Strategic Culture
by Valentin KATASONOV

The institution of banking secrecy is on the brink of death. The destruction of the World Trade Center in New York on 11 September 2001 and the 2007-2009 financial crisis can both be considered fateful events for the future of banking secrecy. 

The first event was the start of the fight against terrorism organised by Washington, under the pretext of which the US authorities began trying to obtain open-ended access to information about banks’ customers, their accounts and transactions. The Patriot Act, passed after 11 September 2001, provided US intelligence agencies with full access to what had been classified banking information in America without having to obtain special permission from the public prosecutor’s office and the courts. Through various international organisations (the OECD, the IMF etc.), Washington later began to seek free access to banking information throughout the world… 

The second event (the financial crisis) gave new impetus to the start of an active crackdown on offshore accounts and banking secrecy, and the campaign against banking secrecy and offshore accounts was lead by the United States. 

These are the official grounds for Washington’s active campaign begun in 2009 to destroy the financial shadows in the US and beyond its borders. However, there is also an undeclared objective hiding behind the official statements, which is the establishment of direct control over the global financial and banking system by Washington (or rather the financial oligarchy behind Washington). 

When, at the height of the financial crisis, it became clear that there was not enough money in the US Treasury to plug up the biggest holes (remember that Washington had started sending hundreds of billions of dollars to save drowning Wall Street banks), the previously unknown figure of Bradley Birkenfeld appeared on the scene. Birkenfeld is a former employee of the giant Swiss bank UBS, and was previously the head of the private banking department. He declared that there were a large amount of US tax evaders in Swiss banks, and that he was prepared to cooperate with US law enforcement agencies to expose these tax evaders. The US Department of Justice and the Internal Revenue System began to demand that UBS and other Swiss banks reveal the names of American taxpayers with accounts at their banks. In addition, they began threatening to withdraw the licenses of UBS branches in America as leverage. On 19 February 2009, UBS management succumbed to the pressure and agreed to hand over the names of 250 of their US customers who had hidden in Switzerland to avoid paying taxes, according to the justice of this country. The bank also had to pay a fine of $780 million as compensation for taxes not collected by the US Treasury. Washington is continuing to develop the initiative. A lawsuit was filed requesting that the UBS bank hand over information on all of its US customers (a total of 52,000), among which tax evaders may also be found. 

A bad precedent was being set. The entire Swiss banking community was startled. The offshore status quo known as the Swiss Confederation that had existed for at least three centuries was shattered. At the end of April, the Swiss President and Finance Minister Hans-Rudolf Merz began persuading US Treasury Secretary Timothy Geithner to withdraw the lawsuit against UBS. Merz promised his American colleague that it would ensure the approval of a new agreement on the avoidance of double taxation in Swiss Parliament, on which the US had been so insistent. Washington was adamant, however. 

The Swiss Federal Administrative Tribunal tried to step in, even calling a special session during the holidays. The reason for this emergency session was a collective appeal by eight American UBS customers with accounts at the bank. The Tribunal banned UBS and the Swiss Financial Market Supervisory Authority (FINMA) from passing on the names of its customers to the US tax office. In fact, the Tribunal warned the bank that if it failed to comply with the ruling, UBS would be subject to sanctions by the Swiss authorities. The Tribunal’s ruling was too late, however. It turned out that UBS had already handed over information on its American customers to Washington. Switzerland’s banking defences had been breached. 

Over the last five years since the end of the financial crisis, the institution of banking secrecy has been dealt a number of hard blows not just in Switzerland, but throughout Europe. Over the last 18 years, endless talks have been held in the European Union on the abolition of banking secrecy. A major shift took place just last year, however, when the European Union reached an agreement in principle on combating tax evasion at an interstate level. Specifically, it stipulated that EU member states would automatically exchange banking information necessary to ensure the payment of taxes by individuals and companies within their own countries. Two countries, however, Luxembourg and Austria, adopted a special position. While announcing their support in principle for the abolition of banking secrecy within the framework of the EU, they refrained from making specific commitments, linking the signing of the necessary documents with the fulfilment of a condition such as accession to the agreement by a number of countries outside of the EU. First and foremost, this referred to Switzerland and Lichtenstein. If these two countries did not join the multilateral agreement on the exchange of banking information, then they would have an unfair competitive advantage. This situation did not suit the Luxembourg and Austrian authorities, since the economies of these two countries have a greater degree of dependence on the state of the banking sector than other EU member states. 

Over the last year, Brussels has applied constant pressure on Austria and Luxembourg, forcing them to abandon their particular position with regard to banking secrecy and cooperation in the exchange of banking information. The two countries finally capitulated in March 2014, and all 28 EU member states reached a consensus on the abolition of banking secrecy. The pressure being applied by Brussels and Washington, which is controlling the process out of sight, has now switched to European countries outside of the European Union. Brussels has already stated on more than one occasion that it expects to sign similar agreements with Switzerland, Lichtenstein, Andorra, Monaco and San Marino by the end of the year.

With the abolition of the institution of banking secrecy in Europe, experts have started to speculate that the outflow of money to Singapore, Malaysia and Hong Kong will increase.

There is no doubt that Brussels and Washington will shortly set about dealing with countries outside of Europe. In order to put pressure on non-European countries, they have already started to use bodies like the Organisation for Economic Co-operation and Development (OECD) and the G20. Last year, these organisations announced the start of international tax reforms. The most important part of the reforms is the adoption of an international programme for the automatic exchange of tax information. 

The most recent event in the series of measures to abolish banking secrecy was the signing of a declaration on the implementation of an automatic tax information exchange system by OECD member states (34 countries) and 13 other countries at the beginning of May 2014. Singapore and Switzerland, major financial centres previously criticised by the OECD and G20 countries for their reluctance to introduce such a system, are among some of the programme’s new participants.

A second and even more powerful tool for eroding banking secrecy in the world is the US FATCA law, a law on the taxation of foreign accounts. It requires banks around the world to provide the US Internal Revenue System with information on clients who fall into the category of “US taxpayer”. The FATCA law can be categorised as an attempt by Washington to directly request that every bank in the world eliminate banking secrecy. It is assumed that Russian banks will also have to comply with the requirements of the FATCA legislation. In light of the economic sanctions being preparing against Russia by Washington, however, for Russian banks to fulfil these requirements would be problematic, pointless, and even dangerous.

Strategic Culture


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