From Switzerland with Love: International Tax Espionage
Tax administrators operating in different countries are rivals, in a
sense: the interests of one country may run counter to the interests of
another, and each wants the maximum share of a taxpayer's revenue. But
Switzerland may have taken this rivalry to a whole new level—to the
point that Germany has laid criminal charges against alleged Swiss
In 2006, German tax administrators began paying employees of Swiss banks
for records relating to accounts held by German customers who may have
been evading tax. The ECJ has reportedly approved of Germany's practice
as a legitimate method of combatting tax evasion. However, the Swiss
government views the attempts to acquire the records as a violation of
Swiss banking secrecy laws. It has issued arrest warrants (still
outstanding) for three employees of a North Rhine-Westphalia (NRW) tax
services office who authorized or arranged for the purchase of the
records. By itself, the action would be evidence of a "frenemy"
relationship between the two countries; however, it appears that the
evidence to support these warrants may have been obtained by means that
violate German law.
In April 2017, a Swiss man identified by German prosecutors as Daniel M.
was arrested for espionage, having been accused of operating in Germany
since 2011 with instructions to identify German individuals responsible
for the purchase of bank records and the means by which they were able
to make the purchases. Daniel M. apparently posed as an employee of a
Swiss bank who had information to sell; the Swiss government commenced a
sham investigation of Daniel M. for breaches of bank secrecy laws in
order to make his claim appear credible.
In May 2017, Germany alleged that either Daniel M. or the NDB (the Swiss
intelligence service) had planted an unidentified agent in the
collections group of an NRW tax services office and had given that
person instructions similar to those issued to Daniel M. The controversy
is growing: in August 2017, German newspapers reported that German
prosecutors had opened an investigation into three more individuals, all
allegedly employed by the NDB, who were also suspected of spying on
German tax administrators.
The arrests and investigations came after Germany and Switzerland had
agreed to stop spying on one another. According to Swiss and German
media reports from June 2017, the two countries signed a secret
memorandum of understanding to this effect in January 2017, although
neither government was willing to confirm the existence of the accord.
While it was reported that all Swiss tax-related espionage activities
had ceased by January 2017, the need for such an agreement to be
negotiated raises questions about how extensive the Swiss spying
operation might have been.
The maximum sentence for Daniel M. would likely be five years in prison.
Interestingly, the corresponding offences under sections 16 and 17 of
the Canadian Security of Information Act carry a potential life
In years past, the CRA has attempted to obtain access to Swiss bank
records from non-Swiss foreign tax authorities. Fortunately for the CRA
employees who are tasked with acquiring information relating to Canadian
account holders, it does not appear that the CRA has been in direct
contact with Swiss bank employees or has obtained information otherwise
than through government-to-government transfers. Nevertheless, these CRA
employees might want to rethink any plans to take a vacation in
H. Michael Dolson
Felesky Flynn LLP, Edmonton