US Department of Justice targets Swiss banking giant Credit Suisse

17-07-11

“Transfer the funds to my Swiss bank account” the terrorist mutters in a muffled voice down the phone... We are all too familiar with stories of villains hiding their funds in an offshore Swiss account to avoid taxes. This week the reality seems to be catching up with the stereotype as once again, a Swiss bank, the second largest in Switzerland is targeted for aiding tax evasion by the US Department of Justice. Credit Suisse have already previously entered deferred-prosecution agreements on unrelated charges of assisting countries (like Iran, Burma and Libya) to avoid government sanctions. The largest Swiss bank UBS AG was also criminally charged with aiding tax evasion three years previously (later dropped due to UBS paying $780 million and turning over more than 4500 accounts). Recently Germany and the UK have been attempting to prosecute Swiss banks on similar charges. All painting the portrait of a greater crisis than an isolated instance of private sector wrong-doing.

      There seems to be a broader underlying cause possibly within the country of Switzerland itself. When looking at a map of the European Union, there is that one Switzerland-sized hole located just about in the centre which has resisted against overwhelming pressure to buckle into conformity from its geographic, economic, political and social neighbours. The Swiss bank privacy policy dictating the importance of secrecy dating back hundreds of years was made into law in 1934. For many Swiss citizens, it is a fundamental part of national identity. Meanwhile, the EU has been attempting to change Swiss policy as a step towards the ultimate goal of a unilateral tax regime amongst members and close associates. Despite their strong Swiss stance of neutrality and refraining from intervention in international affairs, 2/3 of their trade is conducted with EU members so burning friendly bridges is not a luxury they can afford. Political pressure was applied, not mentioning the finances of Swiss banks, but on defaming the national Swiss character, harking back to cases of withholding information on Nazi-victims, corrupt foreign officials, terrorists and dictators. Subsequently, Switzerland has cooperated with international bodies and have already adopted the OECD standards and imposed a withholding tax on EU residents (as a compromise than enables them to keep secrecy yet generate revenue).

    In the intercontinental grand scheme of things, while areas like Western Europe are able to impose stricter laws and regulations through political pressure, countries such as Singapore, who are not held down by such weights have started becoming a far more attractive location for ex-Swiss account money. In the 21^st century these funds are easily transferred with modern technology away from the dreaded withholding tax of Europe’s remaining banking secrecy states. The problem seems to be bigger than Credit Suisse, bigger than Switzerland’s banking position, but a much larger point of international difficulties arising with globalisation and technology. In fact, even Credit Suisse’s international headquarters is now located in Singapore. Plugging these international tax holes is an extremely complex task, one that demonstrates that it was never about the autonomy of Switzerland, but simply where that money tree can be planted to grow the tallest.