Breaking the Swiss secrecy

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Asjadul Kibria | Published: July 13, 2016 00:00:00 | Updated: February 01, 2018 00:00:00

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Swiss secrecy again makes headlines in the newspapers around the world. The amount of financial assets of Bangladeshi individuals and entities allegedly stashed in different banks in Switzerland increased by 10 per cent in 2015 over 2014. Though such an amount is not very big - a mere 0.40 per cent of the total money deposited in these banks last year - it is alarming in the context of Bangladesh.
There is a global move to clamp down the secrecy of the Swiss banks in recent years. Due to such move, total money held in Swiss banks by all their foreign clients from across the world declined by nearly 4.0 per cent to Swiss franc (CHF) 1.41 trillion or $1.45 trillion. At the same time, the total deposit in the name of Bangladeshi individuals and entities stood at CHF 559.25 million or US$ 571 million at the end of 2015 which was CHF 508 million or $518.7 million in 2014. Thus, Bangladeshi money in Swiss banks increased defying global trend.  
SWISS SECRECY: Swiss banks are well-known for their secrecy. They have been observing a code of secrecy regarding balance and account holders for over 300 years.  The practice began with the kings of France who demanded strict secrecy, used to have high financial needs and had also the ability to pay back their loans.
The grand council of Geneva made regulations in 1713 to keep registers of bank clients but prohibited the banks to share the information with anyone except the clients themselves unless the council approved any disclosure. The secrecy in Swiss banking was covered only by the civil and commercial codes. So, any bank client could seek damage against any bank or banker that didn't maintain his/her confidentiality. But revealing information was not considered a criminal offence and was not punishable by law.
In 1934, Switzerland passed the Swiss Federal Banking Act which made the disclosure of a client's identity or information a criminal offence. Thus Swiss secrecy became legal and stronger. But a section of the population was opposed to the law and alleged that it was against tax justice. In 1984, a referendum was held on the issue and 73 per cent of the people voted in favour of bank secrecy.
Nevertheless, global pressure especially from the developed countries, has mounted on the Swiss authorities  to bring an end of the  secrecy. As a result, Switzerland and European Union (EU) signed a tax transparency agreement on 2015. Under the agreement, both sides will start automatically sharing data on residents' financial accounts from 2018. The agreement is in line with the new global standard for the automatic exchange of information, jointly approved by the Organisation of Economic Cooperation and Development (OECD) and G-20.
BANGLADESH EXPOSED: Though the existence of Bangladeshi's money in the Swiss banks was a kind of open secret for long, there was little evidence available to prove it. It was four years back, when a vernacular daily first published a report on deposit of Bangladeshi's money in Swiss banks. In later years, other newspapers also came up to disclose the amount from the report titled 'Banks in Switzerland' prepared and released by the Swiss National Bank (SNB), the central bank of Switzerland.
These reports shook the country, especially in 2014, and the government declared that it would do all necessary things to bring back the stashed money deposited with the Swiss banks. Bangladesh Bank made correspondences with the Swiss central bank. There was also call from the top policy makers to Swiss banks' Bangladeshi depositors to bring back the money and reinvest it in the country. But little development has been take place so far although foreign investment from some tax havens like British Virgin Island, Cayman Island and Mauritius is increasing over the last few years.
In fact, the way the government and the central bank of the country try to deal with the Swiss bank secrecy is flawed. Swiss authorities are by no way bound to share any information with Bangladesh as there is no bilateral understanding, let alone agreement. So, seeking wholesale information or cooperation by writing to the Swiss central bank reflected the lack of understanding on the issue. Moreover, the government has no specific evidence or even clue in hand that some of the    deposited money in Swiss banks actually flew from Bangladesh.
India has long been trying to bring back stashed money from the Swiss banks but yet to get any big result. The country has a bilateral double taxation avoidance treaty (DTAT) with the Switzerland and still waiting for operationalising the automatic exchange of information. So far, Switzerland has shared few details in cases where Indian government has been able to provide some evidence of suspected tax evasion by Indian clients of Swiss banks. The Swiss authority last year released names of few Indians along with the names of some other nationals having bank accounts in Switzerland. But, they were also given legal opportunity to appeal for not sharing their information.
Again, Swiss authority, so far, agreed to share information on Indian depositors for post-2011 period. There are also two critical conditions. First, Swiss authority will not provide any detail of any account holder if the requested account holder's preliminary information is so called 'actively acquired.' It meant paying for data stolen by third party. Secondly, it also requires clearance from Swiss court.  
It is important to note that the United States has been asking the Swiss banks for information on untaxed American assets for several years.  In 2013, the Department of Justice announced a programme for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks. Under the Programme, many Swiss banks came forward and admitted to engaging in certain conduct that may have violated U.S. tax laws. Last month, the justice department wrapped up its prosecution of over a dozen Swiss banks. Now the US authorities are trying to trace funds and accounts that got transferred from Swiss banks to financial institutions in Singapore and Hong Kong.
If Bangladesh really wants to get information on the owners of Bangladesh money in Swiss banks, the government has to make a detailedd work plan and deal with the Swiss authorities in proper legal manner. The global move to clamp down on Swiss secrecy along with       offshore jurisdictions provides a good opportunity for Bangladesh to deal with the matter. So, the work plan needs to be comprehensive, not only in respect of Swiss secrecy, but also to deal with capital flight or illicit financial flows from the country to other parts of the world. The Indian experience showed that deposits in Swiss banks may decline, but not necessary come back to the country. Rather, a good amount may be transferred to other safe heavens like Dubai, Singapore or Luban of Malaysia.  
Thus any piecemeal effort will not bring any result. A better and safer environment inside the country is also essential to contain such outflow.
asjadulk@gmail.com