Swiss Bank secrecy under scrutiny

[newsroom]

BERN, Switzerland – Switzerland is bracing for a monumental change in a tradition of banking secrecy that survived pressure from Nazi Germany, World War II and numerous other crises over the last 75 years.

It will have a hard time withstanding an American legal onslaught intact.

With the largest Swiss bank, UBS AG, in a showdown with Washington over wealthy American tax evaders, Switzerland's federal government has been dealt the unenviable task of avoiding sanctions abroad while gently burying the myths at home it has helped create about confidential banking.

Rudolf Merz, Switzerland's president and finance minister, was still taking a tough stance Thursday. "I cannot imagine how we could abolish banking secrecy," he told reporters. "It's part of the social idea, the mentality of our country. It's the protection of privacy."

But others, including Oswald Gruebel, a widely respected banker who came out of retirement last week to head UBS, are suggesting bank secrecy laws will have to be changed to ease the pressure being put on this small Alpine nation.

"It's questionable whether we can continue to hide tax evaders behind banking secrecy," Gruebel told the newspaper Finanz und Wirtschaft in an interview published last weekend.

On Wednesday, a U.S. Senate committee criticized UBS for evasive answers on about 50,000 American-held accounts Washington is interested in, and authorities in Switzerland's European neighbors are growing equally impatient.

A three-member panel will present options to the full government Friday on what to do about the demands.

The fight recalls the uproar in the 1990s over Jewish accounts left unclaimed after World War II. Switzerland failed initially to gauge mounting pressure from the U.S., and Swiss banks were forced into a $1.25 billion out-of-court settlement with the descendants of Holocaust survivors.

This time, the squabble is over how the Swiss assist foreign authorities investigating tax evasion. Switzerland differentiates between the crime of tax fraud and the minor offense of evasion, and providing assistance to foreign governments probing tax evasion is punishable by law.

Switzerland passed its banking secrecy laws in 1934 during a worldwide depression and under the threat of espionage by France and Germany, which aggressively courted Swiss bank employees to divulge the names and data of customers. Strict penalties were imposed for violating bank confidentiality. full story