Tuesday, 19 November 2013

Debunking the myths around Swiss bank secrecy

It is widely thought that Swiss bank secrecy was established in the 1930s, in order to enable Jews and other victims of the Nazis to hide their money from the regime. In his fascinating 2011 book Treasure Islands, Nicholas Shaxson exposes this hypothesis as a myth, and gives an insight into the vast offshore empire used by companies and the super-rich to hide their money from the taxman.

Swiss bank secrecy is far more than 80 years old - it dates back centuries. In the 18th century, the Catholic monarchy of France borrowed money from Swiss banks - secrecy was crucial, as it would have been a scandal if it had been revealed that the monarchy was taking money from Protestant moneylenders. Bank secrecy and neutrality were the two crucial elements to Switzerland's international policy for centuries.

Whenever dirty money is traced to Switzerland and they comes under fire, Swiss banks always roll out the same World War Two story: if it had not been for Swiss bank secrecy, the Jews would have had nowhere to hide their money from the Nazis. In reality, it took decades after WWII for Swiss banks to release assets held by the victims.

The first investigation after WWII conducted by the Swiss Bankers' Association identified a miserly 482 000 francs held by victims of the Nazi regime. Thousands of relatives of account holders were turned away by Swiss banks demanding to see death certificates, something which concentration camps obviously didn't provide.

Further assets were released by Swiss banks in dribs and drabs, but it took until 1998 for a full pay out of $1.25 billion. So much for Swiss banks being the noble assistants of the victims of the Holocaust.

But beyond this, justifying secrecy jurisdictions on the basis that they enable people to hide their hard earned money from tyrannical regimes is absurd. As Shaxson points out, "Who uses secrecy jurisdictions to protect their money and bolster their positions? The human rights activist screaming in the torturers' dungeon? The brave investigative journalist?...Or the brutal kleptocratic tyrant oppressing them all? We all know the answer."

In 2007, Swiss banks held $3.1 trillion in offshore assets. But this is only a fraction of the money kept and transferred through offshore havens. Bank secrecy and tax havens have enabled dictators such Mubarak, Mobutu and Abacha to siphon billions of dollars from the coffers of their own treasuries. While organisations such as Transparency International condemn governments in developing countries for their corruption, it is partly the banking laws and secrecy in countries such as Switzerland which facilitate it.

An in-depth discussion of the arguments against tax havens can be found here. One of Shaxson's key points is that while people generally think of Switzerland and Caribbean islands such as the Caymans when they hear "tax haven", many offshore havens are in fact under American or British jurisdiction.

We can only speculate at how much money is hidden in tax havens - in 2012 a study arrived at an estimate of $21 trillion and $32 trillion. While it is depressing that such a vast web of international tax evasion and corruption exists, the still small but increasing interest, awareness and media attention given to this issue is encouraging.

Finally, the obscene amount of wealth hidden offshore makes a mockery of the argument for austerity. It shows that cuts in public services and living standards for the majority are not inevitable. Just think how much progress could be made in improving school and hospital facilities, reviving the economy and combating climate change if some of those trillions were taxed at a reasonable rate.

1 comment:

  1. And, in comparison, an average of £1bn is lost due to benefit fraud in the UK each year (according to FullFact), which is less than 1% of the total welfare budget. But what do the papers choose to focus on? The scapegoat of the chav in a mansion with fifteen kids (preferably an immigrant, too) is a much sexier story, unfortunately, even though it is vastly less representative of the actual economic situation.