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Zurich, Switzerland (GenevaLunch) – "Undeclared money is a global problem. It’s not a Swiss issue. It’s not an issue regarding any particular Swiss bank," argues Philip Marcovici,
partner and international taxation specialist at Baker & McKenzie
in Zurich. Marcovici spoke to GenevaLunch following the early July
request by the US Treasury Department to federal judges in Florida for access to UBS bank files on American citizens.

"The things that are going on, with the IRS and and with other tax authorities in various countries, are symptomatic of a greater situation,
with information moving around more and the world increasingly
inter-connected. The message going out is that if you have not been
complying you had better think twice." Voluntary disclosure to the IRS,
for example, is a far better option than waiting to be caught by the US
tax authorities.

Governments such as the US and Germany are not taking the right path
to finding a solution to the problem of undeclared wealth, however, he
believes. By attacking banks and one or two jurisdictions that offer banking secrecy, "you’re not getting cooperation. There is
a long history of why families have made use of bank secrecy to protect their wealth and the interests of their families that is not related to tax
avoidance. Many families have undeclared money that goes back to world
war two or before. For example, when some families  fled Germany and other countries in Europe during the second world war, assets were left in ‘secrecy countries’ to protect the interests of the families involved."

More recently, he adds, families affected by corrupt tax systems and
political unrest have sought the safety offered by bank secrecy
jurisdictions. While in today’s world, bank secrecy cannot be used to
illegally evade taxation, says Marcovici, "affected families need to be
treated with sympathy."

Marcovici believes that Switzerland is a target for other countries
that are trying to ferret out taxpayers who don’t declare everything
"because Switzerland is so dominant" in the wealth management business. The story being played out
in the US media is that UBS is hiding tax evaders, a serious federal crime in the US, while in Switzerland the story is that the US is trying to ride roughshod over privacy legislation that the Swiss hold dear.

"Both are wrong! And destructive," says Marcovici, a Canadian lawyer
who practiced law in Vancouver, New York and Hong Kong before settling
in Zurich. “The US, like Singapore and many other countries, also has
bank secrecy and accompanying laws." These permit families with
undeclared funds to shield themselves from their home country tax
authorities. What is a global problem "needs to be treated as such – it
requires a global solution.

He argues that, given
the higher average wealth in Switzerland than in the US, there are probably
"more Swiss as a percentage of the population with money that’s
undeclared in the US – way more! – than the percent of the US
population with money hidden in Swiss banks."

The issue of whether clients are committing tax fraud, a crime in
both Switzerland the US and therefore covered by treaties, or tax
evasion, a serious crime in the US but a lesser one in Switzerland, is,
at a certain level, irrelevant, he says. "The definition of fraud
versus evasion is a bit
of a moving target." The key point for Marcovici is that "You play by
the rules or get out. There is no middle ground. At the end of the day
you have to ask yourself if what you’re doing is right or wrong."

Families with undeclared wealth are mistaken if they believe they
are not in trouble because no one has caught them, he says. "How do you
get caught? The US, for example, gets information about credit card
spending, or when people get divorced." It can be just a matter of time.

Marcovici is a key guest professor at the Swiss Finance Institute’s new senior management programme in banking
which started Monday 7 July in Geneva. The programme for finance executives
runs for six months, in different cities, with Patrick Odier of
Lombard, Odier, Hentsch & Darier giving the opening plenary speech
Monday evening to invited guests from the banking and business
communities.