Did Inter-generational Conflict subvert Swiss banking Secrecy?

Did Inter-generational Conflict subvert Swiss banking Secrecy
or was the desire to expose fraud the true motivator?

News Flash! Jan, 3, 2013

Wegelin Pleads Guilty in U.S. Case Over Secret Accounts/WSJ – Chyad Bray

– “In the latest blow to Switzerland’s centuries-old banking practices, the country’s oldest bank pleaded guilty to a criminal conspiracy charge in the U.S. on Thursday and admitted that it helped wealthy Americans for years avoid tens of millions of dollars in taxes by hiding their income from secret accounts abroad. Wegelin and Co., founded in 1741, is the latest Swiss bank to reach a deal with U.S. prosecutors as they crack down on Americans who kept their money in secret accounts overseas and the entities which helped them. (http://online.wsj.com/article/SB10001424127887323874204578219572734283146.html)

Written by Ian R. Whiting, Consultant, and Gary Millar, Founder, Inter-Gen Consulting Group

When his doorbell rang that morning, Hervé Falciani could have never imagined how it would all turn out! Whatever his reasons for leaving Switzerland, it did not matter now. If he had left because he was mad at his treatment from his boomer bosses or motivated by his disgust at the obscene amounts hidden secretly in Swiss bank accounts, as he had seen in the bank records, or was he just a plain greedy thief? No one will ever know for sure? What is known is that he had left in a big hurry with HSBC banking customers’ private account details.

The door opened to a French Magistrate and Gendarmes, armed with an arrest order from the Swiss Government on charges of revealing banking secrets. An international arrest warrant was issued for Falciani, who is a citizen of Monaco with dual French and Italian citizenship. He is married with one child. Despite the fact his actions revealed thousands of cases of tax evasion all over Europe and some €10 billion (Euros) in lost taxes were recovered, Bern, Switzerland considers him a criminal, a thief. After explaining how he came to be named in the arrest warrant and revealing the data he had in his possession, the young Frenchman was subsequently offered life time housing, an annual pension for life and a new name, all for service to France!

It is from this point in the saga, the spin begins. In early 2009, an assistant prosecutor called for a search of Falciani’s family home. The routine operation became an unexpected gold-mine when information on approximately 130,000 accounts of alleged tax evaders was discovered. The prosecutor promptly opened an investigation, not aimed at Falciani but at the alleged tax evaders. The media learned of the investigation late in the summer of 2009.

How many people worldwide paid up or were forced to?
How much money was found by the governments?

The French Government announced that it had received a list of 3,000 holders of Swiss accounts but did not indicate the source of the data. The Government asked account holders’ to make themselves known to the tax authorities in order to legalize their situation. This prompted more than 4,000 people to come forward and France recouped about €1.2 billion in unpaid taxes.

In March of 2012, France announced it had recently launched inquiries on the basis of HSBC data allowing the Government to reclaim an additional €1 billion in unpaid taxes and penalties.

In the spring of 2010, the HSBC Spanish account holders’ information was passed on by France to the Spanish tax office and carefully reviewed. The Spanish officials asked suspected tax evaders to turn themselves in and to pay the taxes in addition to a fine. The amounts recovered in Spain based on the stolen HSBC information represents the most significant tax recovery in the history of the tax office. Allegedly, more than €6 billion was recovered. The list contained the names of many powerful people including the CEO of the Santander Bank.

On the Italian list sent by France, significant and well-known names appeared. That list contained nearly 7,000 people and included several fashion designers. By early fall of 2010, Italy completed most of their tax investigations and launched a tax amnesty aimed at luring dodgers to come clean by paying a very low penalty on their offshore accounts. As a result, a mind-blowing amount of €100 billion worth of accounts, were declared with two-thirds of that coming from Switzerland. It appears that the Italian tax authorities recovered close to €600 million in revenue based solely on the information passed along through Hervé Falciani.

On the morality of all of this, people have legitimate questions. Government and corporate morals are, at best, “flexible” and at worst subject to the greatest level of corruption imaginable and there is plenty of evidence to support either contention. The Wall Street Journal, the BBC and PressEurop have all written extensive articles on the fallout and twisted mystery surrounding one Hervé Falciani and one Georgina Mikhael – somewhere among the various webs and trails, lays the truth.

Should governments be relying on data that was obtained illegally – stolen or fraudulently obtained? Should governments be rewarding the people who stole the information in the first place? Or does the evasion of legitimate taxes owed justify the means used to collect them? What should be done about governments and countries that chose not to co-operate in matters relating to tax-fraud, money-laundering and the funding of terrorism and drug trafficking?

HSBC, UBS and other banks have recently paid huge fines in recent months of nearly US$5 billion as result of money laundering transactions that were ultimately revealed partially through tracing transactions in and out of these secret accounts.

In another case from 2012, Germany bought stolen Swiss account records from a bank employee. It isn’t known which banks’ records were acquired. Two years ago, Germany paid a €4.2 million (US$5.3 million) reward to another bank employee to buy stolen data from a Liechtenstein bank in order to chase more tax evaders.

As a result of these thefts and other “unauthorised” disclosures of information, US authorities accused UBS of having helped thousands of American taxpayers evade taxes by hiding money in secret Swiss accounts. After a lengthy and expensive legal battle, UBS agreed to turn over the names of nearly 4,500 US taxpayers to the IRS. This was done and hundreds of millions of dollars in tax revenue was recovered. In April of 2009, the OECD (Organisation for Economic Development and Co-operation) puts Switzerland on a “gray list” of uncooperative tax havens. A serious move indeed, this raised the specter of economic and banking access sanctions against the Alpine country. Subsequently, the Swiss government agreed to relax their bank secrecy laws.

The result: the Swiss Banking wall of secrecy has begun to crumble!

Did Hervé Falciani’s actions destroy the Swiss banking wall of secrecy? NO they did not. Swiss Legislative changes forced by OECD member-countries mean the Swiss banking system will co-operate with other governments when the Swiss receive “concrete evidence” of criminal activity, money-laundering, illegal tax evasion or fraud. Private numbered accounts can still exist as long as there is no illicit intent. However there are more than 130,000 people worldwide who have a different experience with their secret Swiss accounts being exposed to taxation as a result of Hervé Falciani’s actions.

So what has happened to Mr. Falciani as a result of his actions? Mr. Falciani could have stayed safely in France and lived out his life in government subsidized obscurity, under a different name; however he chose to attract attention to himself with interviews and travel to other countries. Subsequently he has been arrested in Spain, upon entry and is currently being held on an extradition warrant issued by Switzerland. The Swiss Government still considers him to be a thief and criminal.

What are the numbers involved?

The fines paid by HSBC, UBS and others may seem to be “get out of jail free” cards – none of the CEOs or other senior executives faced criminal charges and in fact, most are still running the same institutions and collecting large bonuses in the process.

If all of the numbers are to be believed, nearly 150,000 taxpayers around the world have been exposed or voluntary confessed the error of their ways. Recaptured taxes, penalties and fines have removed somewhere around €$12 billion from the economy – hopefully the beneficiary Governments use it to pay down some debt!

Truth be told, the fines are far too low – by a factor of at least 10. The $6 billion is just “chump change” and the “cost of doing business” for these large multi- and international financial firms. The fines certainly do not reflect the horrendous damage their actions have done to individuals and governments around the world to say nothing of the help given to terrorists and drug-traffickers. Virtually all of these recaptured taxes, penalties and fines can be traced back to the actions of one man.

What caused Hervé Falciani to steal confidential secret account records from HSBC Switzerland, after years of faithful service?

One of the points raised by the WSJ article may offer a clue. (Mr. Falciani said his goal was to expose security gaps at the bank, which he thought could harm clients and governments. Mr. Falciani says he alerted his bosses at HSBC in 2006 about flaws in data storage that could affect client confidentiality, but no one listened. HSBC officials said they found no such warnings by Mr. Falciani.)

Were the actions of Mr. Falciani triggered by his perception of unfair or biased treatment by his managers and senior executives at HSBC? On the surface, it would appear that Mr. Falciani was not on the best of terms with the management to whom he reported. The generational values of his bosses and their autocratic management style appeared to clash with his generational values. This resulted in a disconnection with the existing, long entrenched corporate culture of secrecy. It may be that this disconnect made it much easier for Mr. Falciani to cloak his theft with moral justifications. Whatever those moral justifications, he tried, together with his paramour, to get financial recognition from various countries before the French Gendarmes appeared at his door.

Inter-generational communication (and with it understanding), is key to keeping employees, associates and advisors happy in their roles. Each generation has widely varying personal needs and communications styles. Each generation employs very different means and language for communicating and building business relationships.

Education leads to understanding, understanding turns into knowledge, knowledge becomes empathy. Empathy creates lifelong inter-generational relationships.

It is important for each of us, at work, at play and with our families, to take the time to learn how to communicate across generations. This will reduce miscommunications, misunderstandings and increase appreciation of other generations.

With credit and appreciation to The Wall Street Journal, the BBC, PressEurop and Wikipedia for their work and materials they have published on this matter.

The Inter-Gen Consulting Group is a consulting organization which provides on-site presentations, recruiting and employment advice as well as on-line Inter-Generational Education courses. (www.inter-gen.com)

Latest Falciani update:
MADRID — The Spanish National Court on Tuesday granted conditional freedom to a former HSBC employee wanted by the Swiss authorities in the theft of secret data on tens of thousands of private bank accounts. Switzerland’s extradition request presented a dilemma for Spain, given that the Spanish authorities had used the HSBC data against holders of secret bank accounts.

Links to Story from Wall Street Journal: http://online.wsj.com/article/SB10001424052748704629804575324510662164360.html
BBC NEWS: http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/8620432.stm
PressEurop: http://www.presseurop.eu/en/content/article/2575781-billion-euro-whistleblower

In their blog.nytimes.com describes which governments who have concluded tax treaties with Switzerland: Pressure Grows on Swiss Banks to Expose Tax Cheats’ Billions

Ian Whiting

Ian R. Whiting CD, CFP, CLU, CH.F.C., FLMI (FS), ACS, AIAA, AALU With more than 40-years of experience in the industry, Ian has qualified 3 times for MDRT, completed LUATC in 1979, the LUAC Financial Planning Skills Course and attended numerous Schools in Agency Management and Sales Management through LIMRA. He obtained his CLU in 1987 while also completed his IFIC qualification and completed his Fellowship in the Life Management Institute with a specialty in Financial Services in 1988. In 1989, he completed qualifications for his Chartered Financial Consultant designation. In 1992, he qualified as an Associate of the Academy of Life Underwriters (Head Office underwriter qualification) and in 1993 he completed his Associate, Customer Service designation program through LOMA. In 1997, he qualified as a CFP and also completed his courses and exams to obtain the Associate, Insurance Agency Administration designation. In 1999, he completed the study and examinations to qualify as a Trading Officer, Partner and Director for Mutual Funds with the BC Securities Commission. As a result, he is also qualified as both a Branch Compliance Manager and Head Office/Provincial Compliance Officer. He served for nearly 18 years with the Canadian Forces (Air) Reserve (reaching the rank of Captain) primarily working with Air Cadets and was award the Canadian Forces Decoration (CD) in 1982. Long known as a maverick and forward thinker in the financial services world, Ian enjoys the challenge of learning new material and planning for the future evolution of his chosen profession.