Bank confidentiality at risk from whistle-blowers

By BILL BLEVINS [email protected]

Bill Blevins is the Managing Director of Blevins Franks. He has specialised in expatriate investment and tax planning for over 35 years. He has written books and gives lectures on this subject in Southern Europe and the UK.

Bank confidentiality suffered another knock when it was revealed that a whistle-blower obtained the names of 130,000 clients of a Swiss bank and passed them on to the French tax authorities.  

This was yet another nail in the coffin for bank confidentiality and all account holders are at risk of having their details passed on to tax investigators.

The bank concerned this time is a branch of private bank HSBC Holdings in Geneva.

Herve Falciani, a former employee in the IT department, stole data on the bank’s clients between late 2006 and early 2007. It now turns out that it was this stolen data that enabled the French tax authorities to get their hands on the names of 3,000 suspected tax evaders last year.  

French Budget Minister, Eric Woerth, admitted in August that the names had been supplied by an informer, but details were only revealed in December. It is thought that some 500 million euros has already been recouped from the unpaid tax. Woerth denied paying the informant who has since been given a new identity and is living under police protection in the south of France.

When the data theft originally came to light in early December, HSBC insisted less than 10 wealthy clients were involved. However, later it was revealed that the French tax authorities actually had 130,000 names belonging to the bank’s clients from “many other countries”.  

The list is thought to have been passed to France’s chief prosecutor for possible investigation into money laundering.

Switzerland reacted angrily to the news, saying it would suspend ratification of the double taxation agreement with France, claiming that the names were illegally obtained. France was keen to complete the process and maintained that it had not broken any French laws. It subsequently said it would hand back the information, though Switzerland remained concerned over what the French tax authorities will do with the data.

Switzerland and France signed an amendment to their existing DTA at the end of August, providing for an exchange of information in specific cases of tax fraud.  The agreement was then transferred to parliament for approval.

In March, Switzerland agreed to relax its banking secrecy rules and to disclose information on suspected tax evaders to other countries. The renowned financial centre wanted to avoid being blacklisted by the Organisation for Economic Co-Operation and Development (OECD) in response to threats from the G20 to wipe out tax evasion.  

In order to keep off the list, Switzerland needed to sign 12 Tax Information Exchange Agreements (TIEAs), which it accomplished in September.

Liechtenstein, Andorra and Monaco, the last three jurisdictions to be blacklisted by the OECD as “unco-operative tax havens” also agreed to conform to the OECD’s tax standards on exchange of information. When pressure forces jurisdictions such as these, as well as Switzerland, to relax their inherent principles on bank confidentiality, it must surely indicate that the writing is on the wall for banking secrecy.

The G20 Summit last April declared that the “era of banking secrecy is over”. A total of 170 Tax Information Exchange Agreements were signed following the Summit through to the end of 2009, compared with 45 between 2000 and 2008. This is hard evidence that countries around the world are submitting to international pressure to agree to supply tax information to authorities in other countries.

Other whistle-blowers

This latest whistle-blower revelation from France follows on from the controversial incident in February of 2008 when it was exposed that another former bank employee and informant sold stolen data from LGT bank in Liechtenstein to Germany and the UK, with many other countries also benefiting from information on their citizens evading tax through holding bank accounts in the tax haven.

In the US, whistle-blower Bradley Birkenfeld supplied information on 19,000 suspected US tax evaders in 2007, which eventually led to the US forcing Swiss bank UBS to disclose names of 4,450 US account holders. This resulted in the US voluntary tax disclosure scheme, which resulted in over 14,700 American citizens coming clean to report previously undisclosed foreign bank accounts.

The UK’s second voluntary disclosure scheme comes in the wake of 308 banks being ordered to divulge information on offshore clients. The French government has told its banks that they must disclose information on their connections with tax havens and Italy has raided 76 branches of Swiss banks.

The US has an official whistle-blower programme in return for a portion of the revenue collected from the information given. Other countries may well consider setting up their own schemes for tax informers who can break through the barriers of bank secrecy and gain confidential information on account holders.

The global financial crisis fuelled governments with a determination to reap in unpaid tax from tax evaders to boost their exhausted treasuries. During 2009, the clampdown on bank secrecy to stamp out tax evasion gathered momentum. There will be no turning back. The days are numbered for offshore banking confidentiality.

There are various legitimate structures available to beat the taxman where people can place their money honestly and so have no fear of being ‘caught out’ by their tax authority.

A specialist tax and wealth management firm such as Blevins Franks can advise you on how to reduce taxation and protect your assets for the future for you and your heirs.

To keep in touch with the latest developments in the offshore world, check out the latest news on our website