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Categorized | Banks

Swiss arrest warrants for German tax inspectors

Posted on March 31, 2012

Credit Suisse headquarters in Zurich

German Social Democratic party (SPD) politicians reacted with fury on Saturday, after Switzerland confirmed it had issued arrest warrants against three tax officials from the SPD-controlled state of North Rhine-Westphalia in a major escalation of a lingering tax dispute between the two countries.

“This is a monstrous step”, said Hannelore Kraft, North Rhine-Westphalia’s premier. “The state of North Rhine-Westphalia protests against our employees being pushed into a criminal light”, she added.

Michael Lauber, Switzerland’s recently appointed federal attorney, confirmed warrants had been issued, as revealed by Germany’s Bild am Sonntag newspaper.

Mr Lauber said the decision to take action against the three unnamed officials followed their role in the purchase in 2010 by North Rhine-Westphalia of customer information about Germans holding offshore accounts in Switzerland.

The escalation comes at a sensitive time in Swiss-German relations, after the apparent collapse of a deal between Bern and Angela Merkel’s Christian Democrats led the federal coalition in Berlin to encourage rich Germans with secret Swiss accounts to regularise their affairs.

Under the arrangement, which mirrors a Swiss deal with the UK signed earlier this month, rich Germans with hidden Swiss accounts could retain their anonymity and avoid the risk of criminal action in the event of detection. In return, they would have to accept tax on future income from their accounts, along with a one-off penalty payment for tax not levied in the past – with all the proceeds going to the German authorities.

Switzerland’s government and bankers have praised the scheme as an elegant way of regularising so called “legacy” accounts, while boosting the coffers of financially stretched neighbouring countries. No statistics exist, but Germans are believed to be the biggest single holders of undeclared accounts in Switzerland, using the physical proximity between the two countries to transfer vast funds.

While strongly backed by Wolfgang Schäuble, Germany’s federal finance minister, the deal has been decried by SPD politicians who have claimed it lets tax dodgers off too lightly. As the agreement requires backing from the Bundesrat – the upper chamber of parliament, where Ms Merkel’s government has lost its majority – SPD states have blocked ratification.

Matters came to a head in the past week, after concessions by Switzerland to meet some of the SPD’s objections failed to produce the expected breakthrough.

News of the arrest warrants is likely to prompt populist glee in Switzerland, where there has been growing anger about apparent bullying by bigger neighbours. Apart from differences with Germany, Switzerland is also locked in a bruising battle about bank secrecy with the US.

The arrest warrants follow a growing practice among SPD-run German states to offer big financial rewards for Swiss bank employees prepared to sell confidential client information. Such behaviour is a serious crime in Switzerland, which has strict laws on bank secrecy, enforceable by prison sentences.

Mr Lauber told Swiss radio that there were concrete reasons to suspect the German officials had been involved in a breach of bank secrecy at Credit Suisse, Switzerland’s second-biggest bank.

The bank last year negotiated an out-of-court settlement with North Rhine-Westphalia after the latter bought for €2.5m a CD containing details about hundreds of German clients.

Some German officials and politicians have expressed reservations about the purchase of stolen data and its standing if ever brought before the courts. But the practice has not been tested – and has proved extremely effective in persuading thousands of Germans with hitherto secret Swiss accounts to declare their holdings voluntarily.

The latest steps are being played out against the background of forthcoming state elections in North Rhine-Westphalia and Schleswig Holstein, with SPD politicians viewing the issue of tax dodging and “social justice” as potential vote winners.

“The North Rhine-Westphalian tax officials were just doing their duty to hunt German tax cheats,” said Ms Kraft.