More Stolen Data Threatens Bank Confidentiality

16.02.10

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Germany has agreed to pay ?2.5 million to purchase stolen data on around 1,500 suspected tax evaders who are believed to be holding undeclared bank accounts in Switzerland. It again raises not on

Germany has agreed to pay ?2.5 million to purchase stolen data on around 1,500 suspected tax evaders who are believed to be holding undeclared bank accounts in Switzerland. It again raises not only the highly controversial question of the ethics of governments buying stolen data, but also how long can Swiss banks cling to their banking secrecy rules?

The data was offered to the government of North Rhine-Westphalia, and it is estimated that it will result in ?400 million in revenue for the German tax authorities. German Chancellor Angela Merkel said that the decision to purchase the disc had followed a difficult legal evaluation of the matter, and had been jointly taken by both the federal government and the state government of North Rhine-Westphalia. Government lawyers had assessed the situation and gave approval for the purchase to go ahead.

The German states of Bayern and Baden-Wurttemberg have been offered separate information on alleged tax evasion involving Swiss banks. Bayern has confirmed that it is in favour of purchasing the disc for ?500,000, provided that the data can be obtained by legal means, but the Baden-W?rttemberg coalition government remains divided. Germany?s Police Union is also eager to purchase the disc.

German ministers disagree about the ethics of the government paying for stolen data despite Merkel?s clear determination to purchase the disc. She was supported by Germany?s Finance Minister, Wolfgang Sch?ble, who told the German newspaper Suddeutsche Zeitung: “There is no future for bank secrecy. It is finished. Its time has run out.

Switzerland condemned Germany?s action. The Swiss Federal Administration said that the purchase of stolen client data is prohibited in Switzerland and violates public policy and the principle of good faith. It added that the use of stolen bank data constitutes a breach of the privacy of the clients concerned.

A source close to the investigations said that banks involved were UBS, HSBC Holdings and Julius Baer although all three claimed this was just speculation. Credit Suisse has also been named, but a Credit Suisse spokesman said that they had no indication that the data came from the bank.

The German tax authorities refused to comment on which bank or banks were involved, causing anxiety for Germany citizens holding hidden accounts in Switzerland. Consequently, a number of tax evaders have owned up to escape prosecution.

German tax officials estimate that the country loses around ?30 billion a year in tax evasion. They say that Germans hold around ?175 billion in Swiss bank accounts equating to more than 10% of Switzerland's estimated $1.8 trillion offshore-banking business.

Germany has offered to share relevant information with other tax authorities. The UK has approached Germany targeting any UK tax evaders who may be on the disc. The UK tax authority, HM Revenue Customs (HRMC) is reported to be keen to move quickly to cash in on undeclared accounts that could yield substantial amounts in lost revenue. HMRC is allowed to pay a reward for information leading to the collection of extra taxes. Ireland, the Netherlands, Belgium and Austria in particular, as well as other European countries, have shown their interest.

Two years ago Germany was offered a similar disc from a former employer of Liechtenstein LGT bank who was paid around ?4.2 million for up to 1,000 names of suspected tax evaders. Germany shared the information with many other countries, including the UK which reportedly paid ?100,000 for names of British citizens involved.

In 2007 a whistleblower provided the US with the names of 19,000 suspected tax evaders which eventually led to Switzerland being ordered to disclose 4,450 names of UBS account holders to the American tax authority. The US runs an official whistleblower programme paying informants for a share of the revenue recouped from the information.

In 2009 it was revealed that the French authorities had obtained information of 3,000 suspected French tax dodgers from a former employee of private bank HSBC Holdings in Geneva. The French denied paying the informant.

In defence of Germany?s decision to buy the recent stolen data, Sch?ble highlighted the fact that, despite almost 200 trials that were held following the Liechtenstein affair, the action taken at the time has never been called into question by any court. Even the Federal Constitutional Court has approved such action in many cases, he added.

Indeed, the Organisation for Economic Co-Operation and Development (OECD) supports the practice of using stolen data to catch tax evaders. When asked if the OECD condoned governments using stolen data, head of the OECD?s tax centre, Jeffrey Owens, said: “What we do not condone is taxpayers who do not comply with their obligations?.If you have to get information from informants or other means, that is just the way of making sure that these citizens are not able to shift the tax burden … onto honest taxpayers.

He added: “If you look around the OECD area, almost all our member countries are prepared in fact to take information from a variety of sources.”

Switzerland has always fiercely defended its banking secrecy principles but the increasing risk of stolen data is severely threatening banking confidentiality around the world. With countries like Germany prepared to pay as much as ?2.5 million for stolen data, you have to wonder how many other bank employees may be tempted to sell client data.

There are various legitimate methods of mitigating tax on your savings and investments or, depending on country where you live, reducing it to almost nil. Speak to an experienced and established tax and wealth management adviser like Blevins Franks to learn of the opportunities available, which are tailored for your circumstances and objectives, whereby you can lower your tax liability and shield your wealth for you and your heirs.

By Bill Blevins, Managing Director, Blevins Franks

10th February 2010

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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