LIECHTENSTEIN DIALOGUE: THE FUTURE OF BANK SECRECY

UNCLAS BERN 000527 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EFIN ETRD SZ SUBJECT: LIECHTENSTEIN DIALOGUE: THE FUTURE OF BANK SECRECY ¶1. (U) Summary. At the annual forum "Liechtenstein Dialogue," bankers and financial wealth management companies met in Liechtenstein to discuss private wealth management, and more particularly the future vision of a financial center built on banking secrecy. While the panel speakers ranged from die-hard defenders of banking secrecy to a representative of OECD's Centre for Tax Policy, the local consensus revealed that 1) Liechtenstein and Switzerland's banking secrecy policies are needed to keep these small countries competitive and should not be eliminated due to fears of having secrecy "criminalized by voices overseas." However, modifications to the system, such as tax sharing information agreements, may be necessary to meet modern demands and an ever-evolving financial system; 2) Liechtenstein views the U.S. Department of Justice's case against its largest bank, LGT, as an investigation not just of one bank, but an affront to Liechtenstein's financial center policies and country's culture of privacy; and 3) Switzerland sees the similar investigation of UBS, its largest bank, as an individual bank specific case and not a reflection on Switzerland's banking policies. End Summary. -------------- BANKING SECRECY: NOT TO BE GIVEN UP LIGHTLY -------------- ¶2. (U) At the annual forum "Liechtenstein Dialogue," bankers and financial wealth management companies met in Liechtenstein to discuss private wealth management, and more particularly the future vision of a financial center built on banking secrecy. Both Switzerland and Liechtenstein's financial centers have come under increasing attacks over the last few years for abetting tax evaders and harboring illicit funds; the most notable case being the current U.S. Department of Justice investigation of LGT and UBS, Liechtenstein and Switzerland's largest banks, respectively, for assisting U.S. taxpayers with tax evasion. ¶3. (U) While the panel speakers ranged from die-hard defenders of banking secrecy to a representative of OECD's Centre for Tax Policy, Swiss Bankers Association Chairman Pierre Mirabaud's comments, which received much applause, appeared to sum up local sentiment on banking secrecy. According to Mirabaud, bankers have enormous amounts of detailed information on their clients that fully justify client privacy. He questioned whether banks should play the role of "tax collectors, spies, and police of the state." He also noted that "secrecy is a competitive advantage" that is "clearly one factor in the success of (Liechtenstein and Swiss) banking." If small countries have this competitive advantage, "why give it up?" ¶4. (U) UBS Board Member Jurg Zeltner supported Mirabaud by adding that secrecy should not be "played down" as it protects client privacy and that it should not be eliminated for fear of having secrecy "criminalized by voices overseas." While Zeltner sympathized with the tax authority of the state, he also questioned whether UBS is co-responsible for tax evasion or fraud, and if, yes, where does the responsibility start and when should it override the protection of clients. ¶5. (U) Despite this local pro-banking rhetoric in support of secrecy, all panelists agreed that banking secrecy alone was not the only advantage to their local financial centers. While the bankers were not yet willing to admit that more transparency is needed, they agreed that to lose secrecy would not mark the demise of their financial centers. As one speaker noted, many other positives could be highlighted, such as political stability. More importantly, there was a general understanding that banking secrecy needed to evolve along with financial systems. For example, mechanisms, such as the tax information sharing agreement being negotiated between Liechtenstein and the U.S., were likely to provide the necessary state enforcement tools without fully breaching secrecy and client privacy. -------------- -- LGT: REPRESENTING LIECHTENSTEIN'S BANKING SYSTEM -------------- -- ¶6. (U) It became apparent from panel discussions that Liechtenstein views the U.S. Department of Justice's case against its largest bank, LGT, as an investigation not just of one bank, but an affront to Liechtenstein's financial center policies and the country's culture of privacy. According to Fritz Kaiser, Founder of Liechtenstein's Private Wealth Council, the investigation did not just call into question banking secrecy, but the country's culture of privacy. Fritz noted third party information is always kept in confidence and that transparency challenges this fundamental ideal. He highlighted that Liechtenstein did not want an American or German culture that praises transparency over privacy rights. ¶7. (SBU) Urban Eberle, CEO of Bank Alpinum, took pains is assuring the DCM on the margins of the meetings that LGT was not operated like UBS, whose bankers intentionally skirted U.S. tax laws by aiding and abetting its U.S. clients through measures such as smuggling diamonds out of the U.S. in toothpaste. Eberle said, "I would never smuggle anything to one of my clients" as if that was a measure of responsible banking practices. Fritz defended Liechtenstein banking practices by commenting, "Liechtenstein is not the bad guy. Around the world big law firms stretched tax planning and used Liechtenstein and Switzerland." -------------- UBS: AN ANOMALY IN SWISS BANKING? -------------- ¶8. (U) Switzerland, on the other hand, views, at least publicly, the similar investigation of UBS, its largest bank, as an individual bank specific case and not a reflection on Switzerland's banking policies. UBS Board Member Zeltner, although couching his comments with "I am not a UBS spokesperson", noted that "what has happened in the U.S. is a bilateral matter between the bank and the U.S. government and does not affect Swiss banking as a whole and it does not affect the Swiss as a government or financial center." His statement received general agreement from the audience, which may be wishful thinking. ¶9. (SBU) Wishful thinking was very much in evidence at the two day event. The first two speakers initially declined to field questions from the Luxembourg Ambassador on the current financial crisis. When the Ambassador walked out in frustration after the first two sessions, the organizers quickly huddled, agreed to take those questions, and invited the Ambassador to rejoin the dialogue (all in front of the journalists also in attendance). The mood remained optimistic: "despite the turmoil, there will be a tomorrow!" -------------- COMMENT -------------- ¶9. (SBU) Despite panelists providing both points of view on banking secrecy, the overall impression given by the banking industry audience was that secrecy should remain an advantage to Switzerland's and Liechtenstein's financial centers and that resistance must be weathered against U.S. and other European pressure to change for their "political whims." However, as US embassy Bern has often seen, there is a disconnect between the public dialogue and the reality of what the professionals and government representatives have actually accepted: in this case, modifications of banking secrecy through a tax information exchange agreement. CONEWAY