Courts could dismiss Swiss bank data

Say judge may find evidence inadmissible because it was supplied by a whistleblower

As the AFIP tax bureau starts reviewing information it recently obtained from the French government on undeclared bank accounts held by Argentines in Switzerland, tax experts have warned that using the data might be harder than it may seem at first glance.

AFIP received data on 3,900 undeclared bank accounts in HSBC’s Switzerland branches. But tax experts are questioning whether the information can be submitted as evidence in court because the source was whistleblower Hervé Falciani. And they also warn statute of limitations could soon render the data useless.

The warning from tax experts comes only days after the Swiss Federal Council adopted definitive mandates for negotiations with other countries to introduce a new global standard for the automatic exchange of tax information contained in tax treaties — like the one it has with Argentina that has yet to receive congressional approval in both countries.

“It might be considered illegitimate and not valid in a court of law as it was obtained by a whistleblower,” César Litvin, tax expert and head of the Argentine Tax Institute, told the Herald. “Switzerland even asked for the whistleblower to be arrested. He must have provided information back from 2007 and since the right to claim unpaid taxes expires in six years the information would reach its statute of limitationsdate in December.”

Sources at AFIP told the Herald that they are currently reviewing the information but refused to provide any details about it due to tax secrecy regulations.

“When there’s something to say, we’ll report it,” an AFIP official said.

Falciani worked as an IT engineer at HSBC for seven years before deciding to leak what he saw as systemic tax evasion. The accounts on which Argentina’s tax authorities were informed were active at least since 2006 and until 2008, the year in which Falciani stopped working for HSBC. Today, according to AFIP head Ricardo Echegaray, there are only 125 Argentine taxpayers that legally admit to holding HSBC accounts outside the country.

“Harsh discussions are set to take place in court about the value of the data as evidence. France gave Argentina the information from the whistleblowers due to the tax agreement both countries have. Based on Argentine law, it seems the information will be seen as having been obtained illegitimately,” Marcos Torassa, a tax expert, told the Herald. “AFIP will certainly try to move forward with this.”

Echegaray originally met with whistleblower Falciani earlier this year during an official visit to Lyon. Falciani had reportedly contacted the Argentine authorities to talk about the list and offered to give the information but the government instead chose to receive it through its so-called double taxation agreement with France in order to give the data more validity when used at court.

The value of the evidence as proof in a courtroom “is a very controversial issue. Nevertheless, it might end up being used to induce tax payers to review their situation and eventually rectify their tax filings,” Andrés Edelstein, tax expert at Price Waterhouse Cooper, told the Herald.

Known as “the Snowden of Banking,” Falciani now works for the French government within one of its information technology institutes. After leaving his post at HSBC, he travelled to Lebanon in 2008 in an attempt to alert Swiss banking authorities about elements of the banking system that allowed tax evasion to take place.

But the HSBC and Swiss banking authorities have maintained that the trip was in fact in order to sell data that Falciani had stolen from the bank for personal gain. Detained and subsequently released after his return from Lebanon, Falciani fled days later to France, where he subsequently became a source for French tax authorities and handed over CDs containing information about the Swiss bank accounts.

In an interview with La Nación published in April, Falciani said that “according to some calculations, US$5 billion are funneled out of Argentina every year. If there is political will, the outflow of those illicit funds can be stopped.”

A long-term objective

Expectations at AFIP are high not only because of the information tax officials might be able to uncover in Falciani’s CD but also due to Switzerland’s decision this week to move forward with implementing an automatic exchange of tax information. That means Argentina could end up receiving fiscal information automatically — but the earliest that would happen would be 2018, tax experts warn.

“Argentina signed an agreement with Switzerland that foresees the exchange of information. It doesn’t force to do it automatically but the parties can do it if they want to,” Edelstein said. “This could happen when Switzerland starts exchanging information automatically with other countries and when other financial centres also follow the same path.”

The government signed a deal in March, which still has to be passed by Congress, that exempts companies from double taxation in Argentina and in Switzerland and establishes avenues for the sharing of tax information between both countries. Nevertheless, the exchange won’t be automatic and information can only be asked for when a tax investigation with sufficient proof has been launched by a court.

The agreement, which the Herald has had access to, doesn’t force either of the signatory countries to implement an automatic information exchange but at the same time it doesn’t forbid it. “It’s understood that Article 25 (which refers to the information exchange) doesn’t force the contracting states to exchange information automatically or spontaneously,” the agreement says.

Both countries also agreed to a round of consultations before an automatic exchange of information is implemented. The legal characteristics of the exchange and its contents would be discussed in such meetings.

“The Swiss Congress still has to pass the law to implement the automatic exchange of information and that could happen in 2017. So I imagine Switzerland would be ready to share the data in 2018,” Litvin said. “The condition is that the information is used carefully and confidentially, applying the tax secrecy laws of each country.”

Meanwhile, negotiations on the automatic exchange of information will be initiated by Switzerland with the European Union and with further selected countries. Consideration will be given to countries with which Switzerland has “close economic and political ties and those that provide their taxpayers with sufficient scope to regularize their affairs.” It remains to be seen whether Argentina is included in that group.