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Legal looting: the Swiss banks deal

Tax justice expert Richard Murphy investigates a deal with Swiss bankers to protect tax evaders

October 13, 2011
4 min read


Richard Murphy is a chartered accountant and director of Tax Research UK


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No one knows quite how much money is hidden in tax havens, but there is good reason to think that one third or more of the world’s dirty money is in Switzerland. This includes at least £125 billion of UK money. In the past few years the European Union and the UK have made real progress in getting access to data on funds held there, both officially through the EU savings tax directive and unofficially through stolen data. The US has made so much progress in similar ways that it was widely thought by the beginning of 2010 that Swiss banking secrecy – the deliberate construct designed by the Swiss to help people evade the taxes they owe in their home states – might at last be broken for good.

But then the Swiss fought back. In 2010 the powerful Swiss Bankers’ Association suggested a deal that would undermine the EU and US initiatives. Their gall was extraordinary. The offer was that they would act as tax collectors for other countries in exchange for anonymity on behalf of their customers. In other words, they’d pay some cash now in exchange for keeping banking secrecy.

At first the world looked on, bemused by such an offer from those who had to date put all their effort into aiding tax evasion. But two countries bit the offered cherry. One was Germany – although it looks highly unlikely that its deal with Switzerland will get parliamentary approval. That leaves the UK alone as a likely participant in the arrangement.

The upfront advantage of the deal is easy to see. The Swiss bankers, in effect admitting that they know which of their clients have evaded tax, have agreed to pay over between 19 and 34 per cent of the balances on those accounts to supposedly clear past tax liabilities. From 2013, moreover, they have agreed to deduct tax at rates of up to 48 per cent from interest, dividends and capital gains paid into these accounts where the taxpayer refuses to allow them to disclose details of the income in question to HM Revenue and Customs.

The advantage for George Osborne may be a few billion now, but the implications are disastrous. The clear message that this deal sends out is that criminality pays. Tax evasion is a criminal act. So is facilitating it. And yet this deal guarantees that the UK will not now prosecute those Swiss bankers who facilitated the crime – which must be good news for Tory trade minister Lord Green, who was formerly both chairman of HSBC and its Swiss private bank.

More than that, the deal guarantees the Swiss that the UK will no longer buy data stolen from their banks that provides the names and addresses of those committing this crime, so guaranteeing them anonymity. And the UK has also agreed that it will never investigate more than 500 cases a year of UK citizens evading tax through Switzerland – even though it is known that tens of thousands are likely to have done so – which puts an effective limit on the operation of justice in the UK to appease Swiss bankers who facilitated criminal behaviour.

As for the UK-based people who committed these crimes, the deal guarantees them anonymity for good – and therefore immunity from prosecution even though it is clear from the amount of money that will now be paid that their crimes involved enormous sums. Indeed, I have estimated that the tax that should be paid if all was settled with the normal levels of interest and penalties would be around £25 billion – at least five times what Osborne is likely to get from the deal.

The result is that many tax criminals will pay no more than 20 per cent of the tax and penalties they owe to have their affairs ‘regularised’ – the quaint way this deal terms the arrangement of whitewashing their calculated long-term criminality.

Compare that with the treatment of this summer’s rioters. I don’t excuse criminality, but these acts were by young people, caught in the spur of the moment who in most cases no doubt acted in ways they might subsequently have regretted. Their acts are not being forgiven. Their moments of folly are being exceptionally harshly punished when the hardened tax criminals are being forgiven.

No wonder Osborne and his party have been coy about this news. Because for a party of supposed law and order the Swiss tax deal reveals the truth: the Tories still believe that there should be one law for the rich and another for the poor, and that only the little people need pay tax.

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Richard Murphy is a chartered accountant and director of Tax Research UK


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