Why Switzerland is ending its precious -

banking secrecy laws?

For decades, worldwide HNWI (High Net-Worth Individuals) have resorted to Switzerland banking laws
for shielding shady capital from their local tax burdens. Currently an estimated one-third of all
worldwide funds held outside their country of origin (called "offshore" funds) are kept in Switzerland.
Countless requests for information on these offshore accounts have been rejected citing their notorious
Swiss Banking Act of 1934, a law which precisely upholds bank secrecy in excess proportions. In its
neighborhood - Austria, Liechtenstein, Luxembourg also have such laws on favoring tax evasions. Few
international attempts such as Qualified Intermediary program and G20 blacklist were directed to solve
this problem. But then loopholes in these programs emerged and were exploited rampantly, thus
deeming it ineffective. For instance, a major Swiss bank got embroiled in one of these exploitation
scandal in which it failed to honor bona-fide disclosure agreements and was found guilty of suggesting
illegitimate tax advices to customers.
All of this wind seems to be changing now. FATCA (Foreign Account Tax Compliance Act), a new US
regulation, is trying to break through this strong tax shield. The objective of FATCA is to pressurize
foreign countries to align its laws with the tolerable financial privacy norms. FATCA is a well-crafted
framework that has a clout to cover any remote located financial institutions whether in a financial hub
like Switzerland or in a grain-sized economy like Malta. Provisions of FATCA are so tactically designed
that according to some pundits, it would push back financial secrecy to history. It specifically targets
payments to any institutions that can potentially harbor foreign accounts
How does it work?
FATCA directs foreign financial institution (some
non-financial too) to classify their customer
accounts and report payment flows on US source
incomes including interests generated from foreign
branch of US banks. An institution defying or
ignoring this US diktat would bring upon the burden
of 30% penalty on its legitimate day-to-day income
originating from other FATCA compliant institution.
There are many intricacies in the law which extends
its ambit to extensive areas of the financial world
and thus can hope to bring back an additional
taxable income of $100 bn in next few years.
Dumping all US related accounts/ incomes is the
only way out to avoid FATCA penalties, but this
move would considerably shrink the business for
most institutions as US-origins inflows still amounts to major part of revenue shares.
Customers will also not be immune from FATCA. There is also going to be little inconvenience on the
customer-side in form of new information and documentation requirements. Any US ties (birth-wise or
address-wise) is likely to trigger penalties unless the negative is clearly substantiated with the
documents. Foreign customers need to certify their domicile status even if it is a non-US one.
Evasiveness or reluctance in part of customers would tag them to a recalcitrant status which sets off
penalties on payments.

Aftereffects
FATCA could serve as predecessor of similar penalties-based laws around the globe. Many
governments are keenly observing the success of FATCA implementations. Its likely success will boost
the confidence in the idea of offshore withholding. It is expected that major economies around the
world would have their own FATCA version in next 10 years.
United States has given a herald to end the sour topic of tax evasiveness and black money. FATCA might
just have the power to put an end to this, once and for all.