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R 190955Z MAR 09
FM AMEMBASSY BERN
TO RUEHC/SECSTATE WASHDC 5724
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC

2009-03-19 09:55:00	09BERN122	Embassy Bern	CONFIDENTIAL	09BERN98	VZCZCXYZ0000\
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DE RUEHSW #0122/01 0780955\
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FM AMEMBASSY BERN\
TO RUEHC/SECSTATE WASHDC 5724\
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC\
	C O N F I D E N T I A L BERN 000122 \
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SIPDIS \
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E.O. 12958: DECL: 03/17/2019 \
TAGS: EFIN EINV ECON SZ
SUBJECT: SWISS RELAXATION OF BANKING SECRECY: WHAT DOES IT \
MEAN \
 \
REF: BERN 98 \
 \
Classified By: CDA Carter for reasons 1.4(b) and (d). \
 \
¶1. (C) The Swiss Federal Council on March 13 announced that \
Switzerland intends to adopt the OECD standard on \
administrative assistance in tax matters in accordance with \
Art. 26 of the OECD Model Tax Convention.  Ambassador Manuel \
Sager, Head of the Foreign Ministry's Sectoral Policy \
Division and Chair of the group of experts appointed by the \
Federal Council to optimize cooperation in the case of tax \
offenses, stated that the relaxation of banking secrecy is \
designed to extend administrative procedures under \
Switzerland's double taxation agreements to include tax \
evasion.  Sager cautioned that the inclusion of tax evasion \
within the administrative assistance framework is not an \
automatic process, but will require renegotiation of \
Switzerland's double taxation agreements with over 70 \
countries, parliamentary ratification, and be subject to \
possible challenge by public referendum. Sager stated the \
group of experts will turn their immediate attention to \
setting the country priorities for tax agreement \
renegotiation and "must consider domestic politics" in \
choosing priorities.  Despite controversy over the UBS case, \
Sager expects that the U.S. will place high on this list. \
 \
¶2.  (C) Summary continued. Sager expressed concern about the \
outcome of the UBS case, commenting that the Swiss view the \
John Doe summons as a fishing expedition, and stating that it \
is "highly doubtful" that information on these clients "would \
ever be handed over." The Swiss are hoping that the U.S. \
finds Switzerland's concessions to include tax evasion as a \
positive step that will garner U.S. support against the \
placing of Switzerland on any blacklist at the April G-20 \
meeting.  Post does not recommended that the USG push to be \
the first test case for tax treaty renegotiation given the \
negative Swiss sentiments surrounding the UBS trial and the \
potential success of a public referendum to block any \
renegotiated treaty.  Instead, post suggests lobbying for \
placement near the top of Switzerland's renegotiation list. \
End Summary. \
 \
--------------------------------- \
SWITZERLAND TO RELAX BANK SECRECY \
--------------------------------- \
 \
¶3.  (U) Amid escalating pressure from several countries to \
abolish bank secrecy and increasing calls for a G-20 \
blacklisting, the Swiss Federal Council on March 13 announced \
that Switzerland intends to adopt the OECD standard on \
administrative assistance in tax matters in accordance with \
Art. 26 of the OECD Model Tax Convention.  According to the \
Federal Council, the decision "will be implemented within the \
framework of bilateral double taxation agreements." \
 \
¶4.  (SBU) Political/Economic Counselor and econoff met with \
Ambassador Manuel Sager, chair of the group of experts \
appointed by the Federal Council to optimize cooperation in \
the case of tax offenses, to discuss the Federal Council's \
decision.  According to Sager, the relaxation of banking \
secrecy is designed to extend administrative procedures under \
Switzerland's double taxation agreements to include tax \
evasion.  The Swiss will no longer limit administrative \
procedures to "dual tax crimes" or tax crimes recognized in \
both countries, but intend to expand the tax agreements to \
include tax evasion, which has historically been regarded as \
a non-crime in Switzerland.  The Swiss are adamant that the \
renegotiated agreements be limited to broadening \
administrative procedures for specific cases with sound \
evidence and will not allow so-called "fishing expeditions" \
into bank records. \
 \
-------------------------------- \
BUT WHEN WILL IT BE IMPLEMENTED? \
-------------------------------- \
 \
¶5.  (C) Sager cautioned that the inclusion of tax evasion \
within the administrative assistance framework is not an \
automatic process, but will require renegotiation of \
Switzerland's double taxation agreements with 70 countries. \
In addition, the renegotiated treaties will require \
parliamentary approval and will be potentially subject to \
Switzerland's public referendum process. (Note: In \
Switzerland, a referendum must be held if opponents to any \
bill gather 50,000 signatures requesting it. End Note.) \
Sager opined that parliamentary approval is expected without \
difficulty given the current political will to put this issue \
to rest.  However, he expects that at least the SVP, the \
right-wing party, will press for a referendum to submit any \
renegotiated treaty to public vote.  This process will slow \
down implementation of the new agreements, and potentially \
could result in the failure to adopt a renegotiated treaty. \
 \
Based on press reports, initial public sentiment towards \
relaxation of banking secrecy in general appears positive. \
However, public views of the more vociferous anti-banking \
secrecy countries, including the U.S., tend to be negative \
and accusatory of bullying tactics. \
 \
¶6.  (C) Sager stated the group of experts will turn their \
immediate attention to setting the country priorities for tax \
agreement renegotiation.  It is hoped that the priorities \
will be set in the next few weeks, so that the top countries \
can be approached to begin the negotiation process.  Sager \
commented that the experts "must consider domestic politics" \
in choosing priorities and would be looking initially for a \
country that would sail through the approval process with the \
least controversy. \
 \
¶7.  (C) In regards to renegotiation with the U.S., Sager \
stated that pressure by the U.S. on the Swiss government to \
hand over documents in the UBS case prior to conclusion of \
the Swiss administrative process caused some to question "why \
bother with a new amended treaty when no one follows the \
procedures anyway."  Nevertheless, Sager expects that the \
U.S. will place high on the list.  On a positive note, \
according to Sager, the Swiss government views renegotiation \
as a way forward, and does not apply it to any ongoing \
issues.  Sager does not couple the UBS court case with \
renegotiation of the tax agreement nor does he view it as a \
hindrance to renegotiation other than possible negative \
public sentiment during the referendum process. \
 \
------------------------------------ \
UBS CASE CONTINUES TO RAISE CONCERNS \
------------------------------------ \
 \
¶8.  (C) Despite the fact that the relaxation of banking \
secrecy is not linked to the UBS case, the Swiss government \
would prefer a political solution to this ongoing problem. \
Sager expressed concern about the outcome of the UBS case, \
commenting that the Swiss view the John Doe summons as a \
fishing expedition, and stating that it is "highly doubtful" \
that information on these clients "would ever be handed \
over."  He hypothetically questioned whether the U.S. would \
supply information on 52,000 unnamed accounts if, for \
example, a Brazilian court, requested this information.  He \
was interested in knowing if the U.S. had a legal mechanism \
for such an exchange. (Note: Sager received a Masters in Law \
Degree from Duke Law School and practiced insurance defense \
law in Phoenix for two years in the 1980's so he has a \
general knowledge of U.S. law. End Note.) \
 \
-------------- \
G-20 BLACKLIST \
-------------- \
 \
¶9.  (C) Sager inquired as to the USG views towards the calls \
for a G-20 blacklisting of tax havens.  Switzerland's timing \
for relaxing banking secrecy was not coincidental, but \
intended to stave off any type of blacklisting, according to \
Sager.  The Swiss are hoping that the U.S. finds \
Switzerland's concessions to include tax evasion as a \
positive step that will garner U.S. support against placing \
Switzerland on any blacklist at the April G-20 meeting. \
 \
------- \
COMMENT \
------- \
 \
¶10.  (C) The Swiss will have a small negotiating team that \
must tackle over 70 double taxation treaties.  It is \
essential that the U.S. rank at the top of the list to ensure \
that renegotiation is not delayed by months or even years. \
With the current press surrounding the UBS case, post does \
not recommended that we push for the U.S. to be the first \
test case.  However, once one agreement has been approved, it \
will likely be easier for other countries to follow. \
 \
CARTER \