From Bloomberg:
Swiss Target Commodities Secrets Risking $21 Billion Hegemony
Vitol SA, one of the world’s biggest oil traders, is being enticed from its Geneva base by Dubai and Singapore as Switzerland considers scrapping policies that made the country a global center for commodities.
“I’m concerned for the future both in Switzerland and elsewhere,” said David Fransen, chief executive officer of Vitol Group’s trading arm, citing the threat of over-regulation and higher taxes. “Other jurisdictions are actively courting us,” he said, including Malaysia and the Caribbean.
The Swiss government, which has been probing the commodities industry since May, said the Alpine nation is “exposed to risks to its reputation” by being an oil, grain and coffee trading hub. The review, due later this year, follows Switzerland’s decision in March 2009 to meet international standards to avoid being listed as a tax haven and attempts to settle a U.S. investigation of 11 banks that allegedly helped American clients hide money from the Internal Revenue Service.
While Vitol, Glencore International Plc (GLEN) and Trafigura Beheer BV surpass Nestle SA as the biggest Swiss companies by sales, politicians are concerned a lack of industry regulation may hurt a nation struggling to find a response to a global crackdown on tax evasion.
“Switzerland faces a dilemma over whether to bow to mounting pressure to regulate its burgeoning commodities sector or risk losing its status as a global trading hub,” said Ben Knowles, a lawyer at Clyde & Co. in London.
Weighing Costs
Commodity trading, concentrated in Geneva and Zug, boosted its share of the Swiss economy 10-fold over the past decade, according to Zurich’s KOF research institute. The trading industry accounts for 20 billion francs ($21 billion), or 3.5 percent of gross domestic product, according to the State Secretariat for Economic Affairs.
The pressure to regulate the industry comes as the European Union pushes Switzerland to abandon a so-called auxiliary regime that has attracted multinational commodity traders by allowing them to pay less tax on income from outside the country. That permits commodity traders in Geneva to pay an average tax rate of 12 percent.
“The bigger commodity traders are going to end up with whoever offers the lowest tax rates,” said Vladimir Langhamer, managing director of the Zug-based trading arm of Austrian oil company, OMV AG. “If policies change, companies and people might move out as quickly as they moved in.”
Dodgy Activities
While the industry created about 8,000 jobs in Geneva alone, the costs outweigh the benefits, said Carlo Sommaruga, a lawmaker for the Social Democratic party, the second-biggest in the Swiss lower house.
The kind of corruption seen under the United Nations oil- for-food program for Iraq under Saddam Hussein could damage Swiss companies’ chances of winning contracts abroad and diminish the country’s role as a global financial center, according to Sommaruga. A UN probe found 2,253 companies made illegal payments to Iraq to win oil business, former U.S. Federal Reserve Chairman Paul Volcker, who led the report, said in October 2005....MUCH MORE
