After pleading guilty to helping US citizens avoid taxation, Switzerland’s oldest private bank Wegelin & Co. announced it was to close, posing questions over the sanctity of the country's famous banking secrecy.
Here speaking to Citywire Global, Max Kaufmann, executive chairman of Geneva-based Lobnek Wealth Management, gives a view from inside the industry on what this means for Swiss investors.
The Wegelin story is a sad one. Two very talented bankers - Mr Hummler and Mr Bruderer - destroyed their cherished lifetime project through their unacceptable behavior.
In addition, with their unconsidered comments in front of the judge in New York, they provided new reasons for the US government to go ahead with their actions against Switzerland, complicating life even further for the key negotiator of the Swiss government.
Last, but not least, with their comments they earned anger and disregard from their fellow bankers in Switzerland.
The Wegelin story is indeed an additional sign of the profound change the Swiss banking industry is facing. Of course, Wegelin was a small bank and therefore easy prey for the US authorities.
Nevertheless, nobody doubts anymore that the Swiss banking secrecy in its actual form has come to an end.
On top of this the external pressure coming from the USA, OECD and EU is simply becoming too big. The Swiss government tries now to avoid the automatic exchange of information, but even this is no longer a holy cow.
All this means that the Swiss banks need to build their future success rather on existing competitive advantages, such as highly skilled and competent people, very long experience in banking, excellent service, innovative products, while also emphasizing the highly stable political, financial and social environment.
Established in the beginning to protect foreign people, especially during the Second World War, against unjustified government persecution, banking secrecy no longer has the same legitimacy.
This does not mean that Switzerland needs to favour total transparency.
It is simply a question of philosophy: whereas other countries start from the hypothesis, that citizens try to cheat whenever and wherever there is an opportunity, the Swiss government instead trusts its citizens, believing that they pay (at least in its vast majority) what is due to the tax authorities.
Difficult to say which philosophy is “more right”. However there is no doubt that life is certainly easier if you are a trusted person, by the way the same is true between parents and children.
The coming months, and perhaps years, will show how far the Swiss government has to go regarding the tax treatment of foreign investors in order to satisfy the mounting international pressure.
Its banking industry will definitely have to learn from the past and those banks who are able to do so, will present themselves in the future in a different and more competitive position.