Swiss banks are discovering that the biggest threat to client privacy is their own workers.
German Chancellor Angela Merkel said yesterday her government may buy stolen data on Swiss bank accounts as French authorities comb information acquired from an employee of HSBC Holdings Plc’s private bank in Geneva. The cases come two years after Germany paid ¤5 million ($7 million) for details filched from LGT Group in neighboring Liechtenstein.
“This is a kind of business war against Switzerland in which practices which were completely illegal have become acceptable,” says Daniel Fischer, founder of Zurich-based Fischer & Partner law firm who specializes in banking law and fraud. “It’s a huge danger for Swiss banks.”
The willingness of governments to pay for stolen data is fanning tensions with France and Germany as Switzerland seeks to negotiate treaties implementing its commitment to cooperate with international tax probes. The Swiss government said last month it will draft a law barring officials from assisting foreign countries in cases involving theft of client details.
Germany’s use of such data would be “counterproductive” in future negotiations, and the German government shouldn’t be handling stolen goods, the Swiss Bankers Association said in a January 30 statement. The association represents more than 300 banks, including UBS AG and Credit Suisse Group AG.
“What’s new recently is the price paid by states for lists, which makes it more attractive” for employees to steal, Anne-Marie de Weck, managing partner at Geneva-based private bank Lombard Odier, told reporters last month in Bern. In bank security, “the most important factor is human,” she said.
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An unidentified individual has offered to sell Germany information on about 1,300 holders of Swiss bank accounts for 2.5 million euros, the Financial Times Deutschland reported yesterday, without saying where it got the information.
FTD said the data came from HSBC’s private bank in Geneva, while the German newspaper Handelsblatt reported it was drawn primarily from accounts at UBS and may yield 200 million euros in lost taxes. Frankfurter Allgemeine Zeitung today said the information came from Credit Suisse, without providing the source of the report.
UBS isn’t aware of such information, spokesman Christoph Meier said when asked about the Handlesblatt report. A spokesman for HSBC in Geneva declined to comment, and Credit Suisse issued a statement saying it had “no information” that the bank was affected.
“We should aim to get hold of this data if it’s relevant,” because Germany needs to crack down on tax violators, Merkel told reporters yesterday in Berlin.
Germany last year prosecuted tax evaders, including former Deutsche Post AG Chief Executive Officer Klaus Zumwinkel, using the information bought from a former computer consultant at LGT, owned by Liechtenstein’s princely family. Zumwinkel received a two-year suspended sentence and was ordered to pay a 1 million- euro penalty after a Germany court ruled that he had “knowingly” evaded taxes.
Tax authorities have increasingly been offered secret bank information since the Liechtenstein case, German Finance Ministry spokesman Michael Offer said yesterday.
“I have a hard time imagining that we are living in a world where a government, which is supposed to set an example, can take for granted that stolen data will be the basis for action,” Patrick Odier, chairman of the Swiss Bankers Association, said in a January 29 interview at the World Economic Forum in Davos, Switzerland. “It is a real issue and we have to make sure it doesn’t develop into more cases.”
The French Finance Ministry said in December that it had data on Swiss bank accounts held by French taxpayers, including names provided by a former HSBC employee.
Switzerland suspended treaty negotiations with France in December because of the HSBC case. After talks last week, France agreed to return the original data to Switzerland and not ask for assistance from Swiss authorities based on the stolen information. France will continue to use the data to pursue tax evaders at home.
“The agreement won’t change anything for a client of HSBC whose data was stolen,” said Fischer, the Zurich lawyer, who added that details of the accord aren’t clear. “An agreement may, on the face of it, be good for Switzerland but not for Swiss banking clients.”
Swiss secrecy laws, which threaten bank employees with as much as five years in jail if they divulge client information, have failed to stop staff from stealing data.
Switzerland’s argument that foreign governments should abide by established codes of conduct that bar the use of stolen information may also fall short, said Thomas Cottier, a professor of European and international economic law at the University of Bern.
“We are entering a gray zone of intelligence and the principles are not as strict as in penal law, where information unlawfully obtained is not admissible,” said Cottier. “The risk is that foreign governments won’t say where they got the information from, leading to less rather than more transparency.”
Banking secrecy has been the focus of international attention for the past two years as the US, France and Germany target tax evaders to help close widening budget deficits after the worst economic crisis since World War II.
Switzerland agreed in March to cooperate with countries investigating tax evasion in order to avoid being placed on a list of uncooperative tax havens. The Swiss government in August said it would give data on as many as 4,450 UBS accounts to the Internal Revenue Service after the country’s biggest bank admitted that it helped clients avoid US taxes.
The case hinged on information provided by Bradley Birkenfeld, a former UBS banker who told US authorities how the bank courted wealthy Americans without a license from US regulators and helped them set up accounts to evade taxes.
Mirabaud & Cie, one of Geneva’s oldest private banks, says the risk from employees isn’t new.
“The human factor is obviously a risk, and we’re always evolving as it’s a continuing concern,” Yves Mirabaud, partner at the 191-year-old bank, said in an interview.
“We only put people that we’ve known for many years in the most sensitive positions,” Mirabaud said. “We try to avoid the basics such as leaving people alone in a room for hours where they can have access to sensitive data.”
Still, the latest developments are “worrying,” he said.
“It’s like Big Brother. Do the state and your neighbor have the right to know everything about you?”