For centuries, Switzerland’s mountainous terrain has helped protect it from invasion. But the Alps couldn’t safeguard it from a global march against tax evasion. The country’s tactical surrender on Friday should tame its foes – and ease its pain.
Liechtenstein and Andorra set the stage a day earlier. The minnow-like principalities agreed to cooperate with developed nations in cases of tax evasion, embracing the broader standards set out by the OECD. Bigger fish Austria and Luxembourg followed suit. But for anti-haven hunters, Switzerland was the white whale – and their harpoon was at last true.
Or was it? Switzerland’s concession is without doubt a sea change. As recently as a few months ago, such an announcement would have been unthinkable. UBS’s admitted criminal conduct in the US gave the G20 greater ammunition. But by waving the white flag and having its pursuers lay down their arms, Switzerland will buy itself the time to keep a degree of secrecy intact.
Not much will change until new treaties with developed nations are negotiated. Existing bank clients may be granted some form of amnesty. There is unlikely to be any automatic exchange of information – meaning fishing expeditions like the one still being pursued by US authorities will struggle. Developing countries – which Oxfam says lose out on $124bn of taxes a year to havens – probably won’t improve their standing with Switzerland.
The capitulation could result in a greater outflow of funds – but it still removes a cloud of uncertainty. Swiss bank shares shot up on the news. With so many havens caving in on a similar scale, Switzerland can begin to reposition itself as a financial centre of choice. The country’s banking expertise and stable legal framework will stand up to renewed scrutiny against less established offshore centres.
For the G20, the victory they’ve chalked up from pressure tactics also loses them an easy target of moral outrage. With one less way to score cheap points, the world will be watching and waiting for something considerably more substantive to emerge from next month’s meeting.
