BERN, SWITZERLAND – The Swiss Federal Council Wednesday 10 October said that Swiss banking secrecy laws and the “Qualified Intermediary Agreement” with the United States that went into effect in 2001 remain compatible. The question was raised in parliament and by Swiss media after a number of Swiss banks under investigation by the US Department of Justice received the go-ahead to share some client data with the US.
The Qualified Intermediary Agreement (QIA) was implemented when the Federal Finance Department gave the Swiss Bankers Association (SBA) authority to carry out certain requests from the IRS, the US tax arm: notably collecting withholding tax on interest earned by “US persons” as defined by the IRS and, if clients agreed, sharing information about their account ownership with the IRS.
Starting in January 2001, Swiss banks began to ask US persons to declare themselves to their banks and either sell their US investments or agree to declare these and their account information to the US government, at the request of the US.
Cabinet needs to be involved in future if sovereignty is at stake
The Federal Council Wednesday noted, however, in adopting the report that serves as its response to parliament, that federal departments should be better briefed in future about how to implement such agreements. In particular they should be alerted to the need to involve the Federal Council because of the political importance today of financial agreements that involve requests from governments that may have an impact on sovereignty.
The report notes that the Swiss federal justice department is reviewing legislation that covers who is authorized to act and in what manner, under the terms of such agreements. The implication is that the law may need to be tightened.
What the report says
The report touches on the rights and obligations of Swiss banks in handing client information to the IRS, and in collecting withholding taxes for the US government on securities held by “US persons”, but it mainly addresses how the decision was made to give the Swiss Bankers Association a blanket authorization to oversee this activity.
Questions were raised in parliament and elsewhere in 2010 when a group of Swiss banks was told they could hand over some client data to the US. Information about Swiss bank employees was, indirectly, also shared with US authorities, prompting at least one lawsuit against the government that was dismissed by a high court.
The government has argued that the responsibility lies with the banks themselves, to protect the privacy of their employees.
The report is the result of a request by parliament’s oversight body, the joint houses’ government management commission (Commissions de gestion: CdG) in May 2010 to review the role of the cabinet (Federal Council) and various government departments in the decision in 2000 to implement a new US system that called for “US persons” and “non-US persons” to be identified and handled differently from the previous system.
The report concludes that the Qualified Intermediary Agreement (QIA) that allows banks to collect money and share data with the IRS, with a client’s agreement, was compatible with Swiss banking secrecy law in 2000 and that it remained so “after the IRS unilaterally toughened” the rules, largely because clients are given the option to sell their securities or make their ownership known to US authorities.
The report issued Wednesday notes that banking secrecy is part of privacy legislation and that it cannot be lifted if the people it covers are “coerced”. But the QIA does not coerce bank clients, although it may give them options about which they are unhappy.
It notes, however, that with hindsight, it would have been better to change the way in which the agreement is implemented in Switzerland.
The QIA replaced an earlier bilateral agreement with the US; the QIA was developed to give the US a single, uniform international agreement with other countries.