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Switzerland to Germany: “We’re not Crooks!”

By Elizabeth Pond

"We are not crooks!" declared my dinner companion after we introduced ourselves at a banquet on a Mediterranean cruise on the storied Sea Cloud a few years back. There was no hint of badinage, only a preemptive defense of his amour-propre. He was a Swiss banker.

Inadvertently, my thoughts flew back then to Richard Nixon's almost verbatim denial as he resigned from the presidency. Inadvertently, my thoughts go back now to the decks of the four-masted ship as I follow the course of the extraordinary Swiss arrest warrant for three German tax investigators.

The charge is a violation of sacrosanct Swiss bank secrecy. Not only did the three pay €2.5 million ($3.3 million) to a young Credit Suisse employee in Switzerland for a disc full of data about Germans' anonymous bank accounts in his bank in 2010 (thereby reaping multiples of the payout in back taxes from said account holders). They also incited the mole to further theft by asking him to dig out specific follow-up information. The German Constitutional Court subsequently declared the purchase legal. But Swiss justice, putting a higher priority on bank confidentiality, did not look upon it kindly.

"Spies who shamelessly bought stolen data from bank traitors" was the image of the German trio presented by some Swiss media outlets. Necessary law enforcers against "tax-sinners," the Germans retorted. "Gotcha!," German tax inspectors on the overnight train from Zurich to Munich muttered as they rifled through suitcases of prosperous burghers and found here and there undeclared wads of €50,000—a pittance that would require 20 undetected round trips for a single millionaire to repatriate his untaxed bundle ahead of the looming legal crackdown.

All this was a month ago. Then the tax snoops vanished from the headlines as abruptly as they had appeared, and within days Berlin and Bern signed their dual-tax agreement after four years of haggling. Britain immediately claimed and got the same dispensation that Berlin had negotiated. Austria stood third in line.

The German-Swiss dual tax agreement would not only make today's cat-and-mouse games obsolete and presumably let the three accused Germans visit the Matterhorn without fear of ending up behind bars. It would resolve decades-old tax disputes between Switzerland and its largest trading partner, Germany. It would set past unpaid German income tax rates from 21 to 41 percent of the hidden capital, depending on the amount and age of the Swiss accounts. It would give German tax collectors at least an initial 10 billion euros in back taxes, which would come in handy for bailing out Greece in the never-ending euro crisis. It would discourage backsliding by German tax evaders, since from next January on, they would be docked less if they declare their holdings to their domestic tax office than if they maintain anonymity and accept new Swiss taxes on their Swiss accounts. And if, in consequence, Swiss banks lose some of their estimated 2.85 trillion Swiss francs in foreign deposits, well, what's a trillion dollars more or less in the grand scheme of things?

Wise men differed as to whether the Swiss threat to arrest the three taxmen from Germany's most populous state, North Rhine-Westphalia, was just a clever Swiss ruse to hasten signing of this pact.

Swiss observers tended to say yes, except for those who saw little but a political ploy by friends or perhaps foes of Swiss President and Finance Minister Eveline Widmer-Schlumpf, a one-time member of the Swiss People's Party who had, with the backing of three parties other than her own, been elected to the Federal Council as an alternative to her party's demagogic nationalist leader Christoph Blocher four years ago—and had been swiftly excommunicated by Blocher.

German conservatives tended to play down the arrest threat and pointed instead to a political ploy by the North Rhine-Westphalia Social Democrats who, in the battle to retain their state governorship in the upcoming May 13 election, retracted their previous assent to the bilateral deal while branding the Swiss arrest warrants "monstrous."

Politicians differed too on the broader utility of the dual-tax agreement. Greens joined Social Democrats in saying that tax evaders would be allowed to clean up their hidden riches and reputations at far too cheap a price—a roughly 25 percent tax on previously undeclared assets. The conservatives who run the federal German government and negotiated the Swiss deal—and former federal Social Democratic Finance Minister Peer Steinbrück, before his party changed its mind—dismissed such sniping by saying it's far better to tax 25 percent of X than 42 percent of nothing.

If they want to, the Social Democrats could prevent ratification of the deal in Germany's upper house, which represents the country's provincial governments. There are hints, however, that they will again soften their view once the North Rhine-Westphalia vote is over.

The sober German financial daily Handelsblatt takes a positive view and even attributes a penitent intent by the Swiss to forfeit at long last their traditional bolthole for dodgy deposits from sheiks, dictators, and mafia godfathers. "A refuge for hot money—precisely this is what Switzerland no longer wants to be. Precisely for this reason Finance Minister Widmer-Schlumpf is now campaigning for the bilateral pact the [German Social Democratic Party] rejects," comments the newspaper.

The equally sober Die Zeit concurs that Switzerland has been trying hard to go legitimate in the past two years. "The Swiss have already done a lot to be counted in the ranks of the decent. They have one of the most stringent anti-laundering laws in the world," the German weekly writes. Furthermore, "nowhere in the world were such strict regulatory measures enacted after the financial crisis." The paper chides by contrast such unreformed tax havens as Delaware, Singapore, the Channel Islands, Luxembourg, and Austria.

Circumstantial evidence would support this thesis. Last December a Swiss court fined the young Credit Suisse mole only 3,500 Swiss francs ($3,826) and sentenced him conditionally to two years in jail for his transgressions. It would be hard to find such cases of Swiss leniency toward junior bank snitches in any previous era.

If Handelsblatt and Die Zeit have called it correctly; then my banker friend on the Sea Cloud was right after all in absolving his Swiss guild from delinquency. He was just premature.



Elizabeth Pond lives in Berlin and does not have a Swiss bank account.

[Picture courtesy of Pelegon]

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