It wasn't clear at the time, and isn't clear now, what money laundering and banking secrecy have got to do with financial instability, but hey, seems to have been the thought, if we 'name and shame' a few countries then they'll pull their socks up generally. The FSF's list was of course followed by the other two infamous millennial lists from the FATF and the OECD. Not surprisingly, the ultra-respectable burghers of Zurich don't like the labels being pinned on them, and here is their response:

To All Members of the FSF

Berne/Zurich, 5 September 2000

Financial Stability Forum - List of "Offshore Financial Centres" (OFC)

Dear Mr . . . Mrs

In May 2000, the Financial Stability Forum (FSF) published a list of "Offshore Financial Centres" (OFC) defined with respect to their compliance with international standards in the financial area. This list also includes Switzerland.

Switzerland is an international financial centre with a significant amount of business with non-residents. The same applies to other countries like the USA and the UK. However, it is incorrect to intermingle the typical features of international financial centres, such as the importance of financial business with non-residents, with the characteristics of "Offshore Financial Centres" as established by the OFC working group of the FSF itself (page 9, table 2 of the report). In fact, none of these characteristics apply to Switzerland. In our country:

• Business and investment income is taxed at rates close to the average of OECD countries. The overall tax burden of 33.8% in Switzerland (total tax revenue as % of GDP) is above the OECD average and higher than in the United States (29.7%), Japan (28.8%) or Australia (29.8%).
• A withholding tax of 35% applies to all interest and dividend payments of Swiss issuers or debtors, irrespective of the domicile of the recipient.
• The incorporation regime follows international standards. In particular, there is no regulatory or supervisory distinction between onshore/offshore or resident/non-resident activities. In Switzerland, there are neither offshore-licences nor is there preferential treatment for offshore activities. No shell-branches or brass-plate banks are admitted.
• The supervisory regime for financial services is in line with international standards and G10 standards in particular.
• Regulation does not offer the possibility to create trusts.
• Financial institutions without physical presence in Switzerland can not be licensed by the Swiss Federal Banking Commission (SFBC) and, therefore, can not lawfully operate as such from Switzerland.
• Swiss supervisors have full access to all files and privacy protection for bank customer information is no obstacle to international mutual assistance in criminal matters such as money laundering, corruption, insider trading or tax fraud.
• The volume of non-resident business does not "substantially exceed" the volume of domestic business despite the fact that, in general, the share of international transactions tends to be higher in smaller countries than in larger economies. In terms of funds under management, the share of domestic and foreign securities holders is about equal.
• The financial sector accounts for 11% of GDP.

The FSF argues that many supervisory and regulatory authorities of major financial centres referred to Switzerland as an OFC. This is certainly not an acceptable reason for placing Switzerland on the Forum's list. We urge you to take into due consideration that switzerland is a G10-member with a regulatory and supervisory regime that is in compliance with international standards. Therefore, it is not understandable why Switzerland should be assessed as an OFC.

Yours faithfully

Swiss Federal Banking Commission
Dr Kurt Hauri
Chairman

Swiss National Bank
Dr Hans Meyer
Chairman of the Governing Board

So there!