The news, that UBS The Swiss Bank is going to reveal customer data to the IRS was not only a blow to the Swiss banking sytem, but to Switzerland as a whole. There was a move to make banking secrecy constitutional and thus part of the political make-up of the whole country. It was renounced but the privacy provisions of the constitution in article 13 are decidedly meant to apply to banking matters, of course.

Then there is the law. The banking secrecy law is handled very strictly. Christoph Meili, the whistleblower in the “dormant accounts”-affair had to seek political asylum in the US after uncovering that banks illegally shredded papers that may have helped finding the owners of orphaned accounts, that is to say the legal owners of the money within those accounts. The name of Christoph Meili sounds to a Swiss banker like “Lord Voldemort” to Ron Weasley.

What is the big deal? It’s data of some 300 customers and it’s only one bank right? Wrong.

First of all the oversight agency has decided to go forth and order the release of the data even though the persons affected by this decision have not yet exhausted their legal procedural opportunities. This signals, obviously, that Swiss banks need not obey Swiss law and, if the pressure is heavy, won’t act according to law. Forget trust.

Second, the banking system itself, is, in part, working on the premise that people who have money don’t want to share it by paying taxes. Like bootleggers got rich because there will always be a demand for booze, the Swiss banks cater to the demand for tax havens. They use the fact that in Switzerland Tax avoidance is a misdemeanor and not a crime and argue only actual tax fraud requires legal assistance to foreign countries. Well, yesterday the US announced that a couple of hundred customers’ data wasn’t their idea of collaboration and are now asking for the details of 52’000 US citizens who have undeclared Swiss bank acccounts. The European Union used the moment and demanded the same treatment for their requests and British PM Gordon Brown just declared war on all tax havens.

The Swiss are in panic mode now. While their banks claim to have all the experience and professionalism that comes with being a high ranking banking place, noone knows how many possibly toxic accounts they are still holding and if they are prepared to switch to on-shore banking only, on short notice. The advantage of being an off-shore destination is gone, they will have to compete with all the other banks on an equal footing now.

The Zurich based index SMI is calculated from a list of 20 blue-chip companies, 30% are part of the Financial Industry. SMI at 12:46 CET: 4’851.70 (-2.78%)

: : : : : : : : : :