Nov 29 2012

Logic falls apart in Switzerland’s “Trust Us” White Money Strategy

Posted by: Nick Shaxson in: Thoughts

Switzerland, now recognising that its poisonous “Rubik” spoiler strategy to protect financial secrecy is dying, has rapidly swiveled its position, and its politicians and bankers are now pushing hard for what is being calling a “White Money” (Weissgeld) strategy to try and persuade other countries to go easy on the secrecy that it provides. The clear and regular message now is ‘don’t worry about our secrecy: we’re going to take care of this ourselves.’ Trust us.

Now who could argue against a “White Money” strategy for Swiss banks? Not me, certainly. Unless, of course, that label is a fig leaf: a dose of reassuring Alpine spin layered over a world of business as usual.

So which is it? Alpine spin, or real change?

Start with this headline from a Swiss online newspaper, which reflects the thrust of a number of articles currently out there. Tax evaders become pariahs for Credit Suisse. The mighty Swiss bank is going to be turning away tax evaders from its doors, apparently:

Credit Suisse does not intend to allow tax evaders to remain on as clients, he stressed. If potential clients refuse to report their assets to the tax authorities in their countries, “the bank will clearly tell them that it does not want their business,” Rohner said, adding that the bank would also ask existing clients to leave if they did not declare their assets.

It sounds good, but consider the first problem. What happens when the “client” is, say, a Liechtenstein foundation or a (more Anglo-Saxon-style) discretionary trust? Under Swiss rules, there is literally no beneficial owner at all for these structures. Germans who stash money in these things — which are bread and butter structures for the tax evasion industry — place themselves firmly outside the scope of legislation that is supposed to relate to Germans. These assets are not, from the Swiss banks’ perspective, “German.” They are, to be precise, legally “ownerless”, even if ultimately some Germans have the power to enjoy the income. (For a further explanation of the slippery nature of these structures, see Section 3.1 here). So if this money has no owner, who is going to declare it to their tax authority? Nobody: ownerless money doesn’t have a home tax authority. That is, of course, the whole point.

But one can go a lot further than this.

Consider how, exactly, The Swiss banks are supposed to refuse tax evaders (who haven’t made their assets ‘ownerless’ as above.) Look at this, from Suddeutsche Zeitung (translated here):

“Not all banks go so far. Especially smaller private banks are balking at a self-declaration, and they are supported by the Swiss Bankers Association. According to the trade association, this system [self declaration] does not exist anywhere else in the world. It also offers no guarantee against new black money. If someone is prepared to deceive their own tax offices, then it will not be hard for them to lie to the bank. The banks have to take the information provided by their customers at face value: they cannot, may not and should not check the declarations.

That bit in bold is key. And this brings us to the following wonderful piece of logic.

Take a European tax evader with assets in a Swiss bank. Under the European Savings Tax Directive, they have two options: either they submit to the ‘declaration’ option whereby information about their income will be transmitted automatically to the home country’s tax evader, or they choose the ‘withholding tax’ option, where tax is withheld but their identity is kept secret from their home tax authorities.

Consider each option in turn. First, if the client opts for ‘declaration’ under the current system, then the ‘self declaration’ described by Credit Suisse is quite pointless. They are already declaring.

As for the ‘withholding’ option, consider this. What client is going to want to declare their income to their home tax authorities (and hence be taxed) – then get the Swiss bank to withhold taxes on it? What ever would the point of that be? If you choose the information exchange option, you don’t get the taxes withheld.  So you would certainly not do this for tax reasons, and you would not do it for non-tax confidentiality reasons either: the client has already declared that they have broken confidentiality by self-declaring.

To conclude: if you see Switzerland subsequently handing over any money to Germany from this withholding tax option, you will know that the white money strategy is a hoax.

So what ever could the point of this white money strategy be?

Not a whitewash, surely!

If Switzerland were serious about having ‘white money’ in its banks, the solution would be very simple indeed: sign up for full automatic information exchange under the EU Savings Tax Directive.

And why not renounce banking secrecy while they are at it? Then we can start talking about white money.

cross-posted from the TJN blog

11 comments so far

La Chupacabra 12nd December, 2012 8.26 pm

“If Switzerland were serious about having ‘white money’ in its banks, the solution would be very simple indeed: sign up for full automatic information exchange under the EU Savings Tax Directive.”

Nick – nice try, but your own logic deflates spectacularly the minute one reminds oneself that Switzerland is not part of the EU? That is a bit of a problem, since the ESTD only applies to EU countries, because it is an EU law….. The ESTD does not apply in Switzerzland, the same way it does not apply in Delaware, Singapore, Hong Kong, Dubai or Panama.

Now, Switzerland is party to an agreement with the EU that seeks to replicate some, but far form all, the terms of the ESTD. But this agremeement never contemplated automatic exchange of information. Switzerland never even agreed to discuss it.

Moreover the only reason Switzerland entered this agreement is because it got something very big in return, basically access to 80% of the EU’s single market, plus various other bilateral goodies from the countries it really cares about.

That is the only logic that matters when it comes to international treaties: your rumblings about the (ir)rationalty of Switzerland’s “white money” strategy is probably of some intellectual interest, but in the real world it is a complete waste of time.

Nick Shaxson 12th December, 2012 12.50 pm

It is generous of you to concede that my post about the illogic of Switzerland’s white money strategy is of intellectual interest. Your thoughts, I’m afraid, are undermined by this: “the only reason Switzerland entered this agreement is because it got something very big in return, basically access to 80% of the EU’s single market, plus various other bilateral goodies.” In other words, you are conceding, the EU has enormous influence over Switzerland. The fact that it has agreed to participate in the EUSTD is evidence that it has little option but to bow down to certain things, even if many things do get thrown into the negotiation pot, with some things held onto and others conceded. There is quite an interesting interview on this kind of thing here in the last few days, actually. or here

La Chupacabra 12th December, 2012 1.43 pm


As I clearly pointed out in my post, Switzerland does not take part in the EUSTD. That is a European law and only applies to EU member states. Switzerland is party to a bilateral agreement with the EU that replicates some, but definitely not all of the EUSTD. This is not just semantic: the points that are left out of the Swiss-EU agreement are fairly critical: there is for instance no commitment on Switzerland’s side to accept automatic exchange of information, and neither is there a commitment to regularly update the agreement following “international developments”.

I never conceded that the EU has leverage over Switzerland, because it is simply not true (and I would not rely on Europolitics, the mouthpiece of the Commission, for reliable analysis on the topic). On tax issues, the EU Commission is completely marginalized, both because of the constitutional requirement within the EU for unanimity on tax matters, and because the current tax commissioner Semeta is, to put it mildly, out of his depth.

Major cross-border tax issues are firmly being dealt with at the national level. It is not just Rubik. The same can be said about FATCA; the Commission has been entirely sidelined while various member states develop, sign and implement bilateral agremeents with the United States that entirely by-pass EU law.

It is true however that some individual member states have leverage over Switzerland: in practice, that means only and exclusively Germany, as Switzerland fully knows that it has the upper hand over all the train wrecks that are the rest of the EU member states. The German government’s inability to have Rubik ratified is a serious issue for Switzerland.

The Swiss should be worried, but maybe not too much. Merkel is at 70% in the opinion polls, and that she is very likely to recover her majority in both houses of the German legislature by next September.

Nick Shaxson 12th December, 2012 9.31 am

Edouard we are going round in circles here. You seem to think that Switzerland can stand noble and alone in complete isolation to the EU, and then get all sorts of goodies from it in return for giving up nothing. why has it agreed to participate in the EUSTD? OK, you can call it a ‘participating partner’ or whatever, but it is still participating closely in the schem. To argue otherwise is to operate from cloud cuckoo land.

La Chupacabra 12th December, 2012 6.56 am

Nick –

It certainly wasn’t me who ever wrote that Switzerland (or anyone else) should remain in any sort of isolation. Judging from your postings here and over at TJN, I am infinitely more of a believer than you in free trade and capital flows, and in almost unlimited immigration. Switzerland has done splendidly out of its economic (and other) exchanges with EU member states, and at least as well with countries outside of the EU. Europeans have not done too bad either: there are 2 million EU citizens living in Switzerland, and another 750,000 commuting daily from bordering areas to work in places like Geneva, Basel or Lugano.

What I reject is the idea that Switzerland must feel under any pressure to cut special deals with the EU, or make concessions with respect to its full sovereignty unless it extracts siginficant advantages in return.

The EU is a rapidly declining economic power, whose influence is diminishing at an accelerated pace. Countries everywhere are lining up to call the bluff of its ridiculous postering (just witness how the EU had to capitlate on the issue of airlines emissions). Switzerland (and the UK incidentally) has little to lose, and much to gain, from treating the EU strictly on an arm’s length basis.

Nick Shaxson 12th December, 2012 9.56 am

Alienedouard. 1. You seem to be confusing capital flows with trade flows. When have I ever made a bold statement about trade flows? I think that broadly trade is a good idea. Capital flows are completely different. Take a look at this: John Williamson, author of the term ‘washington conesensus, arguing that “the international community should not seek to promote totally free trade in assets – even over the long run – because…free capital mobility seems to have little benefit in terms of long-run growth.–gallagher
2. So now you have retreated to a position of “I reject the idea that Switzerland must feel under any pressure . . . ” Well, you are free to reject the idea. Trouble is, what talks in this game is power, weight and influence. And whether Switzerland likes it or not, the EU has the weight, power and influence. “little to lose.” hmm, apart from such things as . . . . free trade with the EU.

La Chupacabra 12th December, 2012 10.38 am


1. I will read this paper if/when I get the chance. There seems to be some interesting academic work being conducted on the topic.

2. Yet again, you ignore the reality on the ground, where the EU very limited weight or influence. Any power is exclusively at the level of the member states, meaning that in practice only Germany can really apply some pressure.

This idea that Switzerland would somehow lose its current access to the Single Market is ridiculous: there is no conceivable political or legal scenarios under which this could happen. It would require the 27 member states’ legislatures to suspend the bilateral agreements with Switzerland that they have ratified. Good luck with that.

Nick Shaxson 12th December, 2012 12.35 pm

well if powerful britain is so scared of losing its influence in europe, just think how powerless switzerland must feel
you may not agree with all of this article, but you will probably agree with the thrust of it.

La Chupacabra 12th December, 2012 10.44 am

On a somewhat related topic, have you noticed that the UK is not rushing to invlove any of its European partners in the negotiation of the “son-of-FATCA” legislation?

It looks like the UK will succeed to impose FATCA-type regulation on its dependencies and territories, but that it will only apply to information about UK residents, and not those of any other EU states.

Would it be absurd to think that this is the UK government’s way of showing a (well deserved) big fat finger to the Commission for trying to get in its way during the negotiation of Rubik?


Nick Shaxson 12th December, 2012 12.33 pm

could be. i am sure there is more to it than that though

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