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Tour d’horizon
Urs Ph. Roth, CEO, Swiss Bankers Association
Ladies and Gentlemen,
In his keynote presentation Georg Krayer expressed some remarkable ideas on protection of the private domain, which is highly topical for us and is preoccupying us time and again in connection with various dossiers. In my statement I would like to deal in greater detail with two topics: Round II of the bilateral negotiations with the European Union and the new ordinance of the Federal Banking Commission (FBC) on combating money laundering. Finally, as is traditional, I will close my statement with a review of our communication activities.
Bilaterals II - Switzerland's trump cards have to be played
The second round of bilateral negotiations between the European Union and Switzerland is one of the most important topics for our financial centre. It is therefore evident that I would like to take a closer look at the three dossiers that are most important for us and to set out our clear position to you.
1. Taxation of interest income
During the summer period, when good news stories were few on the ground, it was only natural that various rumours should have been bandied about and numerous scenarios played out in the media. It would therefore be appropriate to recall the facts:
The negotiations between the EU and third states began in the course of this year. The first round of negotiations with Switzerland took place on June 18 and the second on September 3, 2002. Anyone who seriously expects that agreement can be reached on such a complex and important issue after only two rounds of negotiations totally fails to understand the political realities.
- Switzerland has expressed its position repeatedly and clearly.
I would summarise the position under the following points:
- Bank customer confidentiality is not negotiable.
- The generous offer to introduce a withholding tax in Switzerland on the basis of a paying agent model should the directive be adopted by the EU States.
- No automatic exchange of information after expiry of the transitional period.
- Application of the same measures to both associate and dependent territories of the EU.
- Inclusion of other important financial centres like Singapore, Hongkong, Japan or Canada in the negotiations.
The EU has also conducted negotiations with the USA. However, according to the Wall Street Journal of July 25, 2002, the current administration has decided not to negotiate with the EU on taxation of interest income. We do not yet have any final confirmation of this position; but it appears that the Americans will not show much cooperation over the introduction of an automatic exchange of information.
This factual situation leads me to draw the following conclusions:
- We note that certain EU countries, with Great Britain at the forefront, are unsettled by our clear negotiating position and are afraid that the compromise reached in Feira might be called into question and that we might at best return to the coexistence model. Attempts are therefore being made to step up the pressure on Switzerland through all available channels. Every means seems to be right for this purpose, be it through international organizations such as the G7-G8 or the OECD, through increased diplomatic activity or even through a campaign waged in the media against bank customer confidentiality.
- People abroad seem to like to forget that the Swiss offer of a paying agent’s tax constitutes a very efficient measure. But some finance ministers would much prefer to make the public believe that the financing of terrorism, funds of criminal origin or tax offences are one and the same matter. They believe that by doing so they can derive the justification for an exchange of information. But it is an interesting fact that the intended exchange of information within the EU is by no means applied to all forms of investments. Thus, for example, income from dividends is expressly exempted from the exchange of information. Already now the EU has the principle of withholding tax for this category of investments.
- The future directive on taxation of interest income provides for accurate and detailed identification of the beneficial owner. As we all know, the identification of beneficial owners in the case of Anglo-Saxon trusts is more than rudimentary; particularly when parties to the trust are domiciled under different jurisdictions. By this means, investors in Anglo-Saxon trusts can totally evade any automatic exchange of information. The argument of tax equity thus cannot credibly be brought into the discussion!
2. Combating customs fraud
The negotiations on customs fraud began just over one year ago. Before negotiations started, Switzerland made it clear that it supports the EU efficiently in the fight against customs fraud, namely against organized smuggling.
You will perhaps recall that at that time the EU had assigned top priority to this dossier and had insisted that no further bilateral negotiations would be started if no solution was reached on the fraud dossier. Astonishingly enough, the EU unilaterally adjusted the priorities of its dossiers, with the result that it is now focusing all its efforts on the negotiations on taxation of interest income, with a view to the ambitious timetable set by itself.
Furthermore the European Commission has asserted several times that Switzerland plays a central role in the fight against customs fraud and that its lack of willingness to cooperate is leading to a loss of several billion euros in the Community budget. However, the Commission has not offered any evidence of this assertion to date. What is more, a report published in July by the Anti-Fraud Office (OLAF) shows that the measures taken by the EU itself, which had apparently led to 25% fewer cases of fraud being uncovered, had given rise to a massive reduction of the budget deficit. This clearly shows that the EU itself would have the power to bring about a reduction of fraud cases, for example, through more efficient investigative measures. But it appears to be much simpler to point an accusing finger at others and, for example, always to blame Switzerland for the EU budget deficits.
The Swiss financial sector has never eluded a constructive solution provided that:
- The negotiations are aimed at constructively solving actual problems.
- The principles of our legal system, such as the principle of double criminality, the principle of ensuring a possibility of appeal for persons who are involved in a proceeding, and the principle of proportionality, are upheld.
- The EU does not demand more of Switzerland, as a third-party state, than it does of its own Member States.
We are convinced that Switzerland has shown a great deal of goodwill and seriousness on this dossier.
3. Free trade in services
The formal negotiations on this dossier also began in the course of the summer. However, the negotiations are still at too early a stage for there to be any visible results.
In any case it appears that:
- the price for Switzerland has been constantly increased during the negotiations by a succession of new demands. This applies in particular to any adoption of Community law in the area of competition law and consumer protection.
- free trade in services should focus on simplifying access to the Swiss and Community financial markets. An extension to other areas not directly connected with the actual subject of negotiations should be rejected. One example that can be cited is the fight against money laundering, in which the standards are set by international organizations such as the FATF or the Basel Committee on Banking Supervision.
The Swiss Bankers Association has always advocated free access to markets - including in the financial sector. However, this cannot mean taking over foreign regulations, in this specific case the acquis communautaire or, as the case may be, future acquis.
Combating money laundering - important but with a sense of proportion
The 11th of September 2001 and the search for the monetary movements made by the terrorists prior to the attacks on the USA have led to global changes in banks' duty to exercise due care and diligence. Suddenly one had to realize that the banks should track down not only assets of criminal origin but also those intended for a criminal purpose. And, just as suddenly, it was no longer only billions of dollars of drug money that the banks were supposed to locate but maintenance payments to "students" of the order of a few hundred dollars.
Our Swiss system has proved itself with regard both to combating money laundering and to measures against the financing of terrorism. The identification of customers and establishing the beneficial owner have enabled us to report quickly to the criminal investigation authorities - in accordance with the money laundering law - the isolated traces that the suspects have left in our banks and to freeze the corresponding assets without further ado for the attention of the prosecuting authorities. We have earned international recognition for this system.
The basis and prerequisite for combating money laundering is formed by the Swiss banks' code of conduct with regard to the exercise of due diligence (CDB), which is revised every five years. At the moment we are preparing a revised CDB 03, which should come into force on July 1, 2003. Apart from some minor changes, the main focus of the new Agreement is likely to be on adjusting identification without a personal visit to the requirements of the money laundering law, something which is of practical importance, particularly for Internet banking.
To supplement the CDB there is the FBC's money laundering ordinance, the new version of which is currently being debated by Parliament. The following important innovations and far-reaching changes are being demanded of the banks:
- Consistent and risk-adequate diligence for legal and reputation risks. "Know your customer" means not only that the banks have to know the identity of their customers and any beneficial owners who may be behind them, as is required by the Due Diligence Agreement. First of all, reputation risks have to be recognized, defined and categorized. Then an assessment and a classification have to be carried out for all customers on the basis of the defined risk parameters so that it is possible to establish on which relationships involving increased risks additional information should be collected. Typical cases of increased risk are customer relationships with foreign politically-exposed persons (“potentates”), particularly when they come from corruption-prone or otherwise legally unstable countries.
- Introduction of computer-based transaction monitoring systems in order to be able to detect unusual behaviour in payment transactions, and thus increased risks.
- Finally, it is expected that banking groups will exercise this due diligence not only in Switzerland but also in their foreign subsidiaries and branches, by way of consolidated monitoring. They will then be able to assess and influence their risks globally.
We agree with the principles of risk-adjusted management of reputation risks and also with the application of new technologies for this purpose.
However, we have to level criticism at the time frame that is envisaged by the supervisory authority, which wishes to have everything completed only one year after the act comes into effect. Today we have a system that is exemplary compared with those of other countries, and it would be dangerous and counterproductive to call into question what has been achieved up to now by overhastily introducing sweeping changes. The reputation of our financial centre could also be jeopardized as a result. However reasonable the concept of global consolidated monitoring of reputational risks may be, we should not lose sight of the fact that this implies an extra territorial influence being exerted on the conduct of foreign subsidiaries which have to comply with different legal systems. Just as foreign banks in Switzerland discriminate against themselves if they cumulatively apply the regulations of their home countries in addition to fulfilling Swiss requirements, so are we putting our own banks at a disadvantage in foreign markets if we demand that they apply our Swiss standards in full. Therefore a degree of moderation is required when implementing these principles.
Intensive communication in the dialogue in Switzerland and abroad
In February of this year I said at this rostrum that communication is our responsibility. In keeping with this motto, numerous communication activities have since taken place in Switzerland and abroad, and I would like to consider them briefly. I will then take a look at our Association's future as far as communication is concerned.
First of all, abroad. The communication initiative "Swiss Plus - Financial Excellence" is already in its fourth year. We made our first appearance under this title outside of Europe, namely in New York. The main topics were Switzerland's currency policy, private banking and the regulatory environment in Switzerland. Naturally a particular interest was shown in the USA in the efforts made by the Swiss banks to combat the financing of terrorism.
One month later in Madrid a delegation headed by Federal Councillor Couchepin discussed Switzerland's position in Europe with high-level Spanish financial experts.
This year we have continued to step up contacts with high- and very high-ranking politicians and civil servants. I would like to mention in particular the meeting with US Treasury Secretary Paul O'Neill at the same time as the World Economic Forum in New York, chaired by the President of the Swiss Confederation, Mr. K. Villiger; and a discussion with EU Commissioner Frits Bolkestein in Brussels.
I do not have to say much about our communication efforts in Switzerland. After all, you yourselves take part in the events, and our communications and statements reach you through various channels. But I would like to mention in particular the excellent relations we have with the Federal authorities in Bern, at all levels. Particularly at the present time, when Switzerland and, as a part of it, our financial centre are under fire abroad, it is important to have a united front at home. The regular exchanges with our politicians and civil servants make a decisive contribution here.
How are we to continue? In the light of the negotiations with the EU, we will be directing the focus of our communication this year increasingly at Brussels and the main financial centres in Europe. We will be travelling to London and Frankfurt before the end of this year. Talks in Berlin are scheduled for spring 2003. We are of the opinion that we have to move even closer to the decision-making centres in the EU and have to be even better represented in the media arena.
Full attention is also being given to the USA, of course. In addition to the on-going and well-introduced lobbying activity, we will be setting our priorities with two events in the spring. At the end of February 2003 we will be addressing the financial community in New York with a Swiss-Plus event and another so-called "staffers' seminar" is planned in Washington, likewise for the first quarter of next year. The guests will be the "staffers" - i.e. politicians' personal assistants -, who decisively contribute to shaping their chiefs' opinions.
I should like to stress once again that I regard communication as one of the most important tasks of our Association. I myself spend a large part of my time with the media and all the other communication partners in and around our financial centre. But I would also like to take this opportunity to emphasize the great commitment that the bank representatives on our bodies are showing in this matter. An association can only act competently and credibly together with its members.
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