Follow the Money: From St. Moritz to Singapore

[R.A. Hettinga]

<http://online.wsj.com/article_print/0,,SB109865726182354106,00.html>

The Wall Street Journal


 October 25, 2004

 BUSINESS EUROPE


Follow the Money:
 From St. Moritz to Singapore

By ANTON KELLER
October 25, 2004


GENEVA -- Built on the unique appreciation and goodwill the French kings
had developed over centuries for the lives and treasures of Swiss
mercenaries, Hans-Konrad Hottinger of Zurich started in Paris in 1786 what,
seven generations later, is still a family-owned, discreet
wealth-management enterprise in the service of sophisticated clients.

Today, the pillars of society and the economy, the inherently and the newly
rich are still looking forward to open accounts with Swiss bankers in
Zurich, St. Moritz, Singapore, etc. For both foreign friends of Heidiland
and concerned Swiss citizens, the question is whether this obliging
heritage is still in safe hands, whether this unique trust, awe -- and the
premium service charges that go with it -- are still justified.

"In most cases no longer!" answered the American Iconoclast Philip
Wainwright, adding: "But don't despair either, for while the Swiss have a
penchant for near-perfection of mediocrity, the next generation of Swiss
bankers may again be able and willing to play hardball when needed, to
effectively stand up for their clients and not to sell them out, and thus
again become successful because and not despite of themselves."

The Wall Street Journal's Allan Otten gave the alert back in 1982, saying
that "A change in attitude is taking place here that makes Switzerland a
less attractive center than it used to be." Deploring Switzerland's
adoption of "Lex Americana," he and others have "been trying to alert the
Swiss to the American regulatory bureaucracy's penchant for growing real
problems if given fertile ground."

Since then, it has only gotten worse. Swiss laws and codes have been
focused less on investors' legitimate needs than on what some short-sighted
bureaucrats here and there have felt comfortable with. Mostly "under
foreign and especially U.S. pressure," foreign agendas were thus
accommodated, undermining Switzerland's position in the global financial
market. Gone are the days when demand for Swiss banking services was such
that foreign clients could bring in more money only with an annual negative
interest penalty of 10%.

What produced the "Swiss Banking Miracle" -- and what could bring it back?

Take Charles Pictet-de Rochemont's public-service record. The gratitude of
the Swiss people and government is written in stone at his statue in front
of the City Hall of Geneva (in 1814/5 he negotiated Geneva's accession to
Switzerland, obtained universal recognition for Switzerland's permanent
armed neutrality, and contributed to the foundation of Europe's
industrialization).

Paul Pictet (another outstanding member of the family, which has served
discerning banking clients since 1805), took the fight to preserve treaty
rights concerning Geneva's "zones franches" in 1923 to the Swiss people and
won, despite the government's sell out to France.

Jacques Darier (of the 1796-founded private bank bearing his family name),
while visiting his clients in Paris after World War II, was followed by
French taxmen and arrested to compel him to inform on his clients. At the
commissariat, rather than betraying his clients, he grabbed and swallowed
the paper slip that the police officer had found on him listing their
telephone numbers.

After Francois Mitterrand's election as French president in 1981, Pierre
Darier, with Charles and Pierre Pictet, effectively neutralized the French
government's fiscal attacks on their clients, persuading the Swiss
Parliament to reject as "diplomatic treason" what the Swiss Bankers'
Association and the Swiss Government had already granted to the French
socialists.

The Geneva Stock Exchange followed up with imaginative countermeasures
directed against bureaucratic lawmaking by the OECD, U.N. and EU. But that
also caught the ire of colleagues who, single-mindedly, eyed the U.S.
market. They ignored the lessons of the World War II-era dormant-accounts
disaster, snubbing and free-loading on the pro-market, pro-sovereignty and
pro-privacy efforts that had derailed the OECD's Interfipol convention, its
truly harmful "Harmful Tax Competition" initiative and the EU's
tax-data-exchange program.

Indeed, these principled stands have proved the exception rather than the
rule for over 50 years in Switzerland. Over the decades, in a misguided
attempt to curry favor with tax authorities in the U.S. and Europe, Swiss
bankers have acceded to the adoption U.S. insider-trading laws,
money-laundering and anti-corruption rules, and IRS Qualified Intermediary
regulations, and most recently to breaches of privacy and liberties on
purported antiterrorism concerns. All of these short-sighted measures could
not fail to degrade the investment climate to the point where Switzerland
is now threatened by a macroeconomic tailspin. After September 11, 2001,
the compliance mentality became nigh-universal, paralyzing and asphyxiating
the remaining productive forces, with the compliance departments often the
only growth shows in town.

But it also offered a renewal opportunity, a dignified path with a distinct
future appreciably away from all foreign and home-made obstacles to
legitimate market opportunities. For those with a corresponding public
service-oriented vision focusing on both the enterprising responsible
citizen and the common good, there always was and will be a bright future
-- if they are capable and willing to admit past errors as preconditions
for not repeating but correcting them.

Swiss bankers can start by regaining the lost wisdom of the Pictets and the
Dariers; they will only thrive if they can see the necessity of acting on
behalf of the ever-growing number of individual clients here and there with
legitimate surplus earnings, not against them. These clients don't need
bankers turned agents of the state, but competent and trustworthy allies
against an increasingly overbearing state bureaucracy.

Mr. Keller is secretary of the Swiss Investors Protection Association.


-- 
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R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'