German bounty tears veil off Swiss secrecy

The Swiss are shocked again, this time over the German decision to buy a list of some 1,500 possible tax cheats saved on a disc lifted from a Swiss bank. It's stolen property, say the Swiss bankers. It's bank robbery, cry the lawyers. It is behaviour unfitting of a "civilised state," harrumphed one Swiss politician.

Wait a minute. Who's talking here? This is a country that for centuries has relied on banking-secrecy laws to benefit from the dishonesty of others. Maybe the Swiss should think first before crying foul.

The Germans are right to agree in principle to pay a former bank employee 2.5 million euros (Dh9.1 million) for information on the Swiss accounts — provided, of course, that it's genuine, just as they were right to make a similar acquisition of secret bank data in Liechtenstein in 2008.

‘Very Questionable'

That five million euro deal led to the recovery of 180 million euros in taxes and turned Klaus Zumwinkel, the former head of Deutsche Post AG and a flagrant dodger caught red-handed, into a poster child for local tax collectors.

Not only did German taxpayers come out ahead in the Liechtenstein case, but there has so far been no successful legal challenge to the use of stolen information.

This time, the Germans' moral dilemma has raised a storm at home, as well as in Switzerland. The Frankfurter Allgemeine Zeitung has warned against behaviour that could lead to the "erosion of the foundations of the rule of law." German Chancellor Angela Merkel's decision to accept the deal faces opposition within her own conservative party, the Christian Democratic Union.

"It's a very questionable position to be in, the state essentially obtaining contraband," Michael Fuchs, the CDU's deputy leader in parliament, said this week.

There's another way to consider the issue, which requires a shift in vocabulary. What if, instead of thief, the informant were to be called a "whistleblower"? And what if, instead of talking about "payoffs," the money offered was a "bounty"?

The terms are a little imprecise. Whistleblowers, at least in popular mythology, don't reveal information for money. A bounty, in the US, refers to the money bondsmen pay to catch a fugitive who has slipped bail. Most other countries don't permit bounty hunting, which they tend to regard as kidnapping.

The point is governments do pay for information. The US Internal Revenue Service even has a programme to pay money to people who inform on others who have failed to pay the tax they owe. The "whistleblower" can be eligible for as much as 30 per cent of the taxes and penalties the IRS then collects.

Like money, information is fungible. It's hard to trace its origins, and hard to control where it flows: Consider the case of Herve Falciani, an ex-employee of HSBC Private Bank. He was at the source of another stolen computer disc, delivered to the French government last year with the names of 3,000 tax evaders.

"Once the information is out, you can't put the genie back in the bottle," says Peter Henning, a law professor at Wayne State University Law School in Detroit and a former US criminal-fraud investigator.

In the French case, the government reached an agreement with the Swiss to return the original data to Switzerland, and use copies for its own "domestic legal procedures." In the end, those copies may be all that the French need to persuade their taxpayers to come clean.

In the German case, the stolen data has already become a bargaining chip, both with the Swiss and with errant taxpayers. German Finance Minister Wolfgang Schaeuble has taken the opportunity to warn tax evaders to turn themselves in. The Swiss government, while insisting it won't help with any tax inquiry based on stolen data, has hastened to add it is keen to maintain good ties with Germany, a major trading partner.

One by one, Switzerland's neighbours and friends — including the US and Canada, have joined in an assault on the banking secrecy that has protected Swiss bank accounts from outside scrutiny for so long. The Italian government has launched a campaign "to dry out" Lugano as a haven for tax evaders: by some estimates, four-fifths of the Italian money held in that Swiss city may be undeclared.

Even as the Germans debate the morality of buying stolen lists, the Dutch, Belgian and Austrian governments have indicated they want to share any information they may yield.

Maybe it's time Switzerland got the message.