Wednesday, September 02, 2009

Switzerland and tax evasion: more number crunching

Having just blogged estimates from our friend Konrad Hummler, Andreas Missbach of the Berne Declaration provides plenty more information from Switzerland on the extent of potential tax evasion. Here is the text:

Last year Berne Declaration produced an estimate on the amount of black, tax evaded money in Switzerland(now translated into english for the first time). Switzerland enjoys a worldwide dominant position in offshore private banking. Roughly one-third of cross-border invested private wealth is managed in Switzerland.[1]

There are no exact numbers for foreign private wealth invested in Switzerland. The Swiss National Bank (2007) identifies securities in private accounts (1109 billion Swiss francs). In addition there are obligations from fiduciary transactions that also involve foreign private clients (364 billion francs). From the remaining obligations involving foreign clients (725 billion francs), a large part may also involve private persons, resulting in a total of 2198 billion Swiss Francs.[2]

However, taking estimates of the extent of offshore private banking – wealth management outside the country of origin and Switzerland’s suggested market share of one-third – as a starting point, this produces higher values than the 2198 billion from the National Bank. This is because a portion of foreign private wealth does not appear as such in the bank’s statistics. For example, domiciled companies are treated as domestic clients.

The World Wealth Report from Merrill Lynch/Capgemini from 1998 estimated the share of offshore-held assets from HNWIs to be one-third.[3] This share is also used in more recent estimates.[4] According to the 2008 World Wealth Report, the wealth of the HNWIs amounts to US$ 40.7 trillion,[5] a third of which (US$ 13.5 trillion) is managed offshore. A third of that, representing Switzerland’s global market share of offshore private banking, comes to US$ 4.5 trillion or 5 trillion Swiss francs.

Another consulting firm, the Boston Consulting Group, estimated the offshore private banking market in the narrower sense to be US$ 7.3 trillion. Again one third of that sum for the market share of Switzerland leads to the figure of 2.7 trillion Swiss francs.

In light of these calculations, we estimated foreign private wealth, managed in Switzerland, to amount to between 2500 and 4000 billion Swiss francs. A few weeks after we had published that figures, the Swiss Bankers Association came forward with a figure (without naming sources) of 2150 billion Swiss francs.

How Much is Illicit?

A report from a French parliamentary delegation in 2001 (the Montebourg Report) estimates the share of untaxed wealth, citing Geneva-based banking circles, to be 90 percent; Deutsche Bank estimates 70 percent.[6] Swiss sources on this issue are hard to come by. The Swiss financial newspaper Cash estimates the share to be between 30 and 80 percent. Konrad Hummler, partner of the St. Gallen-based private bank Wegelin, is one of the few voices in the industry who speaks openly: “The large majority of foreign investors with money placed in Switzerland evade taxes.”[7] Recently he lowered his estimate to 30 percent.

30 to 90 percent of 2.15 to 4 trillion francs results in a plausible range of 645 to 3600 billion francs for the amount of tax evaded black money placed in Switzerland. Based on similar calculations, Cash estimated the amount of German capital placed in Switzerland to evade taxes in 2006 to be between 400 and 800 billion francs.[8]

And finally, how do the banks benefit? Based on conservative estimates of illicit funds (1115 to 1416 billion francs), Cash estimated the total profit for 2004 from the business of aiding tax evasion to be 11 to 12 billion francs, or roughly 10 percent.[9] Based on our current calculations, this would result in a total profit of up to 36 billion Swiss francs.

[1] According to the Swiss Bankers Association it is between 30 and 40 percent. From: Ulrich Thielemann, Grundsätze fairen Steuerwettbewerbs – Ein wirtschaftsethisches Plädoyer für einen Steuerleistungswettbewerb, Appeared in: Britzelmaier, B./et al. (Hrsg.), Regulierung oder Deregulierung der Finanzmärkte, Heidelberg, 2002, pp. 113-132.

[2] Schweizerische Nationalbank, Die Banken in der Schweiz, 2007

[3] From: Tax Justice Network, Tax us if you can: the true story of a global failure, 2006, p.10.

[4] The Price of Offshore, Briefing Paper by the Tax Justice Network, 2005,

[5] Capgemini, Merrill Lynch, World Wealth Report, 2007.

[6] Financial Times, 24. April 2003

[7] Cash, 1.4.2004, p. 7.

[8] Cash, 9.11.2006, p.3.

[9] Cash, 1.4.2004, p. 6.


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