Swiss court may unveil black money names on 3CDs
Three CDs containing names of Swiss account holders, possibly in Cayman Islands, could also contain Indian names.
By R Vaidyanathan
Over the next couple of weeks, a Zurich court could unveil the names of several account holders of Swiss bank Julius Baer, which could include many Indian names.
Julius Baer had until 31 May to object to a Zurich High Court decision to unseal three CDs containing names of several account-holders, but the Swiss bank failed to do so – which could mean that these names could soon be in the public domain.
Three CDs are at the core of a case involving Rudolf Elmer, a former Julius Baer Chief Operating Officer, who leaked 2,000 names to WikiLeaks. Elmer was then arrested and went on trial for allegedly breaking Swiss banking secrecy laws. However, the case against him would not hold if the CDs are found to contain names of account-holders of the bank in Cayman Islands, where Elmer worked for two years.
The CDs could soon become public information since Elmer has chosen to have his trial in public. They could have a big impact in India if the CDs are found to contain any Indian names, given the huge political impact of this disclosure.
Elmer claims that he has only published 5 percent of the data on WikiLeaks and so there may be much worse to come.
The prosecution case in the lower court was that Elmer had a Swiss contract with the bank (under which he had to respect banking secrecy laws) even though for two of the eight years he worked for the bank in Cayman Islands. A lower court upheld the prosecution case and found him guilty but on appeal the high court judge decided in November last year that because the data on the CDs had not been revealed, it was not known whether it was Cayman or Swiss data.
"If it’s Cayman data, then it's not under Swiss banking secrecy laws and they cannot find me guilty on a contract," Elmer has said.
After that, the fight has been about what is on the CDs, one of which had been given to the newspaper Cash. The prosecution had asked the paper to hand over the CDs, but Cash instead sent them to Julius Baer on the grounds of protecting their sources. The bank argued that they should remain sealed to protect client privacy.
The high court dismissed this argument and opted to unseal the CDs. JB had until 31 May to appeal against the decision, but the deadline has now passed with no appeal, which means the contents of the CDs are set to be revealed against the bank's wishes.
The important point to note is that the consequences could be disastrous for the bank and for tax evaders around the world. The Prosecution Office of Zurich will get all client names and in an open trial the names could be made public. Even if the names aren’t divulged, the tax authorities in other countries will have the option to request information from Zurich's Prosecution Office. Whether India is going to ask for the names is another matter.
"The can of worms will be opened even more," Elmer has been quoted as saying in the media. "I believe it is very important for international clients to know that the CDs are now with the prosecution and an enormous risk arises that their names might be published, or even that information requests will be filed with Zurich's Prosecution Office."
Now let us look at what kind of black money from elsewhere is lodged in secret Swiss bank accounts. Nearly one trillion Swiss francs out of 2.8 trillion of Swiss money is black money, says Konrad Hummler, former chairman of the Swiss Private Bankers Association. (See August 2009, Swiss Review, “Atlantic hurricane hits Switzerland in full force.”)
Hummler is quoted as saying: “Switzerland has become a paradise for foreign capital on which tax is not paid. The uproar from foreign governments is understandable.”
As to what this means, in August 2009 one Swiss franc was nearly equal to the US dollar. It means that US$ 1 trillion in black money has been kept in Swiss banks. Julian Assange of WikiLeaks has mentioned that Indians are a large class of investors in Swiss banks and much of the recent revelations pertaining to Commonwealth Games, Koda and other scams lead us to the Cayman Islands through Swiss banks.
Sources in the Swiss banking industry feel that since the Elmer data belongs to 2002, it may be less damaging than if it were recent. However, any Indian names found on the list will have huge political impact.
Elmer asserts that he has published only 5 percent the data on WikiLeaks, and says he did not release the other 95 percent because it was not his job to publish client names. It was up to the tax authorities to chase cases of evasion. He also claimed that when the CDs were unsealed it would do a lot more damage than the original WikiLeaks publication
Only time will tell whether or not the bank or its clients have anything to fear when the full contents of the CDs are revealed. But the fact that the bank fought so hard to keep them private suggests otherwise. The CDs are a ticking time bomb both for whose names may be on them, and for the political establishment.
R Vaidyanathan is professor at the Indian Institute of Management Bangalore. Views are personal
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A dearth of fee-spinning alternate investment vehicles such as hedge funds and private equity, and an underdeveloped corporate bond market means most investments are channeled into run of the mill equity products, bank deposits, and government bonds.
The case pertains to a list of 600 Indians whose details were stolen by an employee of HSBC in 2008 and handed over to the French government, which decided to share them with India. The Indian authorities are, however, hesitating make public the names in the list.<br /><br />
The present value of illegal financial flows held abroad is nearly $500 bn. That's nearly 35-40% of our GDP. Baba Ramdev and Anna Hazare are on the right track about corruption and black money, but whether a fast will get the money back fast is anyone's guess.