Why More Indian Names May Tumble Out of Switzerland

Driven by the reputational damage its banking secrecy has caused in a world increasingly impatient with tax offenders, Switzerland is slowly moving to make the sharing of information with other countries easier.

File photo of the Zurich headquartes of Credit Suisse. Credit: Thomas Wolf, - Own work. Licensed under CC BY-SA 3.0 de via Wikimedia Commons.

File photo of the Zurich headquartes of Credit Suisse. Credit: Thomas Wolf, – Own work. Licensed under CC BY-SA 3.0 de via Wikimedia Commons.

Geneva: More names of Indian tax evaders are likely to surface from Switzerland in the future. There are several reasons for this, including how the Swiss government could potentially treat stolen information on accountholders in the future, and an impending review by the OECD that will take stock of how Switzerland is faring in treating requests for administrative assistance.

Switzerland has published seven names of Indian account holders in its Federal Gazette so far. The names are part of a wider global list of names. These revelations have created a stir, raising questions about the intent of publishing these names. The Wire spoke to officials in the Swiss government and banking sector to put these revelations in context.

‘Gazette as last resort’

The Swiss government says that publishing names in its gazette is a standard procedure that takes place when there is no contact address in Switzerland for foreign residents who are affected by an administrative assistance request.

“As a last resort, in cases where the Swiss tax administration cannot find another way to reach the account holder, the names of foreign residents who are affected by an administrative request have to published in the Federal Gazette”, Anne Césard, spokesperson of the State Secretariat for International Financial Matters in Bern, said. If notification can be made through a legal representative in Switzerland (which happens in the overwhelming majority of cases) or through the post – with the consent of the State requesting information about the account holder – there is no publication in the Federal Gazette.

The tax authorities are obliged by law to inform account holders so that they have opportunity to appeal the decision in Swiss courts. Switzerland’s Tax Administrative Assistance Act (TAAA) requires the tax authorities to inform the person affected by an administrative assistance request in writing, since the account holder is entitled to an ‘appeal’ in the administrative assistance procedure.

Swiss amend key law

Césard clarified that publication of the names was not the result of a revision to the TAAA that came into effect in August 2014. That change provides for an exception regarding the prior notification of persons affected by an administrative assistance request. Provided certain conditions set in the TAAA are respected, the Swiss tax administration no longer has to inform the account holder first before sharing information about them, she added.

The law, in other words, now allows the tax authorities to withhold from the account holder – under certain circumstances – the information that Switzerland is cooperating with a foreign country. This could be, for example, where prior notification might defeat the purpose of the exchange of information and thwart the success of an investigation.

The revised law now meets the requirements of international standards for the ‘exchange of information upon request’. In some cases, the affected taxpayers can now be informed only after their data has been transferred to requesting foreign authorities instead of in advance, especially when the requesting country feels that the person under investigation may destroy evidence.

The TAAA’s revision in Switzerland followed the recommendations issued by the Global Forum on Transparency and Exchange of Information for Tax Purposes in 2011. The Global Forum, an international body that ensures implementation of internationally agreed standards of tax transparency and exchange of information, has 126 members, including India.

The Global Forum examines compliance with administrative assistance standards by means of peer reviews which are conducted over two phases. In Phase 1, an examination is conducted to check whether the necessary legal foundations are in place for the exchange of information in accordance with international standards. The report on Switzerland’s Phase 1 peer review’ was published in June 2011. The Forum was then of the view that the legal and regulatory requirements in Switzerland needed to be improved.

Less of a laggard now

Switzerland has since steadily improved its standing in the eyes of members of OECD’s peer review process thanks to a host of measures it has taken over the past few years. It has signed scores of double taxation agreements (DTAAs) and tax information exchange agreements (TIEAs). Further, Switzerland has also signed the OECD/Council of Europe Convention on Mutual Administrative Assistance in Tax Matters.

In June 2014, Switzerland requested a supplementary report to assess the progress it has made in fixing its legal and regulatory framework for exchange of information. (If a country feels that it fulfils the recommendations of the Global Forum, it can request a supplementary report.)

In March this year, there was much relief here when Switzerland was admitted to Phase 2 of the peer review process. This is being seen as a recognition of Switzerland’s efforts to comply with the international standard for the exchange of information upon request.

During Phase 2 of this assessment, Switzerland will be judged on its ability and willingness to respond to requests for tax information from other countries. A peer review group of 30 countries – of which India is the vice-chair – will evaluate the processes over several months, beginning in the autumn of 2015. An overall rating is awarded after the two phases are concluded.

Crossing Phase 2 may not be so simple, though stakeholders feel the manner in which Switzerland treats information requests based on stolen data – such as the HSBC list that contained thousands of names from around the world, including 1195 from India – can be important going forward during the peer review process.

Stolen data may soon count too

So far, the Swiss tax authorities have refused to exchange information with foreign governments if those requests are based on stolen data. Switzerland can only examine requests for which investigations have been carried out independently from what the Swiss government considers data obtained in breach of Swiss law, Césard at SIF said.

But Switzerland’s position on stolen information may change, not least because of international pressure including OECD’s peer review processes.

On 13 May 2015, the Swiss government presented a proposal on how to deal with the issue of stolen data to Parliament. Experts believe that the proposal will most probably consist of a change in the existing law.

Mark Herkenrath at Alliance Sud – a grouping of Swiss development organisations that ‘strives to influence Switzerland’s policies to the benefit of the poor countries and their peoples’ – told The Wire, “We are expecting that the government will propose a change of law to the effect that requests for administrative assistance can be accepted even if they are based on passively acquired (as opposed to “actively acquired” or “paid for”) stolen data. The reason the government will propose this is that they are terrified of failing Phase 2 of the peer review by the Global Forum on Tax Transparency. Even banking industry associations have made it clear that they will not oppose a change of law. There is a considerable chance that Parliament will accept the proposal, whenever it is presented.” However, it is not clear how long this process could take, he added.

Assurances to India

To be sure, Switzerland receives an average of 1,500 requests for information every year, “one of the world’s most frequently contacted countries for administrative assistance”, the government said in a statement in May this year. “The treatment of requests based on stolen data is particularly challenging for Switzerland. The Federal Council will propose a clarification of the legal situation to Parliament,” it had said.

When Swiss economics minister Johann Schneider-Ammann visited India last month, Indian finance minister Arun Jaitley had said that the Swiss were willing to treat “admissions” by accountholders before the government of India as evidence based on which the Swiss will act. It is understood that some of the names revealed were based on independent investigations by the Indian income tax authorities. India has been pursuing details of 628 account holders who are a part of the HSBC list obtained by the former Geneva-based bank employee-turned whistleblower, Hervé Falciani, and provided to India by the French government in 2011.

The banking industry in Switzerland also seems to be coming into line over how stolen information should be treated. “The Swiss banks comply with international standards such as the ones issued by the Financial Action Task Force. It is of high importance that the Global Forum assesses Switzerland in a positive way to prevent reputational damage and negative implications on the finance sector,” Sindy Schmiegel Werner, Head of Public Relations, Swiss Bankers Association (SBA) told The Wire. “In principle, countries applying the rule of law should not base administrative assistance on information of criminal origin, such as stolen bank data,” she added. “However, Switzerland should consider granting administrative assistance in such cases as a means of last resort if otherwise its positive assessment by the Global Forum would be endangered. At the end, it is a decision taken by the government how Switzerland will proceed.”

Switzerland’s willingness to reconsider its position may also have been influenced by the fact that Luxembourg failed its Phase-2 assessment in 2013 because of its refusal to exchange information in cases where stolen data was involved.

For its part, the Swiss authorities deny any link between the publication of Indian names in the Swiss Gazette and the pending OECD peer review process. This measure is a standard procedure applicable independently of Phase-2 of Switzerland’s peer review, Césard said.

Need for new treaty with India

The task of tracking down ‘black money’ held by Indians in Switzerland will become substantially easier if and when a treaty for Automatic Exchange of Information (AEIO) between the two countries is signed. with India. Switzerland will commence talks on a treaty for AEIO under which both countries will commit to automatically pass information on violation of tax laws. In a statement last October, the Swiss government said that Switzerland would commence talks with India in this regard at the earliest after completion of its domestic procedures. The Swiss Federal Council has already confirmed to the Global Forum its intention to have the necessary laws in place to implement the new standard by 2017/2018 without prejudice to Switzerland’s parliamentary approval procedure, the government had said in a statement.

On whether more names will be published in the Swiss Gazette in the future, Césard said that “such cases may happen in the future,” adding that names will be published only when Swiss tax authorities are unable to notify the account holder of the Indian request for administrative assistance.

It seems that the suspense on other names of Indian tax evaders might continue to unfold in the Swiss Federal Gazette over the coming months.