A Swiss bank account may no longer offer an ironclad protection against outside scrutiny. Switzerland’s government has agreed to an international pact to share information freely with nearly 60 other nations in rooting out tax evasion and the concealment of illicit funds; the deal must still be approved by the Swiss legislature, which could order a public referendum. Either way, it should be ratified: The agreement is an important safeguard for the global financial system, and could mark a turning point in the fight against tax evasion. With Switzerland, the world’s largest offshore wealth center, signing on to global standards, the full exchange of information would likely become commonplace throughout the banking world.
The secrecy that Swiss banks are so famous for started before World War II, partly to help victims of Nazi persecution shield their assets. Yet that same secrecy made Switzerland the banker of choice for kleptocratic dictators and organized criminals. To clean up its embarrassing image as a haven for ill-gotten gains, the country over the past decade has adopted anti-money-laundering laws that are among the toughest anywhere. The country routinely cooperates in international criminal cases and has taken major steps since Sept. 11, 2001, to track the financing of terrorism.
But on one issue Switzerland remained defiant: tax evasion by nonresidents. That stance became unsustainable, however, after the global financial crisis, as the public in the United States and elsewhere became increasingly aware of wealthy individuals using offshore bank accounts to avoid paying what they owe back home. American tax authorities pressed Swiss banks to hand over their US clients’ names. Switzerland faced a choice: accede to such pressure, or be seen as violating global financial standards.
Under the new agreement, the Swiss banking industry will lose a key competitive advantage. But as leading economic powers aggressively hunt down tax evaders, other havens such as the Cayman Islands, Bermuda, and Cyprus will likely take notice and follow suit. Since tax evasion cost the United States roughly $3 trillion from 2001 to 2010, that’s no small change.