By: Laura Noonan in London and Ralph Atkins in Zurich
Thousands of clients have had to prove they are tax compliant yet groups are still not in the clear
Swiss private banks have spent much of the past decade trying to rid themselves of lucrative accounts used to avoid taxes. But news of an international tax probe at Credit Suisse last month showed that Switzerland has further to go before it can escape the shadow of its image as a tax haven.
Banks have written to tens of thousands of clients ordering them to “regularise” their affairs in recent years, either by proving they are tax compliant or taking their money elsewhere. Customers have withdrawn billions of francs as a result — often some of the banks’ highest-margin business.
And yet the banks are still not in the clear. In 2017 they expected challenges in exotic destinations. Switzerland has signed up to an ever-expanding list of countries whose tax authorities would automatically get information on Swiss banks’ clients. Countries such as Indonesia have worked through tax amnesties incentivising individuals to declare untaxed income.
But the problem has resurfaced on their doorstep in Europe, where clean-up work has been most intensive. Investigators descended on Credit Suisse’s offices in the Netherlands, UK and France on March 30 searching for information about “dozens of people who are suspected of tax fraud and money laundering”. Dutch prosecutors, who co-ordinated the raids, said criminal investigations had also taken place in Germany and Australia.
The situation baffles Credit Suisse, which had thought it was “done” with regularising its European client base. “We have really made a lot of effort to deal with the past very proactively over the last number of years,” said Iqbal Khan, Credit Suisse’s international wealth management boss. “We are committed to running a compliant business.”
The authorities have so far not spelt out exactly of what they are accusing Credit Suisse. People with knowledge of the probe say that questions have centred on processes and procedures, and that Credit Suisse has not been asked to hand over any information on clients, past or present. Bankers say the probe is likely to be about clients who had money at Credit Suisse and have already taken it out as part of the SFr40bn ($40bn) of regularisation-related outflows that the bank says it has already processed.
“What’s the point for a Swiss bank to have untaxed European clients [now]?” said one senior Swiss banker. “They will have to be transparent next year anyway.” From 2018, Swiss banks will routinely turn over client data to tax authorities across Europe under an “automatic exchange of information” procedure.
The Dutch prosecutor’s office told the Financial Times the information they were working off is “about people who had an account with a Swiss bank in the past”. “We found out that some of those Dutch clients still have an account,” the prosecutor’s office added. Australia’s tax office said that they had intelligence “which supports our view that some of the accounts identified are active and in use”.
If clients were still using Swiss accounts to avoid tax, it would be a blow to the efforts Credit Suisse has made in recent years. “We went client by client. Every client had to provide documentation on their respective tax status. If a client was not willing to provide us that documentation, we exited those clients,” Mr Khan said, referring to how the bank “regularised” European accounts.
The exits were handled by a special group in the bank’s run down unit, “where they have only one mandate, to exit clients who have not provided us with the respective documentation”. It was set up that way so there was “no conflict of interest” for relationship managers and no incentive to hold on to the money, Mr Khan added.
Other large Swiss banks have been through similarly painstaking processes to weed out tax-dodging clients, but they admit they are not foolproof. “We are not the tax police, we do as much as we can do. Your question is: can somebody trick us and still have some untaxed asset with us?” a Swiss private banker said. “That’s maybe not completely impossible”.
The banker said things will actually get easier from next year, when they are automatically sending information to tax authorities. “We will have to do less due diligence [on clients’ tax status],” he said. “We just send them the data.” Julius Baer chief executive Boris Collardi said Switzerland was a “little bit ahead of the curve” when it comes to information exchange but that this was “not a bad thing. It needed to be done eventually. Let’s get it over and done with.”
For now, Swiss banks are trying to downplay the implications of the probe. Analysts have warned that the risk to banks’ image affects not just Credit Suisse. In France, Swiss rival UBS faces a criminal trial after failing to agree a settlement with prosecutors over allegations it helped wealthy clients to evade tax authorities.
But other bankers say it is not putting off clients or doing too much damage to the reputations they have tried so hard to build back up.
Official Switzerland is being as supportive as it can. The attorney-general’s office recently expressed “astonishment” at the way the Dutch operation had been organised with the “deliberate exclusion of Switzerland”.
Financial regulator Mark Branson said automatic information exchange “essentially completes the process” of regularising accounts. But he warned that Switzerland’s image would continue to take knocks. “Those headlines will be with us until everyone has worked through the issues of the past and that will take some time — and was always to be expected,” Mr Branson told reporters.
Additional reporting by Jamie Smyth in Sydney
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