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.

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BANKING SECRECY: NOT TO BE GIVEN UP LIGHTLY
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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.

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LGT: REPRESENTING LIECHTENSTEIN'S BANKING SYSTEM
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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."

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UBS: AN ANOMALY IN SWISS BANKING?
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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!"

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COMMENT
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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