For automatic, not selective, information exchange

Print edition : November 29, 2013

Rudolf Elmer: "The white-money strategy will not do much in the way of preventing financial fraud." Photo: Gianluca Colla/Bloomberg

Interview with Rudolf Elmer, banker-turned-whistle-blower.

RUDOLF ELMER, a former employee of the Swiss bank Julius Baer, whipped up a storm in the world of global finance when he leaked to WikiLeaks in 2008 thousands of documents relating to tax avoidance structures and illegal tax evasion by individuals around the globe. He had collected these documents during his stint as chief operating officer of Julius Baer in the Cayman Islands. Since then he has been involved in a global campaign on tax justice and against tax avoidance structures by multinational corporations. Elmer was prosecuted by the Swiss government for defying banking secrecy rules. He alleges persistent harassment both by the bank and by the Swiss authorities following his revelations. Elmer recently filed a complaint with the European Court of Human Rights against Switzerland, alleging harassment by the government authorities. In an interview to Frontline in Geneva, Elmer spoke about the recent efforts by Switzerland to provide assistance in tax matters, the reasons for his turning a whistle-blower against the establishment, and his future plans. Excerpts:

As chief operating officer of Julius Baer in the Cayman Islands, you were privy to the elaborate legal structures that corporations adopt to evade and avoid taxes. Could you briefly share how these structures work?

The legal tax avoidance structures are complex vehicles that take advantage of the low tax rates in secrecy jurisdictions. The purpose of these vehicles is to allocate profit to a low-tax or even zero-tax jurisdiction and reduce profit in high-tax jurisdictions by charging expenses (licence fees, management fees, and so on) to the company in such jurisdictions in order to reduce the taxable profit. On top of it, these vehicles are set up in a way that the beneficial owner and the business transactions are hidden and disguised in order not to make it transparent how things really work and who the culprits are.

What was the attitude of the Swiss government authorities following your revelations about the financial malpractices? Does the harassment continue to this day?

My first whistle-blower letter on WikiLeaks was discussed in the local and federal Parliament, but the President of Switzerland explained in Parliament that the entire case was under investigation, [that] the information was protected by tax and bank secrecy laws and therefore he could not take any position and release any information. This was in 2008, and as of today, I am the only one who has been prosecuted for violation of Swiss banking secrecy laws and put under pressure. No action was initiated against Julius Baer and no investigation was carried out against the clients concerned. This does not come as a surprise because it is the government’s policy to protect Swiss bank secrecy and punish any person who challenges corrupt practices in the banking industry. Swiss bank secrecy is the golden calf and it has to be defended whatever be the cost. My case is not just about justice, it is a political issue and it clearly illustrates that Swiss bank secrecy still exists and the assets of culprits are safe in Switzerland.

What do you make of the Swiss government’s recent initiatives such as the white-money strategy to ensure financial transparency? Are these just token measures?

The white-money strategy will not do much in the way of preventing financial fraud as it is practically impossible to check if every client’s money is taxed in his home country. Switzerland is under international pressure to act on tax culprits, and this strategy, as you pointed out, is only a token measure. The effective solution is in an automatic information exchange, country-by-country reporting, and public registry of beneficial owners in secrecy jurisdiction that will make it difficult for multinational corporations, large financial institutions and high- and ultra–high-net-worth individuals to hide illegal money.

Switzerland recently signed the OECD treaty on mutual assistance in tax matters. What are the larger implications of this move for the developing world?

To be honest, I do not see any large implication for the developing world. It is only mutual assistance in tax matters, which is simply not effective. The developing world must request automatic information exchange and not any selective information, which is then up to the decisions of a judge in a country if the information is exchanged or not.

What were the primary reasons that prompted you to become a whistle-blower and challenge the powerful banking establishment?

The primary reason was that after my long career I really started to understand the financial system. Having worked in six secrecy jurisdictions and for major organisations such as Credit Suisse, KPMG, Julius Baer, Noble Group of China, and Standard Bank of Africa, I felt I was in a position to talk about it. I understood that offshore tax evasion is the biggest theft among societies and neighbour states in this world. The offshore business is one of the most lucrative businesses of any state and government. It provides wealth and power to people with vested interests in the state, and that is why it will continue and get worse until global society gets together to stop it.

You have also filed a complaint at the European Court of Human Rights against Switzerland in respect of Swiss bank secrecy. How do you link the issues of financial secrecy and human rights?

I filed a complaint at the European Court of Human Rights because of the issues of protection to my family and the right to a fair legal process. Also, I associate the issue of Swiss banking secrecy as curbing the right to free expression as Swiss laws do not allow a banker to reveal the truth about criminal clients which might have a larger public good. As a human being, it is my right to fight for the education, safety and social security of other human beings. I have the right to stand up against the man on the street in a developing country being deprived of the same because of an ultra-rich person hiding his money in a secrecy jurisdiction. I cannot protect a system which enables the rich to avoid paying taxes in their home countries which could then have been utilised to protect the poor, the disabled and the sick.

What is your future strategy in this concerted attempt to fight offshore services and financial fraud?

I returned to Switzerland to take the bull by the horns and that means to face the legal proceedings against me and my family. I wanted to make it public and let society know how a secrecy jurisdiction works if someone challenges the systemic corruption in a tax haven. It is simply another way to fight poverty and also offshore and financial fraud. I am among the few who try to reveal how such a secrecy jurisdiction works, the lies it spreads, and make it globally known, hoping that the judicial system will change and protect truth-tellers in the near future. We need more people to reveal the truth about this abusive practice, and they should be protected by the state.

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