Bank Confidentiality At Risk From Whistle-Blowers

31.12.09

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Bank confidentiality has suffered another knock after it is revealed that a whistle-blower obtained the names of 130,000 clients of a Swiss bank and passed them onto the French tax authorities. Th

Bank confidentiality has suffered another knock after it is revealed that a whistle-blower obtained the names of 130,000 clients of a Swiss bank and passed them onto the French tax authorities. This is yet one more nail in the coffin for bank confidentiality and all account holders are at risk of having their details passed on to tax investigators.

The bank concerned this time is a branch of private bank HSBC Holdings in Geneva. Herve Falciani, a former employee in the IT department, stole data on the bank?s clients between late 2006 and early 2007. It now turns out that it was this stolen data that enabled the French tax authorities to get their hands on the names of 3,000 suspected tax evaders last year. French Budget Minister, Eric Woerth, admitted in August that the names had been supplied by an informer, but details were only revealed in December. It is thought that some ?500 million has already been recouped from the unpaid tax. Woerth denied paying the informant who has since been given a new identity and is living under police protection in the south of France.

When the data theft originally came to light in early December, HSBC insisted less than ten wealthy clients were involved. However later it was revealed that the French tax authorities actually have 130,000 names belonging to the bank?s clients from ?many other countries?. The list is thought to have been passed to France?s chief prosecutor in Nice for possible investigation into money laundering.

France can potentially pass the list onto the tax authorities of the other countries whose residents appear on the list.

Switzerland reacted angrily to the news and said it will suspend ratification of the double taxation agreement (DTA) with France, claiming that the names were illegally obtained. France is keen to complete the process, maintaining that it had not broken any French laws. Switzerland and France signed an amendment to their existing DTA at the end of August, providing for an exchange of information in specific cases of tax fraud. The agreement was then transferred to parliament for approval.

France subsequently said that it would hand back the information. However, Switzerland remains concerned over what the French tax authorities will do with the data, and has said that doubts still remain over progress on the DTA.

In March Switzerland agreed to relax its banking secrecy rules and to disclose information on suspected tax evaders to other countries. The renowned financial centre wanted to avoid being blacklisted by the Organisation for Economic Co-Operation and Development (OECD) in response to threats from the G20 to wipe out tax evasion. In order to keep off the list Switzerland needed to sign 12 Tax Information Exchange Agreements (TIEAs), which it accomplished in September.

Prior to signing the TIEAs Switzerland did not consider tax evasion to be a crime but now it will have to co-operate with other TIEA nations investigating tax evasion and hand over requested data on bank accounts and the account holders. Switzerland generally shared information on tax fraud only.

Liechtenstein, Andorra and Monaco, the last three jurisdictions to be blacklisted by the OECD as ?unco-operative tax havens? also agreed to conform to the OECD?s tax standards on exchange of information. When pressure forces notorious jurisdictions such as these as well as Switzerland to relax their inherent principles on bank confidentiality it must surely indicate that the writing is on the wall for banking secrecy.

The G20 Summit in April declared that the ?era of banking secrecy is over?. 170 Tax Information Exchange Agreements were signed following the Summit through to 18th December, compared with 45 between 2000 and 2008. This is hard evidence that countries around the world are submitting to international pressure to agree to supply tax information to authorities in other countries.

Other whistle-blowers

This latest whistle-blower revelation from France follows on from the controversial incident in February of 2008 when it was exposed that another former bank employee and informant sold stolen data from LGT bank in Liechtenstein to Germany and the UK, with many other countries also benefiting from information on their citizens evading tax through holding bank accounts in the tax haven.

In the US whistleblower Bradley Birkenfeld supplied information on 19,000 suspected US tax evaders in 2007 which eventually led to the US forcing Swiss bank UBS to disclose names of 4,450 US account holders. This resulted in the US voluntary tax disclosure scheme which resulted in over 14,700 American citizens coming clean to report previously undisclosed foreign bank accounts.

The UK?s second voluntary disclosure scheme comes in the wake of 308 banks being ordered to divulge information on offshore clients. The French government has told its banks that they must disclose information on their connections with tax havens and Italy has raided 76 branches of Swiss banks.

The US has an official whistle-blower programme in return for a portion of the revenue collected from the information given. Other countries may well consider setting up their own schemes for tax informers who can break through the barriers of bank secrecy and gain confidential information on account holders.

The global financial crisis fuelled governments with a determination to reap in unpaid tax from tax evaders to boost their exhausted treasuries. During 2009 the clampdown on bank secrecy to stamp out tax evasion gathered momentum. There will be no turning back. The days are numbered for offshore banking confidentiality.

There are various legitimate structures available to beat the taxman where people can place their money honestly and so have no fear of being ?caught out? by their tax authority. A specialist tax and wealth management firm such as Blevins Franks can advise you on how to reduce taxation and protect your assets for the future for you and your heirs.

By Bill Blevins, Managing Director, Blevins Franks

28 December 2009

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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