Gnomes of Zurich feeling heat

PARIS: To Switzerland's anger and dismay, countries are driving wedges into the cracks emerging in its decades-long fortress of banking secrecy.

After the United States and France, Germany is the latest giant economy to attack tax cheats who have stashed wealth in the discreet Alpine nation.

Berlin says it will pay a mystery informant for a computer disk reported to contain details of 1500 Germans with secret Swiss accounts.

Press reports say the whistleblower is demanding €2.5 million ($5 million) for the data, which could yield up to €200 million in clawed-back tax revenue. Germans reputedly have €175 billion tucked away in foreign accounts.

Germany is cannily refusing to say which bank is involved, and as a result German millionaires are in a sweat.

Some are even rushing to the tax office to avoid an investigation and hefty fines. "The number of clients wishing to make a spontaneous declaration [of income] has increased substantially," said Gerd Kostrzewa, a tax lawyer in Frankfurt.

Austria, Belgium and the Netherlands, meanwhile, have asked Germany to tip them off about any of their nationals on the filched list.

In Switzerland, conservative politicians are outraged at what they see as an assault on national sovereignty.

The Swiss banking industry argues that using stolen data places the German authorities in a position of illegality, thus undermining their case in court. But their suave exterior masks worry that European nations, desperate to plug deficits, will boost their efforts.

"It is a real issue and we have to make sure it doesn't develop into more cases," Patrick Odier, chairman of the Swiss Bankers' Association, said in Davos last week at the gathering of the world's financial elite.

The world's biggest offshore centre agreed to several concessions last year to avoid being added to an OECD list of uncooperative tax havens. It vowed to exchange information with countries on "case-by-case" bases for tax fraud, but also strongly defended banking secrecy.

Within months, the Swiss Government was pressured by Washington into promising to give data on 4450 accounts held by Americans with UBS in defiance of US tax disclosure law.

But that deal now hangs in the balance. Last month a Swiss court upheld an appeal by an American who argued that, although he had omitted to file a key US tax form, he was not in breach of laws punishing intention to commit fraud.

France, meanwhile, has acquired data about several thousand French clients of a private bank of HSBC in Geneva. The information was stolen by a former employee, a computer expert who now faces arrest in Switzerland.

Switzerland retaliated by refusing to ratify a dual taxation treaty it had signed with France in August. The French authorities have handed back the files to ease the tension but, unsurprisingly, are believed to have made copies.

These developments are deeply worrying for the Swiss.

Until last year, European taxmen focused their efforts on penalty-free amnesties to nationals who came clean about money held in offshore accounts.

The most successful was Italy, which recovered nearly €100 billion in three months, most of it hidden in an Italian-speaking region of southern Switzerland.

But the latest episodes show a tougher, rawer edge, as well as Switzerland's few options when pressured by its biggest trade partners.

The concern is that these countries may be tempted to go outside the law - not just as passive recipients of stolen data but as active seekers of it too.

According to the French daily Le Figaro, foreign espionage agencies are now targeting Swiss banks to seek out disgruntled or vulnerable employees who can dish the dirt.

"There are loads of cases in the pipeline, but they will take a year or two to surface because it takes that long to check that the information is solid," it quoted an unnamed expert in tax fraud as saying.