ICC Commercial Crime Service

Is the United States Really the World's Biggest Tax Haven?

In a recent article, Bloomberg Business quoted a managing director of Rothschild & Co., the venerable European bank, as saying that the United States “is effectively the biggest tax haven in the world”, lacking “the resources to enforce foreign tax laws and has little appetite to do so.” Remarks were taken from a presentation advising lawyers and financial advisers to uber wealthy foreigners on how to hide assets and avoid paying taxes.

Bloomberg identified what seems to be a growing trend, and a revelation. The United States, quick to point fingers at governments including Switzerland and the Cayman Islands for being on the list of the biggest offshore tax havens, may in fact hold the top spot.

Bloomberg sources said that the U.S. has become the world’s top tax haven, because it has refused to adopt new global disclosure standards. Has Switzerland adopted these standards, and if so why did it opt to do so? Also has adoption of global disclosure standards decreased use of the country as a tax haven?

In the wake of the financial and debt crisis, combating tax evasion worldwide has become an important issue, which is broadly pursued by the global community. On 15 July 2014, the Organisation for Economic Co-operation and Development Council adopted the new global standard for the automatic exchange of information in tax matters. In the plenary meeting of the Global Forum held 29 October 2014 in Berlin, 97 countries committed themselves to introducing this new global standard. All major financial centres accessed this new standard, with the notable exceptions of Bahrain, Vanuatu, Nauru and …the U.S.A.

Switzerland is implementing national legislation, and will become a reporting country starting 1 January 2018. At present, Switzerland has entered into bilateral treaties with the 28 countries of the EU, plus Australia, Jersey, Guernsey, Isle of Man, Iceland, Norway, Japan and Canada. Starting from 1 January 2018, Switzerland will turn over names of foreign taxpayers with Swiss bank accounts to tax authorities in the countries with which it entered into bilateral treaties. This exchange applies both to individuals, and to so-called "controlling persons", who are beneficial owners of 25% or more of an offshore-entity, irrespective of the place of incorporation.

Once these principles have become fully operative, Switzerland aims to maintain a flourishing financial industry due to its political stability and to the excellent banking infrastructure and know-how it has consistently built in the last 60 years. However, it will no longer be attractive as a tax haven.

According to the Swiss Bankers' Association, more than a quarter of global assets invested cross-border is managed in Switzerland. Having recognised the change of times and the global perception in relation to tax evasion, the Swiss government and the Swiss financial industry wanted to be part of the process of implementing a global standard which was unified, granted sufficient legal and technical protection of data and was based on the principle of reciprocity.

This latter principle is now being severely questioned by the failure of the U.S. government to adhere to these globally accepted principles and standards. It is somewhat ironic that the very government which had started the whole process by actively hunting down its own tax evaders takes a hypocritical approach when it comes down to applying the same principle also to taxpayers of other jurisdictions.

Do you think the U.S. has actually topped Switzerland as the world’s top tax haven? Why?

According to a 2015 study by the Tax Justice Network, Switzerland still maintains the top ranking with respect to financial secrecy. But the U.S.A is surging in this particular ranking, and reached number three behind Hong Kong, having overtaken Singapore and the Cayman Islands. It is just a matter of time until the U.S. will top the ranking, and I anticipate this to happen as soon as the new global disclosure standards have been introduced in the rest of the world.

Being an offshore tax haven can be a lucrative business. How do the U.S. and other countries including Switzerland benefit from being a tax haven?

It is undeniable that Switzerland has greatly benefitted from having been a tax haven. The attractiveness of the banking industry did have a direct impact also on other sectors of the economy, starting from legal services, asset management, tourism and infrastructure. In a small country like Switzerland, the development of these sectors has contributed to the overall wealth of the country. It is interesting to note that, according to the Bloomberg Business article, the efforts to develop a U.S. tax haven industry are being targeted in smaller and less developed area, such as Reno, Nevada, Sioux Falls, South Dakota or Wyoming. It seems that the state governments are eager to attract this type of business in an effort to copycat the success obtained in Europe in this sector by smaller jurisdictions such as, in addition to Switzerland, Luxembourg, Liechtenstein or the Channel Isles.

Offshore tax havens also benefit criminals focused on corruption and fraud. How do they impact the process of international asset recovery for victims of large-scale fraud in Switzerland?

Sophisticated criminals want to exercise their "business" properly, and have a tendency to use to this purpose the most sophisticated tools at their disposal. The use of a Swiss bank account was deemed to constitute the "Rolls-Royce"-solution, giving a particular legitimacy to the fraudsters using this tool. Often just the ultimate proceeds of the crimes ended up in a Swiss bank account, after having been properly laundered and cleaned, with the "dirty part" of the transactions carried out in other jurisdictions. For these criminals, the regulation of tax issues usually constitutes a side issue, and almost the easiest part to deal with. Thus, I do not think that the new disclosure rules will have a material impact on subjects such as large scale fraud cases. Swiss banks have already introduced for many years advanced anti-money laundering measures, and yet this has not completely prevented sophisticated criminals from harboring the proceeds of their frauds in Swiss bank accounts. The new disclosure rules might make the access for less sophisticated criminals more cumbersome, thus reducing the overall figure of assets of criminal origin ending up in Swiss bank accounts, but in my view it will not completely eradicate the problem.

What lessons could the U.S. learn from Switzerland?

Swiss banking secrecy was originally introduced in the 1930s and its scope was to protect assets of foreigners from totalitarian regimes. This legitimate scope of banking secrecy was later supplemented by the offer of a safe harbor to wealthy families eager to protect their assets from expropriation, changes in political regimes or threats of extortion. The tax avoidance and evasion angle only came about at a later point in time, and partly delegitimized the core values inherent in banking secrecy.

Since the last financial crisis of 2008, under the pressure of various governments keen to increase their tax revenues heavily affected by the crisis, the general perception of what constitutes a legitimate harbor for foreign assets or a tax haven has changed drastically, both within Switzerland and in the worldwide community, and Switzerland, under pressure, ultimately decided to opt out of this "business model", realizing that it would not have a future.

The U.S. should learn from this lesson. What might turn out to be an immediate economic bonanza, attracting substantial assets for its financial industry, is bound to decline drastically, as soon as the U.S. government realizes that it cannot maintain a hypocritical approach to tax issues, creating a disparity between what it practices and what it preaches. It will not take long until the American public perceives the unjust and unequal treatment between its own citizens and wealthy foreigners being granted a free pass to deposit their undeclared assets in U.S. banks.

Michele Caratsch is a member and head of the litigation team of Baldi & Caratsch, a Swiss litigation boutique with offices in Zurich. A member of ICC FraudNet, he specialises in complex commercial litigation and arbitration, with a particular focus on fraud and asset recovery. The firm has been involved in major fraud disputes and worked with other ICC FraudNet members in transnational cases, including the freezing of assets concealed in Swiss bank accounts, assistance in international legal assistance matters and recovery proceedings, institution of local criminal proceedings in aid of a request for tracing concealed assets or a money laundering investigation, recognition of foreign bankruptcy proceedings and of foreign interlocutory measures in Switzerland.





ICC FraudNet is an international network of independent lawyers, who are leading civil asset recovery specialists in each country. Recognized by Chambers Global as the world’s leading asset recovery legal network, our membership extends to every continent and the world’s major economies, as well as leading offshore wealth havens that have complex bank secrecy laws and institutions where the proceeds of fraud often are hidden. Founded in 2004 by the Paris-based International Chamber of Commerce (ICC), the world’s business organization, FraudNet operates under the auspices of the ICC’s London-based Commercial Crime Services unit.