Nick Giambruno:
Today we're going to talk about what has happened in Switzerland
in recent years.
Roland, thank you for joining us.
First, why don't you tell us a little bit about your background?
Roland:
I have been in banking and asset management in Switzerland all
of my professional life. When I started my investment advisory
service, there was not much regulation in the industry, and it
was relatively easy to do business. But over the years, it has
gotten very difficult; today everything is regulated. So the
evolution hasn't been good.
I am happy that I don't have to
start a business again, because it is pretty much impossible to
do it the way I did it.
Nick:
What is the source of this negative change?
Roland:
I think it all started out with the UBS case. Everybody knows
about what happened: UBS got into trouble because they violated
foreign laws - but not Swiss laws. And since UBS is the biggest
Swiss bank, the case helped the US get the ball rolling to
attack the Swiss banking system as a whole.
Nick:
Let's take a step back. What makes the Swiss banking system
unique in your opinion?
Roland:
It goes back to before World War II, when the Swiss banking law
was enacted.
The Swiss bank secrecy was put in
place mainly because of the situation in Nazi Germany, where the
Jewish community was looking for a safe haven for money. That
was the origin of Swiss banking secrecy, which ever since has
been a successful Swiss banking formula.
Today, Swiss banking secrecy no
longer exists except for Swiss citizens. There's no place in
Switzerland one can find a bank that would open an account today
that is not declared in the country where the client comes from.
How long will Swiss banking secrecy
last for Swiss citizens?
We don't know, but I think it is
under threat from the Socialist Party, which works very hard at
getting the Swiss banking secrecy removed for Swiss citizens as
well.
Nick:
I think one of the most offensive aspects of this whole episode
is foreign countries imposing their own laws on Switzerland.
Now, if a foreigner has an
undeclared bank account in Switzerland, it should be the
responsibility of that foreign citizen to deal with his own
obligations within his own country.
It should not be the duty of
Switzerland to make sure that clients comply with whatever the
bureaucrats in their home country have decreed.
Roland:
Because the US dollar still denominates most international trade
- be it in energy or whatever - nobody can live without the US
dollar.
I mean, no bank can live without the
US dollar, and therefore the US has a very easy task to bring
down any non-complying bank wherever it does business.
This actually happened to
the oldest Swiss bank, Wegelin.
That bank thought they could survive without the US dollar
because they had no assets in the United States.
They were making a terrible mistake,
because the US government warned all banks: Any bank that deals
with Wegelin is in violation of US law. As a consequence, no
bank dared to deal with Wegelin anymore, and Wegelin, the oldest
Swiss bank, finally went out of business.
The Bank Wegelin case was an extreme
example that taught a lesson to the industry: Every bank
targeted for violating US law abroad has no chance to survive US
prosecution.
Nick:
I think that's a very important point that you make.
We're looking at a bank - Bank
Wegelin - that had no branches in the United States, no physical
presence in the US. But the fact that the US dollar is critical
to not just to US banking, but also for international trade,
gives the US government enormous power.
The reality is that any bank that
wants to do any sort of international business needs to use the
US dollar - and it can only use the US dollar if it has the US
government's blessing. If they take away that blessing, it's an
economic kiss of death to a bank - even a bank that has no
physical infrastructure in the US.
I think that's the lesson from Bank
Wegelin.
It's just astounding that the oldest
bank in Switzerland was shut down by a foreign government. The
oldest bank in the US is the Bank of New York. Just imagine if
the Chinese were able to shut down the Bank of New York with the
snap of their fingers because they didn't comply with Chinese
law.
Do you see other countries in view
of what the US is doing - abusing its role as the custodian of
the world's premier reserve currency - and pushing them to
create a system that isn't fraught with political risk coming
from the US government?
Roland:
This is blackmail, and unfortunately, Switzerland cannot afford
to resist it.
This is because we have major global
corporations such as Nestlé, Roche, Novartis, and many more.
Because Switzerland is so internationally exposed, the Swiss
government actually had no option except to submit to the
blackmail and issue an emergency order requiring UBS to reveal
the names of many of its clients.
FATCA, the Foreign Account Tax
Compliance Act, is now in force not only for Swiss banks but
actually for any foreign banking institution that wants to deal
with US clients. That means banks worldwide must become
watchdogs for the US government and become FATCA compliant.
(Editor's Note:
Read this article to understand
what FATCA is and why it's so horrible.)
So, the US government gets what they
want, and the OECD learned from this. A new standard within the
OECD for the automatic exchange of financial information - based
on the US's FATCA - will come into place around 2018.
Switzerland has agreed to this new
OECD standard. I think the one country that has not given its
full agreement is the US, because the US would have to give the
same financial information to foreign governments, and they
don't want to do that.
I think it is known that the US is
one of the best countries to hide money, whether that is a
corporation in Delaware or whether that is real estate in
Florida.
It is well known that Delaware is
the best place to register a corporation, because nobody can
find out who the beneficial owner is. It is well known that
Miami was built by Latin American money, but the US government
does not care about that. They like the money. They certainly
would hate the money to leave the United States and therefore,
the US does not really want to join this OECD standard.
It wants others to join, but it does
not want to follow the new standard itself.
Nick:
You raise some important points here.
We've talked about
FATCA a lot on the
International Man site. Unfortunately, the battle for FATCA
was lost when Vladimir Putin signed a FATCA agreement.
After Putin signed FATCA, China also signed FATCA.
When you have China and Russia
signed up, pretty much every country in the world is onboard.
The only countries that will not sign onto FATCA will be ones
like North Korea, Iran, and Cuba.
Good luck if you want to bank in
those countries...
As you mentioned, the OECD is
looking at the success of FATCA and wants to emulate that
"success" with its global standard. And that global standard has
been dubbed
GATCA.
FATCA pertains to Americans, but
GATCA pertains to people of 50 nations, and it is going to grow.
It's a very scary thing.
Imagine if there was something like
GATCA when the Nazis were around. The whole point of having
Swiss banking secrecy was to provide a safe haven for those
under persecution.
This is precisely why there is a
strong
moral argument to be made against GATCA and other
privacy-killing schemes.
I have two questions for you.
-
First, is GATCA going to be
the endgame because FATCA itself wasn't (it just paved
the way for GATCA)? What comes after GATCA?
-
If the US does not sign up
to GATCA but still effectively forces the rest of the
world to sign on to a standard that they themselves will
not comply with - a huge example of hypocrisy - does
that jeopardize the success of GATCA? That's the second
question.
Roland:
I think it's going to take a very long time to get the point
where GATCA is fully implemented, and the world might well have
changed by then.
But I wouldn't dare to say whether
GATCA is going to be the endgame. It's terrible just to think
about it. It makes me afraid. I really hope it won't happen,
because then what we will have is one ruler for the entire
world.
Nick:
It's terrifying to think what the governments of the world will
do once they have all this information from GATCA at their
fingertips. What do you think they will do with this
information?
I think a sad but logical outcome is
that when you give these sociopaths this amount of information,
they'll use it to build something they have long desired, which
is a system of global taxation for all the world's citizens.
Roland:
I think that history will repeat itself; we have seen empire
builders of the past - the Soviet Union, the Third Reich,
Napoleon's empire - all
split into pieces.
Hopefully the world will change
before what you described happens. History has a way of
surprising us.
Take a look at what you se
now in Europe with the Euro.
Bureaucrat empire builders thought that the EU and the Euro was
actually a good thing for Europe and would bring peace to
Europe. I think it's going to be the opposite. I think we are
starting to see that this centralized bureaucracy is not going
to be the solution for Europe.
Europe is too diverse to be
centralized like that, and if Europe cannot be centralized, the
world as a whole is certainly too diverse to bring the whole
world under a single, centralized system.
So I think the Euro won't survive in
the long run. I think it splits Europe apart, and in 5-10 years,
we won't have the Euro in the same form as we have it today.
We should realize that putting
everything together and centralizing is not a good thing for
Europe, and it is not a good thing for the world.
Nick:
It seems to me there's a battle going on between those who favor
the centralization of power, culminating in some sort of
dystopian one-world system on one hand, and on the other hand, a
decentralization and a movement toward smaller independent
states, as we've seen in Scotland, Catalonia, and so forth.
So who is going to win this tug of
war? The big-government collectivists who naturally favor
centralization or the forces of decentralization?
Roland:
Governments want centralization. But what would be more
conducive to peace is decentralization, because
centralization can only actually be achieved by force.
To put everything under one
governing body, so to speak, won't work because there will
always be some people who seek to take advantage of others, and
therefore there will always be unrest.
Nick:
Roland, thank you for your time.
Roland:
My pleasure.
