations in countries like India and Poland. Many foreign employees are involved in creating structures comprising overseas companies and trusts linked to a Swiss bank account. Thanks to the ruling, as long as their employment contract is local they can now leak information on suspected tax evasion or other shenanigans without fear of falling under Switzerland’s draconian secrecy law, which imposes jail terms of up to five years on whistleblowers.

The victory is bitter-sweet for Mr Elmer. He was found guilty of forging a letter and making a threat, and has been ordered to pay SFr320,000 ($ 325,000) towards costs, a princely sum for someone who has been campaigning unpaid for years. He believes the courts had no choice but to reject the extraterritorial reach of secrecy, and ordered costs as “revenge” for him causing trouble. He is mulling an appeal to the European Court of Human Rights.

The ruling is the latest in a series of assaults on Swiss financial secrecy. They have intensified since 2007, when America’s Congress was alerted to brazen tax-dodging through UBS, Switzerland’s largest bank. Dozens of banks have since been fined for aiding tax evaders. UBS, which paid America $ 780m, is on trial in Paris, with six current and former executives, charged with tax fraud and money-laundering related to French clients. Prosecutors are seeking damages of €1.6bn ($ 1.9bn).

Under international pressure, Switzerland agreed to systematically swap information on account-holders with other countries, as part of an OECD-led initiative against tax evasion, the Common Reporting Standard (CRS). It began doing so last month. For now, however, exchange is limited to the European Union and a handful of other countries. The Swiss refuse to swap data with several countries which are major sources of corrupt and tax-shy capital—including Russia, China and Pakistan—on data-safety grounds, even though the OECD considers those countries safe to exchange information with.

Moreover Switzerland, unlike the EU, has declined to adopt (non-binding) international rules to aid disclosure of schemes, cooked up by banks and other intermediaries, to circumvent the CRS. No wonder financial ne’er-do-wells are, as one tax adviser puts it, “still yodelling”.

This article appeared in the Finance and economics section of the print edition under the headline “Elmer thud”

Copyright (2018) © LiveIndex.org


Ray Pierce

Ray Pierce

Ray Pierce is a Senior Market Analyst. He has been covering Asian stock markets for many years.

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