Global Economy
French economist hails progress against tax evasion; Swiss banks will continue to cheat
By Michael Hennigan, Finfacts founder and editor
Jul 28, 2014 - 7:20 AM

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Gabriel Zucman at University of California Berkeley, April 2014, presenting slides on results of research on US income and wealth changes since 1913 [pdf]

Switzerland has faced turbulence in recent times over tax evasion and banking secrecy, and the Swiss have this year agreed under duress to sign up to a multilateral agreement sponsored by the Organisation for Economic Co-operation and Development (OECD), which provides for automatic sharing of banking information from 2017. However, a French economist claims that Swiss banks will continue to have tempting incentives to cheat.

The clash between the influence of Jean Calvin (1509-1564), whose austere religious doctrine forced the Frenchman to take refuge in Geneva, that would become part of the Alpine country in 1815, and the more recent role of the Swiss in hosting the plunder of foreign dictators or confiscating the wealth of Holocaust victims, was a far cry from the gripes of the main character Michel, in the 1902 novel 'L'Immoraliste,' by André Gide (1869-1951) the French writer who won the Nobel Prize in Literature in 1947: "I detest these honest folk. I may have nothing to fear from them, but I have nothing to learn from them either. And they have nothing to say...Oh, these honest Swiss. Where do their good manners get them?...They have no crime, no history, no literature, no art...They are like a sturdy rosebush without thorns or flowers."

Gabriel Zucman (born Oct 1986), the young French economist who is an assistant professor at the London School of Economics and a collaborator with compatriot economists Thomas Piketty and Emmanuel Saez on inequality research, has hailed the remarkable progress in recent times against international tax evasion but he warns that Swiss banks will continue to cheat as there are no sanctions in Europe comparable to those in the US for penalising the hiding of asset trails that they have mastered for decades.

Earlier this month Zucman told Tages-Anzeiger, the Swiss newspaper, that based on analysis of published data, offshore money in Swiss banks has risen in recent years and an estimated “80% of European bank clients’ assets still aren’t being reported to tax authorities.”

The economist says the incentives for bankers remain tempting.

“For decades, rich bankers helped clients illegally hide assets and earned a lot of money doing it,” Zucman said. “Even though this behaviour is now costly compared to the gains it brings, the business of tax evasion remains far too lucrative. That's why I'm sceptical that things have radically changed.”

Using data from the Swiss National Bank, the central bank, Zucman says the declared financial assets (excluding wealth such as property and art) from countries like Germany, France or the United States show that only a very small proportion of offshore funds in Switzerland have been disclosed to the authorities.

The economist calculates that Switzerland is host to US$2.4tn or one third of global offshore funds of around $7.6tn, which accounts for around 8% of global financial assets.

Zucman says that more than 60% of foreign-owned deposits in Switzerland “belong” to the British Virgin Islands, Jersey, and Panama - - the leading centres for the domiciliation of shell vehicles.

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