Offshore centers seek to solve bank secrecy riddle

15. February. 2010

ZURICH - European offshore centers are seeking ways to ward off relentless foreign pressure on bank secrecy that is threatening their role as financial hubs, but appeared after talks in Luxembourg to lack a concrete strategy.

Swiss Finance Minister Hans-Rudolf Merz met ministers from Luxembourg and Austria, the only two European Union states that still retain bank secrecy, and the prime minister of formerly black-listed tax haven Liechtenstein during closed-door talks in the heavily-guarded castle of Senningen.

They were joined for the first time by German Finance Minister Wolfgang Schaeuble, whose determination to hunt down tax cheats even by purchasing stolen data has rattled the multi-trillion dollar offshore banking industry.

"The meeting was definitely a step in the right direction," a person familiar with the talks told Reuters. "But there were no concrete political results," the person said as ministers sat for a dinner of salmon and beef after hours-long discussions.

A spokesman for Luxembourg minister Luc Frieden, who hosted the meeting, declined to comment on the talks.

A Swiss finance ministry spokeswoman said the atmosphere had been friendly despite recent tensions between Switzerland and Germany over Berlin's decision to pursue a stolen CD-rom containing data of Swiss bank clients.

European offshore centers agreed last March to relax their strict bank secrecy laws and help foreign tax authorities to hunt down tax evaders to avoid appearing on an international black list drafted by the Organization for Economic Cooperation and Development that was backed by the G20.

Switzerland, the main target of an international crackdown against tax dodgers, suffered at the same time a major blow as it emerged that its banking flagship UBS (UBSN.VX)(UBS.N) had helped rich Americans to hide money in secret Swiss accounts.

But despite their concessions, offshore centers continue to face pressure to open up and allow cash-strapped nations to replenish their tax coffers after the financial crisis.

NO WAY BACK

Switzerland, which manages an estimated $1.8 trillion of foreign wealth and is the main target of attacks by countries such as the United States and Germany, will hold a government meeting on February 24 to discuss its future strategy.

Its largest wealth manager UBS has put at 140 billion Swiss francs ($131 billion) its estimated share of potentially untaxed money held by clients from major EU countries. Credit Suisse (CSGN.VX) said this was around 100 billion francs for the bank.

The Swiss banking lobby has suggested expanding an anonymous withholding tax system on clients' earnings to guard privacy while addressing foreign countries' tax-collecting needs.

But Swiss media said Sunday the government, divided until a few days ago on how to fend off foreign pressures, may seek to secure a sufficiently long transition period so to allow tax cheats to come clean or leave the country.

This strategy is in line with the approach so far followed by Liechtenstein, an opaque principality that made a U-turn last year to avoid the collapse of tis financial services industry.

Switzerland agreed in March to drop an artificial distinction between serious tax fraud and minor tax evasion offences, thus weakening its centuries-long secrecy laws.

But senior Swiss officials have expressed concern that Switzerland could lose access to the vast EU financial market place if it does not align to best tax cooperation practices.

While 62 percent of Swiss oppose the abolition of bank secrecy, a poll carried out by two Swiss newspapers showed on Sunday, the mood in the country is changing.

According to the poll, 67 percent of Swiss favor helping foreign countries chase tax evaders in Switzerland and 55 percent would do away with the distinction between tax evasion and tax fraud still in force for Swiss residents.

Meanwhile Luxembourg, whose banking secrecy laws have help it become Europe's biggest funds center, is in the line of fire at EU level because the embracing of so-called OECD tax standards by Switzerland and by other offshore centers forces it to share tax data with other EU nations given previous EU agreements.

The same would be true for Austria, also an EU member.

"There has to be a negotiated solution to this issue and you only get that if you start talking with all the interested parties," the person familiar with the talks said.
[Reuters]