Banking secrecy

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Banking secrecy is undoubtedly one of the most current major disputes between states that wish to safeguard the confidentiality of its investors and those who deny this right fighting against financial frauds and tax evasion. After several ups and downs between the European Union and Switzerland, as well as the OECD and the territories included recently into its blacklist of tax havens, starting from 2014 several agreements of automatic exchange of information began to forge, banishing bank secrecy of those countries and regions that sign it. Further we will take a look at the reasons for that bank secrecy to be supported to last and what the current situation is in terms of exchange of tax information between countries.

The raison d'etre of bank secrecy

Banking secrecy bases its reason for being in the right to privacy of individuals. For some states it is, indeed, one of the fundamental rights and, as in the case of Switzerland, create special laws that defend the confidentiality on its citizens. Having these political principles it is not difficult to understand why Switzerland has always been so discreet when forced to disclose information related to account owners in their banks to other countries.

By itself, bank secrecy is a guarantee for investors, some kind of special confidence, built up with your bank that no one, except those involved in that relationship, will be able to obtain the information about your bank statements, movements or income received on your bank account. In fact, it seems logical to think that if this information were available to anyone, no one would come to banks to deposit their savings or to request funding. In this regard, the European Union has come up with some laws of Personal Data Protection; although it is obvious that they are much more lax than those that monitor the bank secrecy in EU.

From this perspective, having the institutions and countries that protect bank secrecy in accordance with their respective laws, we are faced with two very clear and completely opposite positions: the defense statements of confidentiality and states that believe in stricter controls. Without ignoring cases of fraud and tax evasion that have certainly made use of banking secrecy for their own benefit, the right to bank secrecy has become a priority for certain investors seeking to flee the extortion of their countries of origin or protecting themselves against threats of kidnapping. On the other side there are the states that favor to conduct control actions even beyond its borders.

Agreements between the EU and Switzerland

Switzerland has been for many years one of the most important financial centers in Europe, largely because of its bank secrecy defense that, as mentioned above, became a priority and therefore is protected by the laws of this Helvetic country. The great fortunes could be more than secure of their confidentiality, as in Switzerland the disclosure of any kind of personal information is punished by imprisonment.

However, this safeguard Swiss tradition of bank secrecy was somewhat threatened with the scandals that hit the country in 2008. That year, the United States filed several complaints against major Swiss banks, such as Credit Suisse and UBS, so that they had to pay millions to North American country recognizing that had helped to some of American citizens to evade taxes in their home country.

From this moment, the countries of the European Union have requested that Switzerland buried bank secrecy laws and joined the agreement signed in 2014 to extend the procedure of automatic exchange of bank information. After negotiations, Switzerland accepted the agreement that was signed in 2015, but won´t come into force until 2018. Through this agreement, the European Union and Switzerland automatically exchange information on offshore bank accounts held by its citizens in other countries. This information shall include account balance, interests and dividends and is supposed to be shared with the governments of a country where an account holder is registered as a resident. However, this is not the end of Swiss bank secrecy, since its laws continue to punish severely the disclosure of personal information that does not concern a fiscal offense. 

United States and FATCA

In 2010 the US Congress approved the FATCA or Foreign Account Tax Compliance Act to eliminate bank secrecy of American citizens who have accounts abroad. This law provides greater control of tax evasion carried out by US residents with accounts in other countries. However, paradoxically, the United States is one of the few non-signatory countries of the Automatic Financial Information Exchange Agreement proposed by the OECD. That is to say, the United States wants other countries like Switzerland (which are responsible for protection of bank secrecy) to provide personal bank account information from their compatriots through acceptance of FATCA agreement; however, the United States is reluctant to automatically exchange information with other OECD countries to protect the banking secrecy that prevails in certain states like Delaware or Nevada.

The things is that US has established a series of intergovernmental agreements with many countries to implement the provisions of FATCA. And the law provides severe suppression of foreign accounts in countries that have denied their adherence to any agreement with the IRS. In the case of the UK, for example, there is an agreement with the US IRS which obliges all financial institutions in the UK to offer tax information on US accounts opened in British banks. Thus, the American citizens can not benefit from bank secrecy due to this FATCA agreement.