Haunted by the spectre of tax hikes and worsening publicity, the Swiss commodities industry has been thrown a lifeline by the country’s refusal to force greater transparency on the sector.
But the regulatory respite has been thrown into the shade by continued foreign attacks on banking secrecy and cantonal tax perks. The cosy Swiss conditions enjoyed by traders may be coming to an end, with rival countries queuing up to poach disgruntled firms.
Traders have heaped praise on last month’s recommendations of a government white paper on the commodities industry, calling them «well considered», «appropriate» and «balanced».
Especially welcoming was Switzerland’s refusal to emulate the hardline regulatory crackdown of Washington and Brussels that demands companies to reveal financial transactions to other governments.
The rising clout of the industry was one reason Switzerland’s white paper was so highly anticipated. The sector’s astronomic recent growth (the profit of the world’s top 20 traders soared from $2.1 billion in 2001 to a peak of $33.5 billion in 2008, according to an estimate by the Financial Times) has attracted both wealth and lurid tales of exploitation, corruption and environmental damage.
But Martin Fasser, Chairman of the Zug Commodity Association, said the Swiss decision not to require financial information was neither here nor there. Fasser argues that international traders are already obliged to open up their books to the authorities as the US Dodd-Frank legislation already demands and the proposed EU transparency directives threaten.
«New transparency requirements are not generally being viewed as a game changer in the grand scheme of things,» he told swissinfo.ch. «The financial information is already available so it would be no big deal to disclose payments in the notes of financial statements.»
«I have not heard of any company that would consider moving to Switzerland to escape Dodd-Frank or EU legislation, or of any that would move out of Switzerland if the Swiss government would change its approach and implement transparency regulations here,» he added.
Conspiracy theories
But for Emmanuel Fragnière, who runs a commodities degree course at Geneva’s HEG of Business Administration, financial secrecy is the lifeblood of the industry, oiling the complex transactions that move raw materials around the world.
Setting the right price for a trade is a delicate balancing act that can mean the difference between profit and loss. Such data is crucial to maintain competitive advantage over rivals and is fiercely protected.
Fragnière believes the US and European demands for greater transparency from commodities companies are linked to an ongoing global «attack» on the Swiss financial sector.
Regulations should be enhanced to stave off «pirate» operators that seek to exploit rather than practice fair trade, he said. But he objected to the dogmatic approach of the US and the EU.
«Switzerland is a playground for international commodities dealers, but it has been operating in a ‘wild west’ environment,» he told swissinfo.ch. «Even a sector built on secrecy needs rules, but these need to be applied in a much more practical manner than by dictating new constraints.»
Singapore threat
Samir Zreikat, who runs commodities consultancy firm Dealigents, also believes that the transparency crackdown is an extension of the attack on Swiss banking secrecy. He fears that Switzerland’s stock of top-in-class lawyers, accountants and financial specialists could follow assets being transferred out of Switzerland by overseas clients.
«As wealthy people move their assets from Swiss banks to other jurisdictions I have no doubt that some service companies will follow them, reducing the attractiveness of Switzerland as well as the general level of expertise,» he told swissinfo.ch.
Singapore is one such location that stands to benefit. The island state has already built up an impressive commodities sector – partly attracted by its vicinity to China, but also by its low tax regime.
Some 280 companies benefit from the relaxed Singaporean regulatory environment, directly employing some 12,000 workers (slightly more than the Swiss market), according to official sources.
No mass exodus
Singapore-based entities face an effective tax rate as low as five per cent compared to some ten per cent in Switzerland. EU pressure on Switzerland’s cantonal tax regime for international companies could force the Swiss rate up to around 13 per cent in the near future.
Last year, international commodities trader Trafigura sent shock waves through the Swiss sector when it relocated its main trading booking centre to Singapore. But the company insisted this was for geostrategic reasons rather than tax.
Fasser is still concerned by the threat of Singapore, but he believes changing tax rates are more likely to affect future growth of the sector than spell an exodus from Switzerland.
«The commodities industry has become less welcome in Switzerland than in the past and tax regimes in some other jurisdictions have become more competitive,» he said. «For outside firms thinking of expansion, there are fewer reasons to come to Switzerland than 15 years ago.»
Gennady Timchenko, Russian founder of the oil trading giant Gunvor, has also warned Switzerland not to give up too much ground to EU tax demands. Timchenko currently lives in Geneva, which is also home to many of the company’s traders.
«If I was not here, the company would probably also not be here,» he told the Neue Zürcher Zeitung newspaper. «We feel at home in Geneva, but if the government radically changes the framework conditions we would have to recalculate.»
«We could move to Singapore at any time, we already have an office there. Singapore is also a safe and stable location. The climate is perhaps a little different, but we could get used to that.»