George Handlery about the week that was. Iran: The news are cruel but true. When apparent sanity is based on a misunderstanding. What you did not want to hear about bank secrecy. Fleeing Germany. Do not raise taxes: reduce expenditures.

1. It sounds unpleasant and mentioning it is cruel as it threatens the undisturbed pursuit of our lives. Nevertheless, as the months pass, the facts jell that an unwanted ghost is materializing. Iran is using every opportunity extracted out of the management of her foreign relations and the inertia of the potential victims to pursue her nuclear project. The news is as plentiful as it is bad. In fact, the repeated threats, lies, transparent delaying tactics are increasingly difficult to overlook. They are part of a list that is long enough to create, through the repetition familiarity and therefore their dismissal due to boredom. Iran is working on a detonator. Then missiles are tested. She tries to purchase advanced weapons. Facilities are dispersed. She pursues the acquisition of dual use nuclear power generators. Admits to have secret facilities once they are discovered. Plays a cat-and-mouse game with inspectors.

Meanwhile, the enrichment facilities churn merrily. The latest has been an announcement that Tehran is prepared to accept the once rejected offer for the enrichment of uranium abroad. Two days later, during a meeting with scientists, Ahmadinejad issues the theatrical order to enrich at home. On February 11 came the proud announcement that Iran is an atomic state. More is to come. As things stand, the list is already exhausting. The remaining real question is not what Iran wants but whether the action that might fit the problem posed will be implemented before the point of no return is reached. Meanwhile, only two parties assert that there is much room left for diplomacy. One is Lady Ashton. In case you have not noticed, she is the EU’s Foreign Minister. The problem with her is that she might believe what she says. The other major reluctant actor is the People’s Republic of China. The good news: Peking must know that proposing more “dialogue” is part of a game it thinks it can still afford to play.

 

2. Iran’s on and off again negotiations and the Bomb. There is a lesson learned here.  Only the worse news regarding the nuclear project is accurate. Any sign of sanity that seems to appear on the horizon is based on a misunderstood illusion.

 

3. It is difficult to argue an idea for whose acceptance the reader is not conditioned. It is foolish to plead a case that is made suspect by a consensus. Bank secrecy is a topic that fits that category. Fact, fiction and folklore unite here. The dogmatic association of the black and white bank secrecy with criminality is hardly moderated by confusingly grey facts. Following Switzerland’s classical example, recently several states willing to white wash ill-gotten gains, have accommodated depositors with security and discretion. In the case of Switzerland that did not handle dirty money by design, this system is now collapsing. A discussion that goes beyond regurgitating myths demands that the constructive reasons for bank secrecy and its abuses be presented.

Bank secrecy has become famous by the numbered accounts that the paperbacks publicize which people read while waiting for delayed flights. Such deposits have not been available for many years. More prosaically, the policy of secrecy meant that deposits could be made that were protected by the laws of the Swiss government. This protection has not been absolute. In the case of criminal proceedings for a proven cause, and involving matters that were illegal in Switzerland too, this shelter did not apply. For quite some time now, funds could only be deposited once the legality of the money was proven. Swiss law did not allow the acceptance of the derivates of tax fraud because by its own rules that is a crime. Tax evasion being only a misdemeanor meant that assets that evaded foreign revenue services were accepted. Banks did not control the relationship of the foreign depositor to his state’s tax collectors. All the bank did was to suggest that the accounts entrusted to it should be legalized abroad.

The system has been abused. Some of it being preventable, the big Swiss banks are responsible. The US activities of the UBS – once the world’s largest bank – achieved fame. Chasing bonuses, some criminally inclined, mostly native, representatives of the bank have violated the laws of the host country, ignored Swiss law, and UBS procedures. Advising and providing guidance to commit tax fraud must have had the tacit approval of the institution’s leadership. The scandal, as well as German and French pressure, has brought a change in cross border banking. Regarding aliens, the Swiss dropped their distinction between tax fraud and tax evasion. Undeclared deposits are now to be taxed by the Swiss and the takings are to be transferred to the appropriate treasuries. This would have settled the matter if only a crook would not have stolen the data on 1.500 undeclared German accounts. Serious issues arise when a prosecution uses illegally acquired evidence. Regardless, the German government buys the CD for millions. Inevitably, to get rich, more data is stolen and are put up for sale.

Here the story has an interesting and unpublicized bend. Most undeclared German accounts, while in Switzerland, are not in Swiss banks. German banks have branches in Switzerland and they are the ones that hold most of these funds. For Berlin, it would be easy to order German institutions to deliver the data to their government. Could it be that this oversight is not entirely accidental?

The damage to one of the largest financial centers of the world is serious. Even so, Switzerland’s global advantage in financial management has not been fugitive money alone. The attraction of Swiss financial services before and after the secrecy (1933) was the domestic and international stability of the country. The Swiss Franc was rock solid and the country is safe. In addition, asset management was competent and trustworthy. Contradicting legends, the bulk of Swiss-administered money – 90% of which is invested abroad creating jobs and financing development there – is not black money. (This might not be the case in other tax heavens.)

Generally, assets were and are attracted to Switzerland because of the quality of fund management and the venue’s reputed reliability. The young need to be reminded of another motive for stashing away a nest egg in Switzerland. Most people lost everything they had after WWI when even entire countries disappeared. Thereafter the Great Depression struck followed by WW2. A natural reaction is that one desires to have a reserve in a safe place. Secrecy is part of that “safety”. For traceable holdings in another country and currency, one can be criminalized as a traitor and be extorted to repatriate the capital. (National and international Socialists have done so.) What this experience teaches is that only that is yours that “they know nothing about”. The general rule is that first the savings flee. Then the people escape. Tell this in Venezuela now. Chavez is teaching them to understand.

 

4. Today, Germany is a country at risk. Her reputation lives off the post-war “economic miracle”. Taxes are high and the coming crisis of subventions is likely to raise taxes and inflation. A sign of growing distrust is that, to avoid confiscatory taxes, nearly 20% of the activities take place in the informal economy.  Not “smart money” only is fleeing the tax collector. Due to the similarity of the languages, highly qualified Germans inundate Switzerland. These individual decdisions tell us something. In conclusion, not the Swiss alone have a problem. The predicament is also a reflection of an anticipated regional crisis. The Euro is wobbly. Greece’s, Portugal’s and Spain’s economic condition is tattered. Forget Italy. Several Eastern members, accepted out of courtesy, are practically bankrupt. Understandably, near-by non-EU members that have a national currency and a solid political structure, look attractive.

 

5. It is amusing how Germany’s government attempts to increase its revenues by grabbing beyond the limits of what it has previously affirmed as legal. Money is sorely needed to cover over-expenditures. The “limits of legality” refers to the use of what one would call admissible evidence. All systems that operate under “the law” agree that illegally acquired evidence is not to be used to secure convictions. Accordingly, stolen data or information extracted by torture is not admissible as evidence.

 

6. Hardly are Germany’s problems caused by lacking revenue. True, high taxes produce negative fall-outs. Such is capital flight, reluctant investors, the relocation of production to cheaper venues. Thus, revenues can only be increased by cracking economic resistance. Bloated expenditures pose the basic problem. Curtailing them meets political resistance and retaliation in the next election. You might also think here of the strikes (February 11) in Greece. They tell a story. More than 40% of German adults are recipients of state support. Therefore, all are against high levies but also for retaining their share of what the state takes in as taxes. The problem is compounded because the recipients are politically organized. Support payments are an expression of the power of structured groups that all parties must respect.