VZCZCXRO4200
OO RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHVI #0266/01 0681405
ZNR UUUUU ZZH
O 091405Z MAR 09
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2117
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
INFO RUCNMEM/EU MEMBER STATES

UNCLAS SECTION 01 OF 02 VIENNA 000266 
 
SIPDIS 
SENSITIVE 
 
TREASURY FOR FTAT, OCC/SIEGEL, AND OASIA/ICB/ATUKORALA 
TREASURY PASS FEDERAL RESERVE, FINCEN, AND SEC/JACOBS 
 
E.O. 12958: N/A 
TAGS: EFIN AU
SUBJECT:  Austria Circles Wagons on Bank Secrecy 
 
¶1. (SBU) SUMMARY:  Pressure is mounting on Austria's 
bank secrecy regime from large EU member states like 
Germany (who see it as promoting tax evasion by non- 
Austrians) and beyond.  The GoA remains unwilling to 
touch this highly sensitive issue, since bowing to EU 
pressure would cause another wave of anti-EU sentiment 
in a country already known for its skepticism toward 
Brussels.  Even a willing GoA would need to bridge the 
wide moat around bank secrecy -- namely its 
constitutional status (legislating change requires a 
two-thirds parliamentary majority, which the current 
"grand coalition" does not have).  Caught between 
pressure from the EU/OSCE/G-20 and a potential voter 
backlash, the current Austrian government has no clear 
way out at the moment -- though EU Commission 
President Barroso has floated an intriguing option: 
abolish secrecy just for non-Austrians.  END SUMMARY. 
 
Pressure Growing Against Austria's Bank Secrecy 
- - - - - - - - - - - - - - - - - - - - - - - - 
 
¶2. (SBU) Protests from other Europeans over the strict 
confidentiality in Austrian banking are a hardy 
perennial:  German representatives raise the issue 
regularly in the OECD, responding to perceived tax 
evasion by German nationals and German banks' 
complaints of a competitive disadvantage.  In the 
past, GoA policy-makers brushed off such presure -- 
almost as a badge of honor at home -- for instance in 
March 2008, when EU Taxation and Customs Union 
Commissioner Laszlo Kovacs called for an end to 
Austrian banking secrecy.  However, the GoA appears to 
realize that the current crisis poses a new set of 
challenges: 
-- the economic downturn is motivating other EU and 
OECD governments to crack down on tax evasion, as a 
potential source of new revenue; 
-- USG inroads against Switzerland (a key Austrian 
ally on bank secrecy) in the UBS case and a successful 
German campaign against prominent tax evaders in 
Liechtenstein have signaled that the international 
community can effect change, and 
-- bank reputations worldwide have taken a dire hit. 
 
Drawing Lines in the Sand 
- - - - - - - - - - - - - 
 
¶3. (U) Bank secrecy is a holy cow in Austria. 
Speaking for social democrats, former Finance State 
Secretary Christoph Matznetter said that secrecy is 
not in place to "protect anybody committing a crime" 
and that Austria will defend it with "teeth and claws" 
-- a sentiment echoed across the aisle by conservative 
finance expert Guenther Stummvoll (head of the 
Austrian Parliament's Finance Commission). 
 
¶4. (SBU) On February 24, Finance Minister/Vice- 
Chancellor Josef Proell said publicly that bank 
secrecy is not in question and that Austria not a tax 
haven, since it cooperates in suspected criminal tax 
cases.  Chancellor Werner Faymann (a Social Democrat) 
hailed bank secrecy as something that helps small 
depositors (COMMENT: a bizarre notion, but widespread 
in Austria).  Responding to media speculation, both 
emphasized that Austria will not/not give up bank 
secrecy in exchange for more EU support to Austrian 
banks active in Central and Eastern Europe.  On March 
3, in response to our informal inquiry, Finance 
Ministry (MoF) chose to confirm to us in writing that 
its position on bank secrecy is unchanged ("not up for 
discussion"). 
 
¶5. (SBU) Austrians argue that tax evaders are deterred 
by withholding taxes on bank interest.  The GoA cites 
EU Council Directive 2003/48/EC (3 June 2003, on 
taxation of savings income in the form of interest 
payments).  In that directive, Austria, Belgium, and 
Luxembourg agreed to apply a withholding tax on 
foreign deposits of 15% (2005), 20% (2008) and 
ultimately 35% (from 2011); the GoA retains 25% of 
withholding tax revenues and transfers 75% to the 
Member State of residence of the account's beneficial 
owner.  Michael Ikrath (conservative MP and Secretary 
General of the Savings Bank Association) called this a 
"prohibitive" tax on foreign accounts and drew a contrast 
to Switzerland:  in Austria, bank secrecy can be 
lifted in ongoing criminal proceedings against tax 
fraud (NOTE: but not/not for routine checks by tax 
 
VIENNA 00000266  002 OF 002 
 
 
authorities -- END NOTE). 
 
¶6. (SBU) Privacy groups and many media outlets voice 
support for bank secrecy.  Hans Zeger, head of ARGE 
DATEN (an Austrian data protection/privacy NGO) voiced 
concern that abolishing confidentiality would lead to 
intrusive, proactive government monitoring rather than 
reactive crime-fighting.  There are however, experts 
in Austria who criticize bank secrecy as contributing 
to fraud and misallocation of capital. 
 
Looking for Allies, Hinting at Small Measures 
- - - - - - - - - - - - - - - - - - - - - - - 
 
¶7. (U) During a visit to Vienna this weekend, EU 
Commission President Barroso raised bank secrecy 
repeatedly and hinted at a potential compromise: 
abolish secrecy only for foreigners (non-Austrians), 
thereby addressing international tax evasion while 
averting a backlash in Austria. 
 
¶8. (U) On March 8, GoA FinMin Proell attended a mini- 
summit of Austrian, Swiss, and Luxembourg 
representatives to discuss a joint front against 
abolishing bank secrecy.  The three governments agreed 
to fight any inclusion on a "black list" of 
uncooperative governments and expressed regret that 
the issue has left the European arena and is now on 
the G-20 agenda.  In televised comments on the 
meeting's margin, however, Proell expressed 
willingness to improve cooperation among tax 
authorities -- short of abolishing bank secrecy. 
 
COMMENT: Austrian Government Caught in Bind 
- - - - - - - - - - - - - - - - - - - - - - 
 
¶9. (SBU) The topic of bank secrecy remains highly 
sensitive in Austria, and not simply for the wealthy: 
even average Austrians (following the lead of dominant 
daily newspaper Krone Zeitung) see in bank 
confidentiality the ultimate protection against the 
state's tentacles (like a financial bill of rights). 
 
¶10. (SBU) Even if the coalition parties (SPO and OVP) 
wanted to dilute bank secrecy -- and there is no 
indication of that -- they would need support from at 
least one other party to achieve a two-thirds majority 
in Parliament.   NOTE:  The bank secrecy regulation 
has the status of constitutional law, which means any 
changes require a two-thirds majority of votes cast in 
the lower house of Parliament ("Nationalrat"), with a 
quorum of at least half of all members -- END NOTE. 
 
¶11. (SBU) Backstepping on bank secrecy would hand a 
victory to the far-right opposition parties FPO and 
BZO, who would welcome the chance to bash the EU and 
Austrian authorities.  The FPO and BZO have said "no" 
to any changes (including just for foreigners) and 
relish having this issue in the headlines.  Of 
Austria's five major parties, only the Greens have 
signaled any willingness to compromise bank secrecy 
(even Greens express "privacy" concerns).  Greens 
would extract a high price for touching this third 
rail. 
 
¶12. (SBU) Any significant dilution of bank secrecy 
would cause another wave of anti-EU sentiment in 
Austria and hurt centrist parties in the lead-up to 
June 2009 European elections.  The GoA's governing 
SPO and OVP parties may have to choose between severe 
international pressure and a voter backlash -- 
presuming the GoA can manage to act, given its limited 
majority.  Fortunately for our public diplomacy, 
European pressure means the bank secrecy issue is 
not/not viewed primarily as a USG campaign against 
Austria. 
 
KILNER