November 8, 2009

What can Swiss Banks Give the World now?

Take away the bastion of secrecy from Swiss banks and what do they have left? With the damage to Swiss secrecy laws by the recent IRS UBS bank agreement, it is surprising that bank chief Oswald Grubel still sees a bright future for Swiss banking. But is he entirely wrong?

Perhaps to answer that question, one needs to understand the history behind the famed Swiss banking secrecy. It might interest you to note that the times in which Swiss banking secrecy found its origin is not dissimilar to the condition of the world today. It was in 1934 when the US was experiencing the Great Depression that impacted the rest of the world (sound familiar?). Back then, different parts of the world were experiencing various forms of chaos – bank failures, economic depression, the rise of authoritarian ideologies like fascism, militarism and communism. Nazi Germany made it illegal to have assets overseas under penalty of death, the French socialists created an uproar over certain of their wealthy citizens holding Swiss bank accounts. It was in many ways, a world turned upside down.

Against this backdrop, the Swiss created a new banking law that respects privacy and ensures secrecy to shore up the world's confidence in Swiss bank accounts and their security.

The scenario today is eerily almost a mirror image of what it was like in the 1930's minus the threat of extreme ideologies like fascism and communism. But other aspects of the era of the 30's are present today, albeit in a different form. Unrestrained government spending, poorly regulated fiscal policies, unhealthy competition among banks resulting in compromise of strict business standards, overly high leveraging of funds, living on credit that we think will last forever are all elements of our world today.

Closer back home, we have Democrats in Congress who constantly want to push up tax rates, AIG employees forced to 'voluntarily' give up their legally owned income through political pressure and even a proposal to collect salary data on CEOs who do not support the government's Obama-style policies. Over the years, the Swiss have always thrived on providing banking solutions to overseas clients whose governments are over-spending. Is history repeating itself?

Little wonder why UBS chief Grubel is still optimistic of his bank's future in the grand scheme of things. He contends that wealthy people are always on the lookout for safe banking havens to shield their assets against economic instability in their home countries and Switzerland is still a much safer place to invest one's assets than the US, UK or any other country.

I think he is right.

Nevertheless, Grubel will do well to learn from the bitter experience of the IRS UBS spat. If the Swiss banking secrecy system is to survive and thrive, Swiss banks must not be guilty of soliciting customers by helping them evade taxes, launder their money or commit any other such misdemeanor.

As long as they keep their noses clean, the world still needs the Swiss.

Darrin T. Mish is a veteran, nationally recognized tax attorney who has focused on providing IRS help to taxpayers for over a decade. He regularly travels the country training other attorneys, CPAs and enrolled agents on how to handle their toughest cases with the IRS. He is highly ranked among the top attorneys in the country, with an AV rating from Martindale-Hubbell and a perfect 10 on Avvo.com. Martindale-Hubbell has also honored him with a listing in their Bar Register of Preeminent Lawyers. He is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. With clients on every continent but Antarctica, he has what it takes to solve your IRS problems no matter where you live in the world. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 1-888-GET-MISH.

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