No cause for concern?

Despite a testing period of perceived 'attack' from around the world, Switzerland has continued to provide a stable, professional and attractive financial centre for private clients, says Matthew Shayle

Internally, Switzerland seems to have weathered the global economic storm better than many developed nations. And this continues to be case despite pressures applied from various external sources. The World Economic Forum's Global Competitiveness Index for 2012-2013 ranked Switzerland as the healthiest economy in the world. In addition, multinational company Procter & Gamble has just celebrated its 60th anniversary in the country.

There has also been a shift in focus towards reinforcing Switzerland's domestic marketplace, perhaps fuelled by any uncertainty that lingers as a result of the external pressures applied to the jurisdiction. This kind of microeconomic prudence is symptomatic of the Swiss cultural approach through which the federation has built a stable economy over the last century. It's been seen in recent governmental discussions about introducing of tax incentives for start-up companies, for example.

Continuing change

However, despite Switzerland's continued confidence in its economic stability and private client offering, its international stance needs to change. Perceived 'attacks' by the US, the UK, France, Germany and the world's press have led some in Switzerland to consider the country a scapegoat and an apparent source of 'rich pickings' for foreign tax authorities.

But the Swiss government knows the country must change its outlook and principles. It announced details in late 2012 of a "white-money strategy" and identified asset management, pension funds and capital markets as having significant growth potential. By implementing a financial market policy based on strengthening competitiveness, combating abuses and improving its framework, it intends to consolidate Switzerland's position as the modern market's 'go-to' wealth management centre.

So, Switzerland is adding to its network of tax information exchange agreements to bolster the framework of its administrative assistance policy - new agreements were reached with Guernsey and Jersey this month. Perhaps most notably, its banks have agreed with the US authorities to clean their respective slates about historic banking conduct.

US agreement

The agreement terms between the Swiss and US governments protects those Swiss banks that are not already the subject of US investigations - some larger banks are excluded. Banks are not obliged to take any action under the agreement, but the risks where US undeclared funds are concerned are all too clear. In particular, the fate of Wegelin will loom large in the minds of the banks' respective management.

Banks must provide certain information to the US about their US clients' accounts and, notably, their advisers. In addition, penalties will be imposed amounting to up to half of the undeclared funds held in each case, depending on specified factors such as account opening dates.

If banks can persuade their clients to make disclosures before the programme launch, they may expect to be rewarded with the reduced-rate penalties. On the other hand, the 14 banks excluded from the agreement by virtue of existing investigations need to make peace with the US on an individual basis.

Although the banks maintain that their secrecy remains intact, in reality it seems to be less certain. The agreement - generally touted as a 'necessary evil' by the Swiss banking sector - has led some commentators to suggest that Swiss banks are being vigorously prodded into supplying information on US individuals that may, in certain circumstances, invite information requests in the framework of the existing information exchange agreements between the countries. Such requests, if framed correctly, may give the Swiss courts little alternatives other than ordering the banks to provide US clients' personal details.

Only time will tell whether Switzerland's "white-money strategy" is sufficiently supported to maintain its key position in the private wealth management industry.

Matthew Shayle is an associate in the private client group of Lenz & Staehelin's Geneva office

He writes a regular blog on Switzerland for Private Client Adviser

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