Monday, May 26, 2008

Switzerland: attacking our democracies

The headline above this blog is drawn from a recent story from Germany's Der Spiegel, investigating the arrest of an employee of the Swiss banking giant UBS, which American authorities are investigating for allegedly helping clients to evade taxes. The article reports on the indictment of his colleagues:

"According to the indictment, a fortune of about $200 million (€129 million) was sheltered from tax authorities "in secret bank accounts in Switzerland and Liechtenstein." Prosecutors allege that Staggl's attorney in Gibraltar even helped Olenicoff hide the details of his ownership of a '147-foot yacht.'"


The story is worth reading. We'd like to highlight a couple of points from it. First, the offshore world places institutions that navigate these murky waters in conflicted positions:

"UBS is walking a thin line. On the one hand, it has to show a willingness to cooperate. On the other, it is trying to protect its customers' banking secrets," says Robert Heim, an attorney in New York and a former investigator with the US Securities and Exchange Commission. . . .He expects that their testimony will soon lead to further indictments and arrests. "This is a very bad development for UBS," says Heim.

This is analagous to the strange, conflicted positions that companies find themselves in, with responsibilities to shareholders that suggest they should minimise taxes as far as possible, and responsibilities to the wider democratic societies in which they are embedded and on which they depend - with a responsibility to pay their taxes in full. This issue of (tax) has to be next on the corporate social responsibility agenda - and it is coming. The aggressive tax avoiders won't like it - but those that take a responsible approach to taxation should welcome it.

While the UBS example above is about secrecy and crime (we recently blogged about this, looking at an interesting legal case involving the whistleblower Rudolf Elmer); the following paragraph about shareholders and society is typically about legal but often questionable minimisation of tax - a large grey area between the fully legal and the criminal. In both cases, however, those that take the most aggressive action - those providing criminal tax evasion services and those avoiding tax most aggressively - have in these years of deregulation and feeble government intervention been those that have grown the richest, and the most powerful, the fastest. It is a pernicious race-to-the-bottom dynamic that has got so far out of hand as to discredit markets themselves. Now that governments are starting to step in more actively in these areas, we will start to have a chance to disrupt these harmful dynamics and allow the more reputable actors to come to the fore. International co-operation is required here, as we have long been arguing.

There is another part of this Der Spiegel story that is well worth noting about Swiss bankers, which French Finance Minister Eric Woerth rightly described as Alpine "tax robbers," and that is a quote by Konrad Hummler, a partner in Wegelin & Co., Switzerland's oldest private bank. German tax evasion, he argues, is a legitimate defense by citizens attempting to

"partially escape the current grasp of the administrators of a disastrous social welfare state and its fiscal policies. . . . "Swiss-style saving outside the system" is something to which not only the wealthy, but also productive small and mid-sized businesses are entitled. "These people must be protected," says Hummler.

This provides a perfect example of how tax havens justify their intervention into democratic processes. Such intervention is both criminal and anti-democratic. We should simply not accept this aggression from this Alpine banking power. It is high time for Europe, and the world, to act decisively and stop this.

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