Swiss banking security has once again been compromised. While Switzerland’s banking secrecy has been under attack from international tax authorities, it has also been facing a second threat – stolen data. What typically happens is an employee copies confidential client data onto a disc and then either hands it over to a foreign tax authority or, in some cases, sells it to them.
The latest case involves Swiss private banking group Julius Baer. On 26th August Swiss newspaper SonntagsZeitung reported that an employee of the bank had stolen data on accounts owned by German clients.
A spokesperson for the bank then admitted the theft, and said it was contacting the affected clients to warn them: “We launched an internal investigation and we discovered a case of data abuse. We are in contact with potentially affected clients.”
The employee has been fired and arrested. Under Swiss secrecy laws bank employees can face a jail term if they divulge client information.
It is reported that the data was acquired by the German tax authorities, and that the employee was paid an undisclosed sum for it.
If this is true, the German authorities are likely to use the information to investigate tax evasion and prosecute where they find evidence. The German state in question, North-Rhine Westphalia, has a history of buying stolen data and using it to collect unpaid taxes.
Julius Baer already has a troubled relationship with the German authorities. Last year it paid €50 million to end an investigation over undeclared assets; an investigation which came about following another instance of data theft. Earlier in August German officials reportedly raided Julius Baer clients over tax evasion. This followed raids on Credit Suisse clients in July.
The use of stolen data to track down and prosecute tax evaders may be controversial, but tax authorities in various countries are increasingly offered confidential bank data and are using it to aid their anti-tax evasion efforts.
In July German media reported cases of data theft from UBS AG, Switzerland’s largest bank, as well as the Zurich branch of Coutts, the long-established private bank which is now a subsidiary of Royal Bank of Scotland PLC. The German edition of the Financial Times reported that German tax officials offered €3.5 million for the Coutts CD which contained details of 1,000 clients.
Both banks have since said that they have not found any evidence of data theft.
Merrill Lynch Bank Suisse SA also admitted it had looked into the possibility of data theft, but did not divulge the results.
It is no coincidence that stolen data is often offered to German authorities. German taxpayers hold an estimated €150 billion in Swiss accounts and the government loses an estimated €30 billion a year to tax evasion. However other countries also receive and benefit from stolen client data.
According to reports from Bloomberg in May, people at two Swiss banks passed over client data to the UK tax authority HM Revenue & Customs (HMRC). The banks were not named, other than to say one of them is foreign owned and has clients based in over 100 jurisdictions. The UK tax authority was reported to be checking the data before beginning to contact the taxpayers in question, and to be sharing the information with other countries.
When questioned HMRC neither confirmed nor denied the story, simply stating:
“We get information from a wide variety of sources which we carefully examine to make sure everyone pays the right tax. Tackling tax evasion is a top priority and the days of hiding money offshore to evade UK tax have gone.”
HMRC has already been actively investigating tax evasion using information from a previous case of data theft, the infamous “Falciani list”. Hervé Falciani, an IT employee of HSBC Geneva, made a disk containing information on 79,000 HSBC clients from 180 countries. He handed it over to the French authorities who passed it on to several tax departments in Europe as part of the exchange of information regime we regularly see nowadays.
HMRC is believed to have received over 6,000 names and has been working through them ever since. Its most high profile prosecution so far involved a wealthy property developer, who in July was found guilty of using an undisclosed Swiss bank account to evade tax and made to pay around £830,000.
The Spanish tax authorities are thought to have received 3,000 names from the list. Last year it was reported that they had already collected €300m as a result.
Data theft is not the only way Swiss banking secrecy is being breached. While this is an embarrassment for the Swiss banking industry, it will be more concerned about the way international tax authorities have been able to force them to disclose private client information. Most famously UBS agreed to pay a $780 million penalty in 2009 and hand over data on 4,700 American owned accounts, to settle a tax dispute with the US. Eleven Swiss financial firms being investigated by the US authorities for allegedly helping their US clients hide assets away from the Internal Revenue Service (IRS).
Swiss banks are not the bastion of security they once were. The consequences for anyone failing to declare assets held in Switzerland are likely to be very costly. It is essential that you only ever use legitimate tax planning arrangements. These vary from country to country so you should seek advice from an international tax planning and wealth management firm on which arrangements are effective and compliant in your country of residence.
31st August 2012