Hardly anything could have been more damaging to Mitt Romney’s perpetual quest to relate to the average American than the recent revelations in Vanity Fair that he maintains personal finances in a sophisticated network of institutions across Europe and North America. Among the entities that Romney relies upon is a limited liability corporation in Bermuda and a “blocker” entity in the Cayman Islands. Suffice it to say, not the kind of thing that would endear him to a Wawa cashier.
But the most lasting damage to Romney may come from his most piddling investment of all (relatively speaking): the Swiss bank account in which he kept some $3 million until 2011. Given that Switzerland’s banking system is practically synonymous in the popular culture with secrecy and malfeasance—and attempts to outsmart the IRS—it should come as no surprise that the Obama campaign has bludgeoned Romney for keeping the account.
But what is most telling about Romney’s Swiss account might not be the fact that it was opened, but the fact that it was closed. For international plutocrats, the secret Swiss account has become increasingly passé in recent years. Indeed, what motivated Romney to close the account might not have been a political calculation, but rather an economic one.
In the last several years, the United States government has been pursuing, with some success, an unprecedentedly aggressive effort to pierce the veil of offshore bank secrecy in Switzerland. Washington’s investigations have taken a toll on the Swiss banking sector—not only in terms of fines, but also in terms of the legal framework that made Switzerland an attractive destination for the super-rich to park their money to begin with.
In 2009, the Justice Department received $780 million from UBS AG, Switzerland’s largest bank, in a settlement over charges that the bank conspired to defraud the government by impeding activities of the IRS. As part of the settlement, UBS also agreed to provide the identities of some 250 clients and closed about 19,000 accounts.
Switzerland’s reputation as a safe haven had depended precisely on avoiding such disclosures. But as soon as there was blood in the water, the American investigators only got more aggressive. Since 2009, Washington has sought the identities of thousands of account holders doing business with not only UBS, but also Credit Suisse, Bank Julius Baer. In February, the U.S. Attorney for the Southern District of New York indicted Wegelin & Co., Switzerland’s oldest bank, of facilitating tax fraud by U.S. citizens.
Next year could be another black eye for the Swiss banking industry. In 2010, Congress passed the Foreign Account Tax Compliance Act, which requires non-U.S. banks to report details of their American clients’ accounts to the IRS, regardless of whether it would violate domestic bank privacy laws. The U.S. will impose a 30 percent withholding tax on banks that do not comply. The law goes into effect in 2013, although compliance is not required until 2017.
But it’s not just the United States that’s pressuring Switzerland. Europe has gotten in on the act, too. In January, an agreement will go into effect between Germany and Switzerland that will force German citizens to pay taxes on funds they hold in Switzerland; the Swiss government will be forced to pay more than $180 million in back taxes as part of the deal. (Though amid recent Swiss accusations of German spying, the agreement reportedly is in danger of falling apart before it goes into effect.)
There is also a deal between Switzerland and Britain that is scheduled to be applied next year, which will require the Swiss government to pay as much as 5 billion pounds in unpaid taxes from accounts held by British citizens. And just this week, France and Germany raided the offices and homes of Credit Suisse and UBS officials and clients as part of ongoing investigations into tax evasion.
As a result of this international pressure, there’s been a steep curtailment of Swiss banks’ courtship of would-be tax evaders from the West. Some have closed accounts and are turning away new customers. For Swiss banks, whose business model now increasingly depends on maintaining good ties with other Western banks, it’s simply not worth the expense and burden of figuring out, in the instance of each and every American account holder, how to reconcile existent Swiss secrecy laws with the irritable reporting demands of the IRS.
Increasingly, then, the only people who can rely on the discretion of the Swiss banking system are those who reside in countries that don’t have the scruples or the leverage to pressure the Swiss government. Fortunately for Romney and other first-world plutocrats like him, there are always other options: Bermuda and the Cayman Islands seem to be Mitt’s favorites, according to Vanity Fair. Others prefer the Isle of Man, the Bahamas, or the Philippines.
The challenge for would-be Western tax-evaders is to find a country sufficiently isolated diplomatically (or even geographically) from the United States that it won’t feel compelled to buckle under pressure from Washington to make its banking systems more transparent. Switzerland no longer applies. In that way, you could argue that the most patriotic gesture available to Mitt would be to reopen that hastily closed not-so-secret account.
Jill Priluck is a New York City-based writer who has contributed to The New York Times Magazine, Slate and Time.com, among others.