As part of the white money strategy, and especially in cross-border private banking, banks and other financial services providers have launched procedures to confirm private tax compliance of their customers.
This procedural step is not only in response to local regulatory requirements and anti-money laundering legislation. Dedication to the white money strategy is also a matter of reputation. Without a sound reputation, no bank will succeed in attracting and retaining client assets sustainably in a more and more transparent world.
Today, most banks have completed the initial checks on customer tax compliance. Efforts were focused first on key markets (key from a business strategy perspective, or from a close look at the bank’s health) and then rolled out to other markets. Clearly, the level and kind of checks applied vary for specific markets. One simple reason for this is because the way customers can prove their tax compliance varies depending on their home jurisdiction. Another reason is that it takes time to build up compliance procedures, such that basic checks are performance oriented in the beginning, and more sophisticated checks are applied in a later stage.
It sometimes happens that a customer will fail to provide the bank with the requested information. The bank then will start the process of carving out such customers and finally work towards terminating the customer relationship. Experience tells that it can be a difficult job to break away from a bank customer and to deal with his assets, especially if the customer wants to stay or does not communicate with the bank. Many banks were forced to acquire special know how and to establish a special task force to deal with these kinds of situations.
Obviously, this pool of diverse situations is a rich source of sensitive information. This has recently encouraged the tax authorities to make efforts to get access to this information. Already, in October 2015, the Netherlands submitted a tax information exchange request to Switzerland. In a nutshell, the Dutch tax authorities wanted to know the names of bank customers who had been approached by a Swiss bank to confirm their tax compliance but who had failed to provide the requested information. This information request was challenged in court in Switzerland. The Swiss Federal Supreme court now confirmed that the bank customer information must be sent to the Netherlands.
Because the white money strategy has created similar fact patterns for many other jurisdictions, it seems likely that more information requests will follow. From more and more countries and for more and more banks.
These developments show that banks and other financial services providers are correct in their approach to applying utmost care and diligence to protect their own interests once they realize customer tax compliance is not confirmed properly. The recent tax information exchange court case makes it clear that what started as internal compliance procedures is now transforming into a branch of governmental investigations and tax law enforcement. This is a trend that can be seen in many areas of law already, and a trend that is known to the heavily regulated financial services industry in particular, and it has now reached Switzerland in the area of tax law.