Luxembourg summit to discuss future of bank secrecy

 @ibtimes
on February 13 2010 11:08 AM

High-level talks in Luxembourg on Sunday will assess whether there is a future for what remains of bank secrecy in Europe in the face of international pressure, but offshore centers are struggling to find common ground.

Nearly a year after agreeing to help foreign states to chase tax evaders, the finance ministers of wealth management capital Switzerland and European Union secrecy strongholds Luxembourg and Austria will meet behind close door to discuss future strategies.

They will be joined by the prime minister of Liechtenstein, a former black-listed tax haven that has embraced transparency, and the finance minister of Germany, who is prepared to pay for Swiss bank client data to hunt down tax cheats.

This meeting will chiefly be about tax evasion and how to tackle it cross-border. It will be about bank secrecy, but there is no common position as yet, a person familiar with the discussions told Reuters.

Swiss finance ministry spokeswoman Delphine Jaccard confirmed that the talks in Luxembourg would tackle tax cooperation and bank secrecy. She added the meeting did not aim to reach a major agreement given its informal nature.

Switzerland agreed in March to drop an artificial distinction between serious tax fraud and minor tax evasion offences and to cooperate with foreign countries when there was a clear case of tax dodging, thus weakening its centuries-long secrecy laws.

This was done to avoid ending up on a black list of tax havens drafted by the Organization for Economic Cooperation and Development that had the blessing of the G20 nations.

The commitment, which was coordinated with Luxembourg and Austria, was taken up by major offshore centers all over the world in the hope to satisfy countries such as the United States and Germany which have driven a global crackdown on tax cheats.

But the pressure has not eased and the European secrecy hubs are now being asked to move to a system of automatic exchange of tax data that would kill their weakened financial privacy laws.

EU THREAT

Luxembourg, whose banking secrecy laws have help it become Europe's biggest funds center, is already in the line of fire at EU level because the embracing of so-called OECD tax standards by Switzerland and by other offshore centers forces it to share tax data with other EU nations given previous EU agreements.

Non-EU member Switzerland, whose banks manage nearly $2 trillion of wealth on behalf of foreign clients, wants to avoid being denied access to the vast EU financial market place if it does not align to best tax cooperation practices.

Senior Swiss officials have privately already expressed their concern at the unresolved debate over banking secrecy. But Berne has yet to agree on a clear strategy.

The Swiss are stumbling around. If anyone is looking for leadership on this issue, he is mistaken, the person familiar with the discussions said.

The country's image suffered a major blow last year as it emerged that its banking flagship UBS had helped rich Americans to hide money in secret Swiss accounts.

The bank paid $780 million to settle criminal charges and agreed to share thousands of client names to U.S. tax officials.

Switzerland's banking lobby has suggested expanding a anonymous withholding tax system on clients' earnings to preserve privacy and address foreign countries' tax-collecting needs.

Germany's Bild newspaper said on Saturday the Swiss were threatening Germany with retaliation to fend off tax pressure.

If Germany buys stolen bank data, we will work on a change in the law that would mean all Swiss accounts belonging to Germans holding public office should be made public, Swiss lawmaker Alfred Heer was quoted as saying.

(Additional reporting by Madeline Chambers; Editing by Andy Bruce)

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