The End of the Secret Swiss Bank Account:

In the world of International banking, two the most terrifying phrases to be uttered in a board room are “money laundering” and “terrorist financing”. This is especially so for Swiss banks who this month found themselves caught between a rock and a hard place with the American’s Foreign Account Tax Compliance Act (FATCA).

FATCA allows the American Internal Revenue Service (IRS) to retrieve account information from non-US financial institutions holding accounts for US persons. Several FATCA provisions in tandem with the US Tax Code (particularly Title 26, US Code Section 6103 (i)) effectively sanction the disclosure of tax information to any federal agency for use in virtually any matter over which the agency has jurisdiction.  This therefore extends beyond tax to include criminal and administrative matters for the purposes of combating terrorism, as well as illegal trafficking activities related to money laundering.

By taking certain steps, the IRS may share bank data it gets from foreign banks under FATCA with other US agencies

Through this mechanism, many US federal agencies are given powers to seek ex parte orders to obtain access to tax return information in proceedings related to terrorism. Cooperation with foreign jurisdictions could facilitate such actions, and some notable experts, such as Manuel Ammann, professor of banking law at the University of St Gallen in Switzerland, have spoken out in favor of such cooperation through legislation allowing banks to exchange confidential information on American clients.

Legal expert mulls possible Swiss bank fallout

Ammann reasons that legislation permitting Swiss banks to simultaneously avoid violating domestic secrecy laws as well as possible criminal prosecution in the US is the best solution.

Swiss parliamentary approval of a cabinet-backed bill currently tabled would avoid a situation where Swiss banks can’t or won’t cooperate with US authorities, which Ammann believes could potentially lead to an indictment from the American justice system.  In the alternative, if such a bill is not given parliamentary approval, banks that wish to cooperate with US demands would be in violation of domestic laws: an option which is being espoused as the lesser of two evils, even when such violations could conceivably lead to the revocation of a bank’s license.

Pressure to comply with FATCA exists even when a bank’s ties to the US are indirect; through partnerships with US institutions involved as custodians, or connected banks. Retaliation from the US for refusal to cooperate with FATCA could effectively cut off Swiss banks from the US financial system as partners of banks in violation of US laws cut ties in fear of association with institutions attracting US federal criticism.

By taking advantage of a system very dependent upon trust with international partners, FATCA may effectively lead to the end of the Swiss banking industry’s key characteristics: its reputation for secrecy.

Thanks for reading,

Ian Hull