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European tax havens make concessions on bank secrecy

  Switzerland, Austria and Luxembourg offered to relax strict bank secrecy in some tax evasion cases on Friday in a response to a global crackdown on tax havens that is rattling the offshore banking industry.

The three countries made the concessions ahead of a meeting starting on Friday of finance ministers from the G20 group developed and emerging countries due to discuss tax havens, and after similar moves by Andorra and Liechtenstein on Thursday.

All were among the names handed to G20 this week by the Organization for Economic Cooperation and Development (OECD), which polices a blacklist of uncooperative tax havens.

Switzerland, Austria and Luxembourg said on Friday they would abide by OECD rules by cooperating on sharing information about foreign savers with other countries on a case-by-case basis, but not automatically, as many countries want.

“The decision will permit the exchange of information with other countries in individual cases where a specific and justified request has been made,” the Swiss government said.

Critically, Switzerland will now cooperate in cases of suspected tax evasion, at least once double taxation agreements are renegotiated with other countries, which could take time. It also said it could seek an amnesty for existing clients.

Previously, the world’s biggest offshore centre would only cooperate with foreign authorities when they could prove outright tax fraud, which has hindered US access to client data of its troubled top bank UBS in a tax probe.

Swiss Finance Minister Hans-Rudolf Merz, who also holds the rotating presidency, said Switzerland was acting now because being put on a blacklist and possibly resulting in sanctions would have hurt the country’s economy.

The OECD blacklist currently only includes Liechtenstein, Andorra and Monaco, but France and Germany have been pushing for others, including Switzerland, to be added.

FINANCIAL SYSTEM CLEAN UP

Prime Minister Gordon Brown, who is chairing a G20 summit in April, Said he hoped this was the beginning of the end for tax havens: “The G20 summit in London next month is an opportunity for global agreement on the further actions we need to take to clean up the global financial system.”

The tax debate is crucial for the wealth management industry, which manages $7 trillion of assets out of offshore centers around the globe, of which about $2 trillion is held in Switzerland and about $1 trillion in Luxembourg. A further $1.7 billion is held in Britain, the Channel Islands and Ireland.

Finance Minister Merz said it was hard to say whether Friday’s moves would prompt an outflow of money. “Even though the bank secrecy still remains, this is the moment of truth especially for Swiss private asset managers and private banks,” said analyst Nicholas Michellod at Celent.

“In the coming months we will know if their self-proclaimed outstanding expertise in financial advisory services is really a competitive differentiator and whether it can valuably help them keep assets under management at their current levels.”

However, Anthony Sabino, a law and business professor at St. John’s University, said Switzerland was not moving that far and was only making concessions because UBS was in such trouble: “In a few years, once the Swiss banking system has recovered, it’s back to business as usual.”

“NO FISHING EXPEDITIONS”

All three countries insisted that the move would not lead to “fishing expeditions” by other states for client data and said their banking secrecy rules would be otherwise upheld. “It is not an open door policy. It is an easing of access to information in respect to tax crime,” Minister Merz said.

Switzerland has accused the US of pursuing a “fishing expedition” to try to get details of 52,000 UBS clients in a civil case. The Swiss government said separately on Friday it would instruct a US law firm to defend the country’s position in the civil case against UBS.

The right-wing Swiss People’s Party said the government had betrayed citizens and bank customers: “With today’s decision the government is sacrificing a centuries-old principle of protecting citizens,” the party said in a statement.

Recent Swiss opinion polls show support is eroding for strict banking secrecy. “I wouldn’t scrap bank secrecy, but it needs to be made more permeable,” Isabel Gomez, a 30-year-old project manager, said in heart of the banking district. “From a certain level of assets, tax evasion really is fraud.”

The European Commission has proposed that all EU states must give details about accounts upon request. EU tax measures require unanimity and Luxembourg signaled a willingness to wield its veto. The Commission gave a guarded welcome to Friday’s moves. Luxembourg prefers the OECD framework to the EU proposal. (Reuters)