It was just last week that the U.S. Justice Department declared an end to its long fight against Switzerland’s secretive banking sector.
“I’d like to thank the Swiss government for their cooperation,” U.S. Attorney General Loretta Lynch said. In a statement, she announced that the last of the big Swiss banks had paid its penance to the United States.
The final target was Hyposwiss Privatbank, a financial firm that has since fallen into bankruptcy, which agreed to pay a fine of $49.76 million. It was one of 80 banks that were caught up in the net and eventually settled under a voluntary disclosure program. U.S. authorities pulled in a total of $1.3 billion (€1.2 billion) in penalties through their aggressive crackdown, as the United States demanded Switzerland’s help to go after the accounts of tax evaders.
The U.S. Justice Department may have finished its operations against the big Swiss banks, but the hunt for smaller fish complicit in tax avoidance goes on in other countries, including Germany.
The state prosecutor in the German state of North Rhine-Westphalia is now going after dozens of banks suspected of complicity in tax avoidance.
“There is a real fear that after the United States and Germany, other countries like France will also hit upon the idea to impose fines on Swiss banks.”
In Germany, the Justice Ministry of the state of North Rhine-Westphalia has around 50 Swiss banks in their sights for complicity. Further west, in Belgium and France, the courts are moving against employees of Swiss powerhouse UBS. Even in the United States, authorities have reserved the right to press criminal charges. Swiss banks Julius Bär and Pictet, for example, are still waiting for their day of reckoning.
“There is a real fear that after the United States and Germany, other countries like France will also hit upon the idea to impose fines on Swiss banks,” the director of a private Swiss bank told Handelsblatt, though he didn’t want to be identified. It’s a view shared by Thomas Sutter, spokesman for the Swiss Bankers Association.
The department of justice in North Rhine-Westphalia has to some extent taken the U.S. crackdown as a model. Bankers are especially worked up about the fact that in both the negotiations with the U.S. Justice Department and with Cologne’s public prosecutor, the onus has been on banks to prove that customer funds were taxed. Normally it’s up to investigators to prove guilt.
Cologne has offered some leniency: “If a bank declares it’s willingness to cooperate in the investigation, that can make further inquiries unnecessary,” said Daniel Vollmert, spokesman for the Cologne public prosecutor’s office.
“This of course presupposes that the institution hands over credible information, including the value of transactions which customers carried out for the purpose of tax avoidance,” he said.
The U.S. Justice Department has not been so kind. The Attorney General has proceeded on the assumption that all funds were untaxed. Only if a bank can prove that monies have been taxed, or the institute can verify that it moved a U.S. customer to a voluntary declaration, will the corresponding monies be excluded from the penalty calculations.
“For that reason, all banks have taken extraordinary pains to move their U.S. customers to full disclosure,” one private banker told this newspaper.
Apparently the tactic has paid off, because on average banks have paid less than 3 percent of their U.S. funds in penalties. That seems like a small amount, because according to the voluntary disclosure program, fines range from 20 percent of the value of assets held in accounts opened before August 2008, to 50 percent for accounts opened after February 2009.
One lawyer told Handelsblatt that this means that once the DoJ has set a penalty, there’s no more wriggle-room.
In North Rhine-Westphalia, the process has been less mechanical, and on a thinner information basis. The United States received any and all information they needed from the Swiss banks, in part bcause they had the power to launch criminal proceedings that could have destroyed an institution. That’s a level of power that the German investigators don’t have.
“The circumstances of the tax evasion cases are not passed on,” said Jörg Schauf, a tax lawyer from the firm Flick, Gocke and Schaumburg.
“The findings of the public prosecutor are based primarily on data carriers, self-disclosure and if necessary, witness testimony,” he said.
According to financial circles, around 50 banks are under scrutiny by the German public prosecutors. The cases of bigger institutions, like UBS and Credit Suisse, have already been wrapped up. Now it’s the small to medium-sized financial houses that are feeling the heat. The first to reach a settlement was the Basel-based Basler Kantonalbank, or BKB. In May 2015, the BKB reached a settlement for more than €38.6 million ($41.8 million).
The fines have two components, a punishment part as well as the skimmed profits which were made with the untaxed customer funds. According to insider sources, investigators reckon with a 20 to 40 percent margin on revenue.
Due to a lack of hard data, investigators often have to make an educated guess: “So there’s considerable discretion in determining the final amount to be paid,” said Mr Schauf.
One banker, who did not want to be identified, said investigators named a sum of around €18 million as a “first benchmark…we couldn’t understand that at all!” he complained.
By his own calculations, the real profits in question are between two and three million francs (€1.8-€2.7 million).
“In the discussions, it’s up to the banks to show documentary evidence that the state prosecutors have placed too high a value on transactions involving untaxed monies,” Mr. Schauf said. The investigators work on the basis that all customers who didn’t send their bank statements back to Germany are withholding tax.
The bottom line is that although the U.S. program is very mechanical, it is also highly transparent. In North Rhine-Westphalia the calculations are less visible, and arguably allow more room for discussion with prosecutors. That could open the door to mutual back-scratching.
According to one banker, the biggest advantage of a settlement with the German investigators is that the bank and its employees have legal security. The United States, by contrast, reserves the right to sue employees, even after judgements in the Swiss bank process have been handed down.
Holger Alich is Handelsblatt’s correspondent based in Switzerland. To contact the author: firstname.lastname@example.org