On August 3, 2009, UBS reached a deal with U.S. authorities to turn over the names of 5,000 U.S clients holding secret Swiss bank accounts. Although this amounts to a mere 10 percent of the names Washington was after, the controversy surrounding Switzerland and UBS will continue to swell. The pressure on Switzerland and UBS to stop shielding the wealthy from paying their dues will likely increase as U.S. authorities step up their efforts to stem the tide of illicit capital flight entering the offshore banking world.
Swiss officials have downplayed the deal, asserting that the settlement plan would do nothing to impart Swiss banking secrecy. From this Washington Post article:
“The proposed resolution to a U.S. government demand for information about thousands of Americans suspected of using Swiss accounts to evade taxes would leave Swiss bank secrecy intact, a top Swiss official has said.”
Notwithstanding this assertion, Swiss banks will be subject to much greater scrutiny now – at least as far as their Swiss operations go. Many Swiss institutions are setting up operations in Singapore, which is growing quickly as a rival to Switzerland as a banking haven. By cutting personal income taxes to 20% and tightening account privacy, Singapore is quickly becoming a go-to haven for Asia’s growing number of millionaires.
In advising a client on the placement of funds offshore, Singapore may hold more sway in comparison to Switzerland. The deal reached between UBS and the U.S. all but eviscerates the competitive advantage long held by Swiss banks. If it is no longer possible for U.S. citizens around the world privately to stash cash in Switzerland, then why not bank at the local branch of Bank of America?
There are a number of reason why Switzerland is still a viable option as a banking safe haven. Apart from the controversy threatening its secrecy laws, Switzerland still has its advantages in safeguarding funds against such uncertainties as coup de main, coup d’etat, revolution and hyperinflation. Moreover, a host of multinational corporations have recently moved their European headquarters to the Swiss power centers of Zurich and Geneva. The resultant surge in international activity is sure to buoy Swiss banks until the UBS controversy subsides.
Trend to Watch: While Singapore Banks may bode well in the short term, the Swiss banking industry will remain a strong contender in the pageant of offshore banking havens.