Ganging Up On Switzerland

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Swiss banking secrecy has been going down the tubes for years now. It’s now a dead letter. All the other tax havens have fallen or will fall as well. This is an ongoing process whose final outcome is not in doubt.

What does this event mean? It is a significant victory for supra-national or international government. It is a victory for proto—world government. A group of states has ganged up on Switzerland and a number of other smaller governmental units. The group has applied pressures and broken the smaller units.

Capital flight is a significant method of eluding the reach of the state and its oppressive regulations and taxes. Money can go anywhere on earth. The U.S. and other states want to close down this escape hatch. If one or a few states that operate tax havens or respect financial privacy do not cooperate, then the U.S. and other states look for ways to break them down.

This event should not be construed as a victory for those who pay taxes, or thought of narrowly as a defeat for those who evade taxes. This is a defeat for all of us who are unnecessarily shackled by the intrusive powers of the state in areas of our person where it has no right trespassing.

Even before this victory, any wealth that one funnels through the U.S. banking system was already open to scrutiny by the U.S. The U.S. already requires reporting of foreign accounts.

There is zero financial privacy in this country. Anyone who wants to buy any kind of security through a broker or other financial institution has to realize that whatever he does in the way of financial transactions can be traced and tracked. Anyone who uses cash in amounts beyond a rather small minimum is reported to the authorities by a banking system that spies on them.

The Swiss government caved in to pressures brought on it by the U.S. and by the OECD (Organisation for Economic Co-Operation and Development.) The OECD has 30 member states. The OECD links and overlaps with the European Community which has 27 member states.

These organizations are proto-world government. They are supra-state organizations of states that encompass a major portion of the world. When combined with similar entities from other continental regions, the spectre of world government becomes ever more visible.

The Swiss faced a blacklisting from the OECD. By all press accounts, the pressures placed on them were severe. This means that the other European countries and the U.S. were making credible threats. They ganged up on Switzerland. They made it clear that unless the Swiss gave in, there would be negative consequences. A draft communiqu referred to a "toolbox of sanctions" to be imposed on the “non-transparent, non-co-operative and loosely regulated jurisdictions, including off-shore centers”

There is no question that the U.S., the EU, and the OECD are going after all other jurisdictions. These include Singapore, Hong Kong, the Caymans, the Shetlands, Andorra, Liechtenstein, Monaco, Austria, Luxembourg, etc.

It is extremely difficult for a European state to run a country when a number of other important neighbor states impose trade and financial sanctions that cut off commerce, transportation, financing, travel, and so on. That is why the Swiss caved.

The sanctioning of one state by a group of others in order to get its way is an act of raw power. It is warfare of a kind. It is like one state forcing another state to give up a person who has fled there for asylum. It is like a Fugitive Slave Act that makes one side give slaves back to their masters after they have fled. In this case, it is after one’s property has fled a jurisdiction. The penalties for such flight are severe.

Taxes are not voluntary, and so logically they are theft by the state. Evading taxes is commonplace. No one has a duty to pay taxes being involuntarily extracted from them. That is why there is no moral stigma attached to cheating on taxes. Many of us who do not cheat do so only because we may be caught and have to pay fines that don’t make cheating worth the effort. Others of us are literally unable to cheat due to the ways in which taxes are extracted from us.

The Swiss banks were always under Swiss law. That was always a point of vulnerability to those who had accounts there. It worked out for a long time until the Swiss leaders changed the law, albeit under pressure. Wealth is never fully secure. Wealth thought to be secret has turned out to be not so secret after all. The Swiss banks fell to the pressure of changes in Swiss banking law. That was always a risk. It was a risk judged to be small by those who opened the accounts and whose names have been turned over to the IRS. They misjudged the risk. The handwriting was on the wall going back to various Swiss actions over the past ten years. Be warned.

As mentioned earlier, money can go anywhere on earth. This is still true. In particular, it can go into hiding places other than Swiss banks. It can go underground — literally. We will now be seeing more treasure maps. Are safety-deposit boxes sacrosanct? Those who use them had better look before they leap.

Now that the price of using offshore bank accounts to hide money has risen steeply, people will turn to other alternatives. Maybe they will invent new ones. It will be more difficult than ever to invest in financial assets secretly so as to earn a return. Other forms of wealth may be the beneficiary, such as jewels, art, collectibles, and metals. These can pass from hand to hand, in some cases without the knowledge of authorities.

The invasion of Swiss banking privacy means that the costs of keeping wealth secret, private, and secure have risen. Instead of flowing into productive channels, more wealth will be locked up in ways that otherwise would not have been chosen.

Ganging up on Switzerland is ganging up on the common person who never dreamed of having a Swiss bank account and who may be thinking that tax cheats get what they deserve. It is doubtful that the average person thinks of the matter in this way. Chains meant for him are being forged before his eyes, and he does not realize it.

Michael S. Rozeff [send him mail] is a retired Professor of Finance living in East Amherst, New York. He is the author of the free e-book Essays on American Empire.

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