10 April 2010

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SWISS regulators are probing whether investors are buying life insurance to hide undeclared assets from tax authorities as the dispute over banking secrecy widens.
“We are checking selectively if there is a need for regulator action,” said Alain Bichsel, a spokesman for the Swiss Financial Market Supervisory Authority, known as Finma, in Bern.
The concern is that so-called wrapper products, sold by insurers through units in Luxembourg, Liechtenstein and Singapore, are being used to conceal untaxed money. Finma’s review comes a year after Switzerland agreed to co-operate with international regulators to avoid being blacklisted by the Organisation for Economic Cooperation and Development (OECD).
Swiss Life Holding doubled premiums from life policies that mask underlying bank deposits and client identities to about Sf5bn (4,7bn) last year. Baloise Holding in Basel reported a similar increase in sales at its life insurance unit in Liechtenstein.
An insurer that accepts premiums “without checking whether it comes from untaxed money makes itself guilty of assisting foreign tax evasion”, said Walter Frei, a partner at Zurich- based law firm Bill Isenegger Ackermann, referring to the insurance wrappers. “It is nothing but old wine in new bottles,” he said. Frei represents some UBS clients whose account data Switzerland agreed to turn over to the US last August.
When a client buys a wrapper, the beneficial ownership of the assets is transferred to the insurer while the funds often remain on the balance sheet of private banks. Insurers invest the premiums through advisers and clients receive benefits tied to the performance of the underlying investment. Taxes are minimised or deferred because life insurance policies are classified as nonincome-producing assets.
Swiss Life CEO Bruno Pfister said the country’s biggest life insurer did not want its wrapper business to be open to tax evaders. “We take Finma’s warning seriously,” Pfister said in a March 30 interview.
Baloise said its Liechtenstein unit, with life insurance premiums of Sf1,6bn last year, asked foreign clients for a declaration on the tax status of assets.

“There are quite a lot of clients we don’t accept,” said Jan de Meulder, head of the Basel- based insurer’s international corporate division, in a March 18 presentation.

Swiss Life fell 0,8% to Sf139,9 before midday yesterday in Zurich trading. Baloise declined 0,4% to Sf94,75, for a 10% increase this year.
The examination of sales practices at Swiss insurers comes as France and Germany step up the search for tax cheats and tighten rules on life policies. Swiss insurers might open themselves to lawsuits when they provided wrappers to French and German citizens trying to evade taxes, Finma said.

While there is no law requiring insurers to ensure that client money has been declared, they have a legal obligation to fight money laundering, organised crime and the financing of terrorism, said Caroline Voigt, MD of the Liechtenstein insurance association.

Total cross-border life insurance premiums in Ireland, Liechtenstein and Luxembourg, which became the three biggest providers in Europe because of flexible regulations and low corporate taxes, were about à 30bn in 2008, according to a survey by Towers Perrin.

“A lot of assets are hidden behind insurance wrappers,” said Richard Murphy, a director at London-based Tax Research LLP, which campaigns for greater tax transparency.

“Don’t tell me this market isn’t big and isn’t vibrant for any other reason than tax evasion. I’m sure it is.”



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