Nobody wants to give up a lucrative business, even an embarrassing one, and it’s slowing the global crackdown on tax evasion.
Today the Swiss parliament rejected a plan (paywall) from the country’s cabinet that would have created an exemption in the country’s famous bank secrecy laws. The exemption was designed to provide an out for Swiss banks accused of helping Americans avoid paying taxes, by letting them breach secrecy to cooperate with American investigators.
Before the exemption was announced, US authorities extracted $780 million in fines from UBS under a deferred prosecution agreement, and another case ended with the closure of Wegelin & Co., the country’s oldest bank. Now, absent a way to share information with US authorities and settle such cases, Swiss financiers are once again worried that their US operations could be targeted. The Swiss government wants to find a new way for the dozen banks under investigation to avoid that trouble. Among the most affected is Credit Suisse, which expects to pay at least 295 million Swiss francs ($318 million) to settle the matter, a number that no doubt goes up if settlement isn’t an option.
It’s not the only hold-up for efforts by the United States and Europe to clamp down on tax evasion as wealthy countries attempt to reduce public borrowing. At this week’s meeting of the G8 economies, the UK put offshore banking on the agenda, announcing a new plan for the tax havens in its commonwealth (including Guernsey, Bermuda and the Cayman Islands) to share more information about the true owners of companies with other countries’ tax authorities. But while the leaders at the G8 summit agreed to a set of common principles for a transparent tax regime, they made few substantial commitments.
This especially dismayed advocates for tax reform in emerging markets, which suffer disproportionately when their corrupt officials move assets offshore. These advocates accuse the US in particular of being reluctant to change corporate registry laws in jurisdictions like Delaware, where shell companies are protected by law. In this case, interest is everything: The US is more worried about the money its citizens store abroad than the money the rest of the world’s citizens secrete in the US. But if it wants more cooperation—whether in Switzerland or at the G8—there will likely need to be changes at home.
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