Unpicking the illogic in Switzerland's "White Money" strategy

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Who could argue against a "white money" strategy for Swiss banks? Not us, 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?

Well, 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.

OK, now here is 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 to the tax evasion industry -- are firmly outside the scope: 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 the slippery nature of these structures, see Section 3.1 here). So if this money has no owner, who is going to declare the money to their tax authority? Nobody. Ownerless money doesn't have a home tax authority.

But it gets better. How, exactly, would this refusal of tax evaders happen? Take a 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 now look at this 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.

Now consider each of these options 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 - then get the Swiss bank to withhold taxes on it? What ever would the point of that be?  Certainly not for tax reasons, and not for non-tax confidentiality reasons either: they have already declared that they have broken confidentiality by self-declaring. 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!