Switzerland faces challenge to sustain banking secrecy

GENEVA, Feb. 24 (Chinese media) -- With the United States'

increasing demand for bank client data and European neighbors complaining about

its banking secrecy, Switzerland now faces a tough challenge to sustain its

banking secrecy system, analysts say.

Switzerland's largest bank UBS and the country's

financial supervisory authority Finma last week had to yield to months of

pressure from the U.S. authorities, who accused UBS of helping thousands of its

citizens illegally dodge taxes.

In an unprecedented move that ran counter to the rich

Alpine country's treasured tradition of confidential bank accounts, UBS was

allowed by the Swiss authorities to hand over data of 250-300 customers to the

U.S. to avert criminal proceedings relating to a tax evasion investigation.

The move, which bypassed the courts, could undermine

one of the pillars of Switzerland's the banking industry which helped it become

one of the world's richest countries, analysts say.

The U.S. investigation into UBS is being closely

watched by other countries, particularly Switzerland's powerful European Union

(EU) neighbors. Germany and France have already called for Switzerland to be

blacklisted as an uncooperative tax haven.

On Sunday, Britain's finance minister Alistair

Darling also joined in the criticism against Swiss banking secrecy laws, saying

the country needs a more transparent system.

"It's one of the things Switzerland has got to

address. If it wants to be part of the international community, it's got to be

open," Darling told The Observer newspaper.

"Swiss bank secrecy laws are not only under attack

from the U.S. authorities but also from the European Union, and I see no reason

why other European countries should not act in the same way against Swiss

banks," Peter Kunz, a business and law expert at Bern University, said.

The Swiss authorities have tried to downplay the

fears, saying the treasured tradition of banking secrecy would be upheld.

"Banking secrecy remains intact," Swiss Finance

Minister Hans-Rudolf Merz said shortly after the UBS move was announced last

week.

Merz insisted that UBS client details were only

handed over to the U.S. because there was sufficient evidence of fraud.

Under Swiss law, bank clients' data can be released

to foreign tax investigators only in clear cases of tax fraud. Tax evasion,

however, is not a criminal offence in Switzerland.

But signs show that pressure on Switzerland will only

increase in the future.

The U.S. Justice Department has issued a civil

lawsuit against UBS seeking the identities of a further 52,000 U.S. clients who

allegedly kept billions of dollars at the bank to evade tax.

UBS has refused the demand, arguing that handing over

the account names would not only violate the banking secrecy law but also

jeopardize the bank's license to stay in business.

According to media reports, Swiss banking secrecy

could come under even heavier pressure in April at the G20 summit, when leaders

of the most powerful economies meet in London to discuss ways to tackle the

global financial crisis.

The meeting will push for a coordinated attack on tax

evader bolt holes as the financial crisis bites into national budgets, the

official Swissinfo news website said.

Under increasing pressure, Switzerland may have to

reconsider its banking system, according to some analysts.

"Switzerland should give in to the pressure and

reduce the strength of its banking secrecy," Swiss banking expert Teodoro Cocca

was quoted by Swissinfo as saying.

"Keeping everything as it is would be an extremely

dangerous strategy and would risk the entire private banking center," Cocca

said.

He said Switzerland should agree to offer more

assistance to countries investigating tax evaders. It may also need to revise

its law and recognize that tax evasion is a crime.

Switzerland could also adopt a model that enables

other countries to get access to the tax revenues without having to reveal the

names of customers in Switzerland, Swiss criminal law expert Mark Pieth said.

One possibility would be that Switzerland could

collect taxes on behalf of the EU, Pieth told Swissinfo.