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Business Comment

Jim Armitage: Alone and unloved, Swiss provide a salutary lesson for the Eurosceptics


Conservative backbenchers like to cite Switzerland as an example of how it’s possible to trade in Europe while remaining out of the European Union. But within Switzerland itself, this benefit is not quite so apparent. As the noose tightens on the world’s most famous tax evasion mecca, it finds itself increasingly friendless.

The descent of the Swiss secret banking system began in 2009, when the US tax authorities cornered a weakened UBS into handing over the account details of thousands of Americans suspected of evading taxes. There were howls of protest in Switzerland about what was seen as US bullying of a private company in a sovereign state. Gunboat diplomacy of the worst order.

In fact, of course, it was morally little worse than the CIA spraying the foreign crops of opium and coca destined to create havoc in US cities.

It was bad – very bad – for the country’s banking system. But it only got worse as emboldened US investigators then put the squeeze on other Swiss banks accused – mostly rightly – of helping rich Americans evade paying their dues.

So serious were these attacks from Washington that some Swiss banks actually had to close down as their dubious clientele fled.

However, it still had Europe’s tax dodgers to service – a massive market of many millions of wealthy folks whose blacked-out Mercedes-driving ranks were constantly being re-supplied from the states of eastern Europe.

But cash-strapped European governments, emboldened by the US effort, began hatching their own plans. For several years now, they have been slowly forcing offshore centres to share information on their shadowy clients.

This week saw a major breakthrough as Luxembourg and Austria gave key concessions on their banking secrecy arrangements.

You can absolutely guarantee that this will have been in return for some pretty hefty compensation in other areas to soften the blow for the pair. That’s the way the EU club works. It’s all about negotiations and deals. What you lose on the swings, you get back on the roundabouts (unless, of course, you are a bankrupt country on the Mediterranean).

Switzerland, however, finds itself utterly isolated. While it has so far managed to do one-off deals with individual states, now, without even Luxembourg and Austria as allies, it will surely find itself under pressure to hand over its secrets from all states.

And, not being in the union, it will have no power to influence the debate, and no leverage to negotiate compensatory perks.

Clearly, Swiss politicians will want to trade banking secrecy for greater access to European customers and markets. But the EU bloc will understandably refuse to negotiate terms.

Optimists in Switzerland like to point out that its banking industry will survive due to its long history of being a safe haven for the world’s wealthy. Indeed, the Cyprus experience can only have been a wonderful marketing event.

But this is surely a misnomer. UBS handed over the banking details of nearly 4,500 of America’s richest people. Rogue Swiss bank employees have sold thousands more to foreign tax authorities.

Ask Emilio Botin, whose family controls Santander bank and was accused of squirreling the dynasty’s wealth away in Switzerland. His name was on the list of one of the Swiss leakers, resulting in a probe by Spanish authorities. As it happened, he had already settled the case voluntarily, paying a back-tax bill of €200m but his naming on the list caused huge embarrassment.

Banking secrecy is gradually becoming a thing of the past around the world. The death throes surely loom for many of Switzerland’s private banks and the super-profits they generate for the country’s economy. Without a seat at Europe’s table, Switzerland will struggle to negotiate for anything to replace them.

Apple boss dodges senators on tax evasion

Note the care with which Tim Cook picked his language when quizzed on Apple’s taxes. “We pay all the taxes we owe, every dollar,” he declared to Washington’s finest this week. Yes, but that’s not the point, Tim, as you well know. The senators have never accused you of not paying your tax bills – that would be tax evasion. Illegal.

What they’re condemning is the fact that a corporate giant like yours – the most valuable in the world by market capitalisation – bases its entire global intellectual property in a tiny tciy (Cork) in a tiny island (Ireland).

Asked why, Apple seemed evasive: ‘we have had that arrangement for three decades’.

Meanwhile, the whole Apple row in the Senate revolved around taxes it was reducing outside the US, in places like the UK. Cook got dragged to Washington but, really, he should have been answering to Westminster.

Prosecutors go all out for SAC

Vanity Fair’s lawyers must have deliberated somewhat before approving this month’s feature on the legal travails of one of the world’s most successful hedge fund tycoons. Headline-sized letters at the top of the page declare:  “If Steve Cohen gets off, he will be the OJ Simpson of insider trading,” says a source.”

Well, guess what? If Wall Street’s gossips aren’t a million miles from the mark, he may do just that.

Steve Cohen is not just a big fish on Wall Street. He is a monster white whale. For years, his Connecticut-based SAC hedge fund generated some of the most astonishing returns in the world. How? In his view, one word: “Edge”.

US prosecutors took a dim view of what “edge” means, deciding that it could mean trading illegally on secret inside information. SAC and Mr Cohen deny that.

For five years, federal investigators and an ambitious attorney in Preet Bharara have been muscling associates and employees of SAC. But still no charges have been laid against Mr Cohen.

This past week or so saw big developments in what must be the biggest insider trading investigation ever to sweep America.

First, Mr Cohen was subpoenaed to appear before a grand jury. The same then happened to four of his top executives.

Now it appears he has been negotiating a deal for SAC to pay a huge fine and close itself to outside investors. That would bring humiliation, but no jail time for Mr Cohen.

Not for the first time, Wall Street awaits the white whale’s next move.