Secret Swiss Bank Accounts Expose Switzerland

Turn your account info in to the IRS or your old pal (wink, nod) at the Swiss bank office will turn you in. The Swiss government today concluded a long drawn-out legislative and legal process, finally allowing and enabling Swiss banks to turn over the names of account holders to international authorities investigating tax evasion.

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Secret Swiss Bank Accounts Expose Switzerland

Your favorite secret Swiss banker is turning you in, and if you have ignored the IRS' kind offer to disclose your account information ahead of time, you might find yourself in prison soon. UBS (NYSE: UBS) cut a deal with the US government some time back, through which it agreed to a retribution payment of $780 million to cover its enabling of American tax fraud via Switzerland's secret bank accounts. UBS representatives faced criminal prosecution if they did not agree to talk names, and UBS itself had to weigh the potential loss of its US business, which hung in the balance. In the end, the Swiss sold you out - all you who were using Swiss banks to hide assets from your wives and wealth from your governments.

After the agreement though, the proud Swiss, a nation that has attracted so much banking wealth due to the secrecy of its system, determined the deal illegal. A Swiss court ruled that it violated Swiss law. Thus, the law would have to be altered for the deal to be consummated. Certain Swiss politicians did not like the idea of their nation possibly falling into the cross hairs of the United States, and so took up political debate on the topic. Today's action basically averted a public referendum that would have led Switzerland to cross the line the Americans drew in the sand.

When the deal was first penciled in February of 2009, we wrote "Yesterday's news that UBS would settle with U.S. tax authorities, and in so doing, provide information on U.S. investor funds kept in secret accounts, has effectively destroyed significant value in Swiss bank firms. The secrecy distinction served as a differentiators, providing Swiss banks with a means of drawing excess deposits from rival institutions across borders. That's not to mention the aristocratic appeal of Swiss banking, which mostly resulted from its exclusivity and secrecy."

In March 2009, we added, "Call me crazy, but this looks like a mistake to me! The Swiss have decided to play by the rules, adopting OECD standards on tax evasion. They will offer specific information to tax authorities in cases where convincing evidence is available. Clearly though, that is going to be somebody's opinion to form. The Swiss believe that not sharing information in this limited manner would effectively blacklist them at the OECD and maybe more organizations, and they expect that would threaten their banking system and economy. A great portion of the world's capital is hidden away in Swiss accounts for a reason though, anonymity. I would trade blacklisting to keep that, as it is the elite and exclusive stigma that attracts large depositors, and in some (read many) cases dirty money. I think the Swiss will see a loss of funds now, though many other once discrete banking options are lining up to play by the rules as well. From an idealist's and also honest man's perspective, and not a businessman's, I like the Swiss decision. I just think it's bad business is all, however ironic that may be."

A ton of money already bled out of the Swiss banks ahead of the pending account disclosures. Capital found its way to other similarly secret markets like Luxembourg, Singapore, Cyprus and Dubai. Still, some money surely stuck around, expecting the Swiss government to preserve its banking market appeal. While Switzerland was not the only game in town, it was the one westerners (and easterners for that matter) were most comfortable leaving their billions with.

Switzerland is not a part of the European Union, nor does it use the euro single currency, so we might not see an obvious reason to attribute EU pressure to the decision. The risk of losing the American market is catalyst enough, but recall Germany and France took strong stances against Swiss banking policy as well. Once tax income became scarcer, the Germans wanted their rightful share of monies hidden in Swiss accounts. Losing Europe and the US made the Swiss decision easier, though still painful. I would not be investing in Switzerland or Swiss firms today. Swiss stocks inched higher on the salvation of western business, with both UBS (NYSE: UBS) and Credit Suisse (NYSE: CS) fractionally up, but over the long-term, this hurts the Swiss economy in my view.



Article should also interest investors in Deutsche Bank (NYSE: DB), Banco Santander SA (NYSE: STD), IberiaBank (Nasdaq: IBKC), Barclays (NYSE: BCS), Mitsubishi UFJ Financial (NYSE: MTU), Itau Unibanco Holding (Nasdaq: ITUB), Lloyd's Banking Group (NYSE: LYG), Mizuho Financial (NYSE: MFG), Banco Santander- Chile (NYSE: SAN), Citigroup (NYSE: C), National Bank of Greece (NYSE: NBG), Allied Irish Bank (NYSE: AIB), Credicorp (NYSE: BAP), Westpac Banking (NYSE: WBK), Grupo Financiero Galicia (Nasdaq: GGAL), Banco Latinamericano de Comer (NYSE: BLX), J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), NYSE: FXF, NYSE: EWL, The Swiss Helvetia Fund (NYSE: SWZ), Nasdaq: XSWZX.

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