Bank secrecy moves may force wealthy back onshore

In landmark statements, bank secrecy strongholds Switzerland, Luxembourg and Austria offered on Friday more cooperation on tax evasion than ever before to avoid being blacklisted by G20 countries as unco-operative tax havens.

The decision, which comes on the heels of similar moves in other offshore centers, will not eliminate the principles of banking secrecy that have allowed the $7-trillion offshore industry to thrive, and the countries will offer help only on limited cases of suspected tax evasion.

"It is not an open door policy. It is an easing of access to information in respect to tax crime," Swiss President and Finance Minister Hans-Rudolf Merz said on Friday.

But Berne is already looking for a transitory solution to help its client come onshore, and did not rule out the option of negotiating tax amnesties with other jurisdictions.

"This is not a fantasy. It is more than appropriate to talk about amnesties," Merz told a news conference.

Liechtenstein, a tiny Alpine tax haven that also committed to more tax transparency on Thursday, has said it wants a legal solution to help its clients bring undeclared money onshore to stem the massive client withdrawals its banks have been suffering since a tax spat with Germany.

"Tax amnesties are the most attractive solution for banks and bank clients to get out of a problem," said Dirk Hoffmann-Becking, an analyst with Bernstein Research, who says the changes on the tax arena are coming at a faster pace that the industry originally anticipated.

"But it's not in Switzerland's hands to determine them."

NO OVERNIGHT CHANGE

Industry analysts do not expect Switzerland to lose its role of leadership in wealth management since the move toward tax transparency is affecting all offshore centers at the same time.

Switzerland, which manages an estimated $2 trillion of offshore wealth out of $7 trillion, fears that rising financial star Singapore may steal the limelight in wealth management -- although the city state also said it is willing to embrace more information exchange on tax transparency this month.

Also, the changes on tax cooperation will not be introduced overnight and are not as radical as some expected as foreign authorities would still need to give evidence of suspected tax evasion to Switzerland and others to be able to access bank account information.

"We don't anticipate that this announcement will significantly impact the private banking industry, as foreign tax authorities will be unable to make blanket requests for information on all accounts, as was feared," said Jean Schaffner, a tax partner at Allen & Owery.

But the trend toward moving money onshore will continue, Schnaffer said, noting that past tax amnesties in Belgium and other countries helped banks bring clients onshore without losing them.

"This is definitely a tendency. There are a lot of people who have inherited undeclared money from their parents," he added. "The younger generations wants to use the money and they cannot do it if the money is not clean."

Swiss tax lawyers say it has become more and more difficult for holders of undeclared accounts to benefit from these as the money cannot be moved and can only be spent in Switzerland.

"This is dead money. It is money that burns under your fingers," said a tax lawyer who declined to be named.

(Editing by Andrew Callus)