Readers Head to the Alps

This blog has only been live for two days and already we're getting excellent comments from our readers. We want Wealth of Nations to be a conversation, and when you say something smart, we plan to highlight it.

I was pleasantly surprised by the reaction to my post on the end of Swiss banking secrecy. I wasn't sure international banking regulations and cross-border information-sharing would interest many readers, but apparently secret offshore accounts stir the imagination.

Several readers noted that Hollywood's fascination with Swiss banks might stem from more than just their usefulness as plot devices. "Never mind making a movie about the Swiss bank," writes sgm17. "It looks like the very Hollywood elite won't be able to hide their assets anymore, let's hope."

John_Toradze took exception with my characterization of the bank's customers as a "moneyed elite." "Not everybody with Swiss accounts is dodging taxes or a millionaire," he comments. "The main reason lots of people opened such accounts was to be able to hold the account in euros in order to balance currency exposure...Most people with Swiss accounts were pretty middle class, and a few had huge amounts of money in them."

John is absolutely right, but I don't think middle-class customers have anything to fear from the end of Swiss banking secrecy -- so long as they were paying taxes appropriately in their home country. For that matter, millionaires and billionaires with Swiss bank accounts shouldn't have a knee-jerk reaction against this move, unless they were using those accounts to evade taxes or hide diamonds.

Of course, some have a philosophical objection to sharing information with the government in the first place. "I don't believe the government should have the right to make me fill out a form every year declaring exactly how much I made, where it came from and where it went," writes NHanson. I can sympathize with that sentiment, but unless libertarians are able to change current tax laws, we're left with a system where we give up a certain degree of privacy -- and lucre -- in exchange for public services, including national defense, emergency response, and yes, financial-industry bailouts. Not doing so is illegal.

But NHanson has a second concern, namely that persecuted minorities or people living in countries with weak rule of law might have a legitimate -- and ethically defensible -- reason to hide money from their government. NHanson uses the example of Jews living in Nazi Germany, whose assets were plundered by the state. In 1972, Ugandan dictator Idi Amin expelled his country's 70,000-strong Indian minority -- certainly they would have been smart to hide some cash abroad. In more modern times, you might have reason to fear for your bank accounts if you were a well-to-do political activist in Russia.

As far as I can tell, the new Swiss willingness to share more information will be indulged on a case-by-case basis, only where reasonable suspicion of illicit activity exists. I hope they will refuse to cooperate with politically-motivated or racist persecutions. Furthermore, sharing tax information is not the same as sharing funds. Presumably, should one of today's Idi Amins demand that the Swiss turn over the assets of one of today's persecuted minorities, I imagine the Swiss would politely demur. In fact, they can leave out the "politely" part if they wish.

Can you think of any other ethically defensible reasons for impenetrable banking secrecy laws? If so, leave 'em in the comments!