March 31, 2008 9:57AM

Will Switzerland Defend Financial Privacy?

The New York Times reports that high‐​tax nations such as France and Germany are badgering Switzerland to weaken its privacy laws so that flight capital can be tracked — and taxed. Germany’s former finance minister even argues that this would be akin to Switzerland helping to return a stolen car. But this argument is morally and legally wrong. On a moral basis, the German government is the one guilty of taking something it shouldn’t have. Over‐​taxed Germans are putting their money in Swiss banks because they don’t want the German government to confiscate too much of their money — especially since Germany is guilty of both high tax rates and pervasive double taxation of income that is saved and invested. If Germany wants to reduce tax evasion, it should reform its tax code rather than harrass peaceful neighbors. On a legal basis, nations help each other enforce laws using the principle of “dual criminality,” which means that an action has to be against the law in both nations. Stealing cars is illegal in both Swtizerland and Germany, so cooperation in the battle against car theft is appropriate. Confidential bank accounts, by contrast, are not against the law in Switzerland, so there is no reason for Switzerland the violate its human rights policiy on privacy just to help Germany enforce bad tax law. This upsets the Germans, yet they do the same thing when refusing the extradite suspects who might face the death penalty to America. It’s not their job to enforce American criminal law, so they have every right to say no. But it does indicate that German priorities are a bit strange. They defend the principle of dual criminality when they want to provide refuge to American murderers, but they think the principle should be discarded when politicians think they can grab some money from Swiss banks:

This land of stunning Alpine vistas, which has chosen to remain outside the European Union, has always loomed large in the global imagination as the place where the wealthy stash their money beyond the tax man’s reach. The best estimates suggest that image is true, to the tune of $1 trillion to $2 trillion. The scandal that threatens that lucrative business began when German authorities obtained secret financial data from Liechtenstein, Switzerland’s tiny neighbor with similar banking laws. The information in hand, investigators fanned out across Germany to seize documents thought to be related to tax evasion by hundreds of wealthy Germans. Cases are now being prepared based on the information, a process likely to take years. The fallout has claimed the job of one top executive, Klaus Zumwinkel, who had headed the German postal service, and has given the German left a political boost. But Switzerland is the bigger prize. And its continuing refusal to help other countries catch tax cheats hiding their money there appears to have hardened Europe’s resolve to force change. “If a car is stolen in Germany and taken to Switzerland, the Swiss help find it,” said Hans Eichel, a member of the German Parliament and a former finance minister. “But when it’s about tax evasion — and much larger sums — they do nothing. No one outside Switzerland understands that.” …European officials believe they can seize this moment to rally public opinion against the Swiss, German officials said. France, which will take over the rotating presidency of the European Union in the second half of this year, has agreed to take up the issue. …The concept of bank secrecy is deeply rooted in Switzerland, akin to the confidentiality rules governing doctors and lawyers in other countries, and a 1934 law makes it a crime for bankers to disclose client information. For foreigners, this combination is an effective shield against authorities at home. …Hans‐​Rudolf Merz, the Swiss finance minister, has brushed aside notions that Switzerland will water down banking confidentiality, a cornerstone of the financial system. Jean‐​Michel Treyvaud, a spokesman for Mr. Merz, called the debate “a media phenomenon” and declined an interview request.