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How will the US tax crackdown affect the Swiss banking industry?

by Eleanor Lawrie on Mar 21, 2014 at 11:05

How will the US tax crackdown affect the Swiss banking industry?

The Swiss banking industry is set to incur fines running into billions of dollars for unpaid US tax, as the Department of Justice (DoJ) shows it is serious about cracking down on offshore accounts.

Coutts and Schroders have already set aside millions to pay for potential liabilities relating to historic tax avoidance by their US clients, some of whom might have been using Swiss bank accounts without having paid the correct amount of tax to the US government.

Banks are being placed in four categories based on the severity of the avoidance. Banks in category one are already being investigated. Those in category two, which most banks have opted for, have indicated there may have been some non-compliance.

Banks in category three say all their clients have been fully within the law, while those in category four claim to have virtually no US clients.

‘In theory, this affects all the Swiss private banks other than UBS, who have already done their deal with the DoJ, and the other banks in discussion with the DoJ,’ said Mark Summers, head of Swiss international private client strategies at law firm Speechly Bircham.

‘It’s going to cost billions. How many billions, who knows?’

Summers considers the $780 million (£469 million) tax avoidance penalties incurred by UBS in 2009 as something of a watershed, noting the fine levied on accounts increases if they were opened after that ruling. UBS received the fine because of the offshore banking services it offered wealthy Americans, and was forced to hand over the name of 19,000 clients to the US authorities.

Schroders revealed a few weeks ago that it had set aside £15 million for potential liabilities.

‘This doesn’t only relate to US clients. It also relates to clients with any kind of a US connection where there may have been, inadvertently or otherwise, some non-compliance with US tax,’ said Schroders chief executive Michael Dobson.

‘Most of these clients are no longer clients of the firm, but we’ve taken this provision, as I imagine most Swiss banks have, against our 2013 results,’ he added.

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