The blow up in Egypt is going to create ripples all over the globe. It will certainly be disruptive for equities and the dollar. It will influence global bond yields and the PM markets. The oil market could be in for a short-term shock. It could have a significant affect on European GDP prospects. So there is a lot of uncertainty. I will make only one forecast of the lasting impacts of what is unfolding. Swiss banks and the Swiss government are in for another pounding over the issue of banking secrecy.
I’m sure that you have heard about the Tunisian leader who looted the vault for $60mm worth of gold as he headed (quickly) out the door. (ZH report) That story made a big stink. This story today from NZZ is going to smell worse:
From the article (my translation):
Last Wednesday the Federal Council announced: Within seven days were reports of “tens of millions of francs,” received in Switzerland from the family of the deposed ruler of Tunisia Ben Ali . All assets of the family must be blocked and reported to the Department of Foreign Affairs (DFA). This action was taken by the Federal Council on Regulation by emergency law issued since last Wednesday.
So not only did Ben Ali (and his wife) attempt to steal a ton and a half of gold, they were also attempting to pirate away tens of millions in cash. As with the gold story the authorities in Switzerland moved quickly to seize the ill gotten gains and make things right. Right?
Baloney! Ali had money in Swiss private accounts way before last Wednesday:
The banks and other financial institutions reported suspect funds from the Ben-Ali clan only after the overthrow of the ruler – but not in the long years before, when he was in power and committed the alleged crimes.
Daniel Thelesklaf (first head of the unit for combating money laundering in 2000 and now director of the Basel Institute on Governance) said: “The reporting requirement in the Money Laundering Act has remained largely a dead letter. The case of Ben Ali is the best example of it”.
“There is a gap in the legislation on money laundering and potentates like Ali. Therefore, it is naive to believe that there is no other money in Switzerland of potentates or their accomplices.”
Bingo! Ali had money in Switzerland for a long time and other Potentates (Kings) have money there too. This stinks. Once again Switzerland is where the bad guys go with hot money.
In the scheme of things the Tunisia story is not a big deal. The amounts involved were small. Tunisia is yesterday’s news at this point. No one really cares if the former leader tried to stash some cash in Swiss vaults.
But the number of Swiss black accounts and the aggregate amounts in them from the “Potentates” of Egypt, Saudi Arabia, Jordan will prove to be staggeringly large.
There are some folks in Switzerland who are crapping in their pants over this. The question is, “What to do?” Should they attempt to “get ahead” of the coming problem by disclosing that some “Potentates” from other areas also have accounts as did Ali? Or do they wait to see if the Potentate falls and then follow the example set with Tunisia where they act after the fact?
If they get in front of the curve they will have violated banking secrecy rules. To act first and make a public announcement regarding other hot money would cause those poor leaders to fall. For these reasons Swiss Inc. will not take any action until after the next Potentate tumbles.
The Swiss are going to look just horrible as a result. Should we lose another government (we will) and in the carnage it is disclosed that other Potentates have used Swiss banks to stash cash (we will) there is going to be some broader backlash.
Switzerland has addressed the black account problem for Americans. They are doing the same thing for a few other EU countries. That leaves the rest of the world. There is at least a trillion of foreign cash in Switzerland that is watching this aspect of the Tunisia/Egypt story. Should we see the next chapter, where the Swiss “out” some other Potentate based on “new” information, the rest of those account holders are going to get very nervous.
Should we get the headline that the Swiss have acted against another leader I would recommend getting long physical gold, fast. If hot money is not safe in a Swiss account it will go into physical gold.