A sea-change in Swiss banking

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Abdul Basit explains the changing banking system in Switzerland

Prosperity

Pakistan is rocked with news of governmental lapse in obtaining details of Pakistan-origin account holders in banks operating in Switzerland. The emphasis is on the reported willingness of the Swiss federal taxation authorities to share the details of accounts Pakistani government suspected of stashing illegal money.

Apparently, the former head of FBR moved a summary requesting for permission to get in touch with Swiss government to agree to an amendment in avoidance of double taxation arrangement that would have paved the way for obtaining suspected account details. The move was later blocked by the same government functionary citing lame excuses for not going ahead with his own proposal.

Swiss were always rated as first-class bankers and through their disinterested conduct in European affairs succeeded in creating an aura of neutrality about them that was seldom violated. They used their unique position by becoming very reticent particularly about banking affairs and their banking system became a symbol of quiet and unruffled dealings.

With the gradual onset of globalisation it has become difficult to operate hidden monetary system particularly when concerns about misuse of such facilities are growing. Due to the prevailing unraveling atmosphere the Swiss banking system also had to shed the veil of secrecy shrouding its practices. The banking system has now begun to share client’s data with tax authorities of other countries.

The Swiss banking practices had to bear the powerful jolts of various monetary scandals to open up particularly the affairs related to football controlling agency FIFA that mushroomed into a massive sleaze-detecting episode. The financial matter related to Uzbek Telecoms also resulted in wide shocks unnerving the banking industry. Buckling under intense pressure from the US and Europe the Federal Tax Administration (FTA) of Switzerland was compelled to exchange financial data demanded by many countries.

Credit Suisse Bank in Zurich
Dominant secrecy

The process is witnessing exchange data between Switzerland and EU countries and will also spread over to similar exchanges with Australia, Canada, Japan and South Korea. The termination of secrecy practices has opened up large vistas and the exchange magnitude includes 7,000 banks, trusts, insurers and other financial institutions that are registered with relevant Swiss authorities whose cumulative number comes to a whopping two million accounts of the countries that have asked for it. It is a huge undertaking reflecting the large extent of banking transactions carried out in one of the most prosperous countries of the world.

The advantages of maintaining a secretive banking mechanism had worked tremendously for Switzerland as it holds the second highest GDP in the world currently calculated to be $81,000. Interestingly 74 percent of its GDP is attributable to the service sector and clearly indicates the high contribution of its banking sector.

The high levels of prosperity have made it possible for Switzerland to keep its VAT at 8 percent that is the lowest in whole of Europe. Ironically, Switzerland excels in producing large input of pharmaceuticals while topping the list of countries suspected of shady banking operations. Swiss banks were notorious for being the repository of illicit money from around the world and their superior banking practices were hardly ever challenged due to their impeccable secrecy procedures.

Though Swiss authorities claim to have practiced stringent anti-money laundering procedures but the country was widely believed to being quietly attracting, and at times, entertaining large chunks of laundered money coming from dubious sources particularly monies earned through narcotics, gun-running, organised crime and many modes of financial corruption. Switzerland was the primary focus of activities initiated by FATF and accordingly implemented strict standards prescribed by the renewed vigour of the agency.

FATF came down heavy on Switzerland advising to take cognizance of several core recommendations keeping in view the perception that it has barely revised its anti-money laundering laws over the last many years.

In turn, Swiss financial regulators took aggressive steps to ensure promulgation of advice tendered by FATF and undertook punitive measures against many banks including Russian-based entity Gazprombank, Julius Baer and Banca de la Svizzera Italina. Swiss also took action against money laundering practices Rothschild Bank AG was involved in that became the undoing of Malaysian PM’s corruption riddled government as stalwart politician Mahathir Mohammad campaigned against it and won elections. Both the former Malaysian PM and his deputy are currently under detention.

The federal Swiss money regulators are quite vigilant now and are investigating thousands of cases of financial misdemeanours. The activity involves billions of Swiss Francs and is regularly exploring new cases. It has become quite obvious that Swiss banking system has paid heed to the gradually enveloping stringent financial probity measures and is coming round to change its practices. It was therefore a good opportunity to enter into an agreement with Switzerland to find out the details of Pakistanis who have shifted their ill-gotten gains to Swiss banks. Unfortunately, the opportunity was squandered and there appears to be no chance of pursuing the matter further.

Abdul Basit works in finance and industry and is well versed in commercial affairs

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