Once regarded as haven for tax evaders and monarchs to stash their ill-gotten money abroad, Switzerland, of late, has come under increasing pressure to undo its banking secrecy laws. The demand from some of the advanced countries for such an action was, in fact, so strong and urgent that it was finally forced to break the seal on its banking secrecy, until now considered virtually ironclad, by signing an international agreement on fighting tax evasion on 15th October, 2013. According to the head of tax issues at OECD, Pascal Saint-Amans, this marks "the end of banking secrecy" in Switzerland, and "prepares the way for the automatic exchange of tax information." It was also revealed that the noose would continue to be tightened around those committing tax evasion and the countries that do not sign up to the agreement "would begin to be sidelined". OECD Secretary General Angel Gurria said that Switzerland's adherence to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters "sends a clear and strong signal [across] that Switzerland is part of the community of states which consider international tax co-operation as a necessity". The Swiss ambassador to the OECD asserted that the signing of Convention confirms his country's commitment to fight tax fraud and safeguard the integrity and reputation of its financial centre. Under the Convention as it stands, however, the automatic exchange of information is optional and the next hurdle, which could prove to be a formidable one - is ratification of the Convention by the Swiss parliament.
As is well known, Swiss banking secrecy laws in its current form took shape before the World War II and provided the victims of Nazi persecution with a way to protect their assets. However, the practice became notorious on repeated complaints by many countries and their tax authorities that tax investigations were often stymied by the complex routes used to hide funds, coupled with obstructionism on part of some national authorities. At the instigation of many advanced countries, the Paris-based OECD was finally constrained to spearhead a clampdown on tax evasion and concealment of illicit funds. The movement to scrap the present policy in Switzerland and other well known havens was pushed through with a great vigour after the financial crisis of 2008 and subsequent eurozone debt crisis when ordinary people, often facing higher taxes to cover the costs of the crisis, were outraged by revelations of tax evasion or avoidance by corporations and wealthy individuals. High-profile controversies arose when lists of some bank accounts were leaked to tax authorities elsewhere and US officials took tough action against some Swiss banks. The Convention's signatories so far include all 20 members of the Group of Twenty, known as G20, as well as more than 40 other countries. Besides exchanging information, the signatories also agree to organise simultaneous controls to track tax fraud. The main objective, of course, is to ramp up the effort to identify cheats who hide assets and transactions behind the protective laws of offshore tax havens. The signing of the Convention and its ratification by the Swiss parliament would undoubtedly go a long way in discouraging tax fraud, and money laundering and send a strong signal to the cheats that it is no more easy to conceal the ill-gotten wealth. However, while the achievement of such an objective is important, it is also very crucial to preserve the integrity and reputation of the financial system for its efficient functioning because of the necessity of promoting a vibrant banking regime for fostering development of a country. There needs to be a proper balance between disclosure requirements and ensuring confidentiality of the transactions of the banking system to fulfill its responsibilities in a free market economy in an optimal fashion.
The ending of banking secrecy could also be useful for Pakistan because some of the affluent Pakistanis are believed to be hiding a lot of money in off-shore banking accounts and if this money could be transferred back, it could help build up foreign exchange reserves and increase investment in the country. However, such an advantage could only be had if some of other tax havens, notably in the Caribbean, could also be dismantled and the fiscal regime of the country is made more accommodative. Some of the tax measures in the last budget, for instance, could definitely discourage the savers to bring back their financial assets to the country. Also, FBR has yet to devise a secure automated system to safeguard the taxpayers' confidential and classified data which is so important when the law and order situation in the country is so poor and ransom seekers are operating freely all over the place.