Siphoned off money: How to get Swiss banks to cooperate

Dhaka,  Sun,  24 September 2017
Published : 02 Aug 2017, 21:13:00

Siphoned off money: How to get Swiss banks to cooperate

M. S. Siddiqui
About US$1-$1.6 trillion dollar flows out of the developing countries illicitly every year as against US$ 135 billion they receive annually. It means, the developing countries pay back US$10 illegally against every dollar of aid provided by the developed countries. 

A UK-based research organisation, "Tax Justice Network" revealed a report on Financial Secrecy Index (FSI)-2015, published on November 2, 2015. 

Most of the siphoned money is deposited in the banks of Switzerland, the number one tax haven in the world. Recently Singapore, Malaysia, Philippines and Sri Lanka are emerging as tax havens in Asia.  

The Canadian Revenue Agency has defined tax havens as jurisdictions with: (1) no tax, or very low rates of taxation; (2) strict bank secrecy provisions; (3) a lack of transparency in the operation of tax system, and (4) a lack of effective exchange of information with other countries.

Tax havens also help their users to: (1) bypass financial regulations and regulatory watchdogs; (2) hide from criminal laws and liabilities launder money earned illegally through drug trafficking or organised crime.

Swiss banks are well-known for their secrecy. They have been observing a code of secrecy regarding balance and account holders for over 300 years. The parliament of the then Geneva made regulations in 1713 to keep registers of bank clients but prohibited the banks to share the information with anyone except the clients themselves unless the council approved any disclosure. The secrecy in Swiss banking was covered by the civil and commercial codes. This meant that any account holder could seek damages against any bank or banker that did not maintain his/her confidentiality. In 1934, Switzerland passed the Swiss Federal Banking Act which made the disclosure of a client's identity or information a criminal offence. Thus Swiss secrecy became legal and stronger. 

But a section of the population was opposed to the law and alleged that it was against tax justice. In 1984, a referendum was held on the issue and interestingly, 73 per cent of the people voted in favour of bank secrecy. 

The Organisation for Economic Co-operation and Development (OECD), European Union and G20 group have, in the meanwhile, made some positive moves. OECD has established a threshold of bilateral tax-information exchange agreements. It has placed about twelve countries on white list who have "substantially implemented" internationally agreed tax standards. Some countries are placed in "grey list" for opaque policy of tax and considered as fostering tax evasion through insufficient financial openness. Switzerland and some other countries are still in grey list. 

The OECD and the European Union (EU) continue to promote improved transparency on tax information and substantial progress has been made in the past few years. 

The initiative of the EU has encouraged major improvements in tax-related transparency. The EU requires members to exchange tax information using automatic systems from the end of 2011.

The OECD sponsored a Multilateral Competent Authority Agreement for the Common Reporting Standard (CRS MCAA). Any country can ratify it and notify to the authority. The notifications to be filed by a country include (i) a confirmation that domestic Common Reporting Standard (CRS) legislation is in place and the jurisdiction may exchange on a reciprocal or non-reciprocal basis, (ii) a specification of the transmission and encryption methods, (iii) a specification of the data protection requirements to be met in relation to information exchanged by the jurisdiction, (iv) a confirmation that the jurisdiction has appropriate confidentiality and data safeguards in place and (v) a list of its intended exchange partner jurisdictions under the CRS MCAA. A particular bilateral relationship under the CRS MCAA becomes effective only if both jurisdictions have the Convention in effect, have filed the required notifications and have listed each other. Activated relationships can be consulted here.

Switzerland has ratified the OECD-sponsored multilateral Convention on Mutual Administrative Assistance in Tax Matters. This ratification affirms Switzerland's commitment to greater tax transparency and marks another important step in implementing the Standard for Automatic Exchange of Financial Account Information in Tax Matters developed by the OECD and G20 countries as well as the automatic exchange of Country-by-Country Reports under the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. The Convention entered into force for Switzerland on  January 01, 2017 along with 104 countries and jurisdictions participating in the Convention. The signatories may alternatively rely on a bilateral agreement, such as a double tax treaty or a tax information exchange agreement. 

In 2009 the USA initiated renewed efforts to close taxation loopholes and identify and prosecute tax evaders using offshore accounts. Switzerland has signed with the US the Foreign Account Tax Compliance Act (FATCA) agreement and enforced it in 2014. FATCA was enacted in 2010 by US Congress to target non-compliance by US taxpayers using foreign accounts. FATCA requires foreign financial institutions (FFIs) to report to the Internal Revenue Service (IRS) of the US information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest. About 131 countries have signed this agreement with the USA. The signatory countries are required to identify if any US citizen has any account and report to the US treasury department to verify the tax account. 

As a response to global concerns and pressure about the role of Switzerland as a 'tax haven', the Swiss government has stated that it does not want to see untaxed assets in Switzerland and launched a new 'White Money Strategy' for this purpose and come out of the 'grey list'.

 The Bangladesh government has requested the Swiss authorities for information about Bangladeshi account holders in Swiss banks but there is no response yet. The Swiss authorities are by no way bound to share any information with Bangladesh since this is prohibited under Swiss law.  To get such information Bangladesh needs to ratify the CRS MCAA. 

India and Pakistan have ratified the multilateral Convention on Mutual Administrative Assistance in Tax Matters and signed agreement with Switzerland for the Automatic Exchange of Financial Account Information (MCAA).The have already signed co-operation agreement under the convention. Bangladesh has not yet ratified the convention.

Bangladesh has a bilateral double taxation avoidance treaty (DTAT) with the Switzerland only to avoid double taxation. It should ratify the multilateral Convention on Mutual Administrative Assistance in Tax Matters and sign the Automatic Exchange of Financial Account Information (MCAA) with Switzerland. It should also sign Foreign Account Tax Compliance Act (FATCA) agreement with  the USA. It should amend the law and rule to support the protocol and agreements.

The Bangladeshi account holders in Swiss banks are safe until the countryfollows the due process like other countries. 

The writer is a legal economist.

Editor : A.H.M Moazzem Hossain
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