SWISS BANKING SECRECY UNDER FIRE!!!

A cold war on banking secrecy is turning hot. Tax evasion costs governments $3.1 trillion annually, according to Tax Justice Network, a lobby group. Swiss law entrenched bank secrecy in 1934, making it a criminal offence to reveal a client's identity. This has created the world's biggest tax haven: Switzerland's banks house around $2.1 trillion, or 27%, of offshore wealth.

America has taken the toughest stance. It wants 11 Swiss banks to hand over their American clients' names. On  4 January 2013, Wegelin & Co  the oldest Swiss bank has ceased to exist and has agreed to pay $ 57.8 m for aiding tax evasion. In 2009 UBS agreed to pay a $780m fine also for aiding tax evasion and turned over data on more than 4,400 accounts. Several more banks have handed over client details but encrypted the data pending a final deal. Other banks such as Credit Suisse, Julius Baer are also under scrutiny by the U.S. tax authorities. Starting in 2013, the Foreign Account Tax Compliance Act (FATCA) will put the burden on foreign financial institutions to look for and report American account-holders or face a 30% withholding tax on American investments. Though FATCA may raise $10 billion over ten years, the costs for the foreign banks that have to implement it could be a lot more.

Germany and Britain last year both negotiated bilateral deals with Switzerland whereby offshore-account holders must pay a lump sum to make up for unpaid taxes, plus an annual withholding tax. Switzerland then collects the money and passes it along. But the names stay anonymous. The European Commission says both deals may be illegal under the EU savings-tax directive of 2005, because they let offshore-account holders pay a lower rate of withholding tax without having to reveal their identities and both Britain and Germany have quietly agreed to renegotiate their bilateral deals. The European Commission’s top priority” is to toughen the EU savings-tax directive further.

The big goal is automatic information exchange between countries' fiscal authorities. This would spell the end of Swiss banking secrecy and be a fatal blow to other tax havens. For now, the standard imposed by the Organisation for Economic Co-operation and Development,  is “information on request”. Switzerland agreed to this only when threatened with blacklisting. A government can ask for data about specific offenders; but no fishing expeditions are allowed, and the number of requests permitted each year is capped.

The European Commission is ready to take a harder line with Switzerland this time around and will use “sticks”, not just “carrots”. One such weapon could be to restrict Swiss access to EU markets.

Even in financier-friendly Switzerland, the economic crisis has dented bankers' popularity, as have public revelations about money laundering and shady conduct.

The uncertainty is bad for business. At the very least, banks are going to have to write some hefty cheques and the Swiss financial sector may lose $51 billion in assets and $1.2 billion in revenues as a result of just the German and British deals. And those were the lenient ones.