|Foreign Law Firms Increasing Presence in Swiss Wealth Market|
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The foundation of Switzerland in 1291 included the agreement that “No foreign laws will apply” to Swiss nationals. Indeed it is this principle that resulted in the Swiss Federal Tribunal ruling that FINMA, the state regulator, should not hand bank account details from UBS to the US authorities in 2009. That issue, of course, has since been resolved.
That case aside, your correspondent cannot avoid noticing that a number of US and other foreign law firms are setting up in Switzerland. Then there is the European Savings Directive, the US HIRE Act with its draconian regime of Qualified Foreign Financial Intermediaries and the recent announcement of negotiations between the Swiss government and those of the UK and Germany in respect of withholding taxes.
Are foreign laws starting to be applied in Switzerland? W Brent Vanderbrook, the Zurich based managing director of SH Vanderbrook and Chambaud, and a US qualified lawyer, believes that Swiss sovereignty is not at risk.
“Residents of Switzerland are (and always have been) operating internationally and the affairs of the surrounding states always have been of economic importance to Switzerland. From mercenaries to banking, the activities of Switzerland never have been as confined to the country’s natural borders as some would like to believe,” he told this publication recently.
In this regard, foreign law firms are helping Swiss residents comply with the increasing complexity of foreign laws. It is true that foreign states desire to regulate persons accessing their markets and dealing with their citizens but this is not an attack of the sovereignty of Switzerland,” he said.
Furthermore there is a positive side to this development, he continued.
“The growing presence of US and UK law firms within Switzerland represents the economic reality that Swiss banks are competing with onshore banks and the must deepen their product offering and understanding of home country tax systems in order to offer competing products. Market forces more than anything else are driving demand. And this is a good thing for the Swiss banking industry,” said Vanderbrook.
That having been said there is certainly some over-reach in legislation such as the HIRE Act. Darlene Hart, chief executive of Zurich-based US Tax said some asset managers will simply avoid the US market altogether given the massive burden of compliance.
She said “the days of undeclared money are coming to a close”, adding that the largest amount of undeclared money in the world is now probably in the US.
The FATCA legislation (contained within the HIRE Act) is certainly harsh and it is difficult to see what the law’s consequences will be at this stage, but it is true that very few Americans now have accounts with Swiss banks that are not declared. When asked if she can confirm rumours of Swiss banks e-mailing clients in the US requesting them to close their accounts forthwith, Hart finds these stories unlikely.
“Banks have to sit down with their clients when they see them. At that point, however, the discussion is clearly going to be based on declaring assets to the US government and regularising the situation as soon as possible,” says Hart. Assistance in this area is another service that foreign law firms can provide.
Vanderbrook is sceptical of the HIRE Act. “The law represents burdensome exercise at the expense of banks around the world for an unknown benefit (the amount of undeclared US money that will become declared) and which is aimed at helping only one country- the US,” he said.
“It is a shame that countries do not work together more to obtain the objectives of the HIRE Act versus one country imposing its legislative will. Voluntary disclosure processes will remain important as governments need to provide a way for their tax residents to come out from the darkness of undeclared accounts,” he continued. “The correct approach is for Switzerland to work with governments on ensuring citizens have an effective path forward - something we have seen the Swiss government working on with Germany and the UK,” he said.
So foreign laws do not quite apply in the Alpine state, but anyone who wants to invest in US markets or currency has to face up to a significant increase in the cost and complexity of compliance with the requirements of the new legislation while implementing whatever agreements are signed between Switzerland and the UK and Switzerland and Germany.
The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.
Published on our website on Nov.22, 2010