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THE WALL STREET JOURNAL

Rome Offers a Savings Grace

Italy, Looking to Plug Deficit, Launches Huge Amnesty Plan for Overseas Tax Cheats

As much as 100 billion ($146 billion) in Italian assets will soon be up for grabs -- and Italian and Swiss banks are already jostling to snag a share of it.

Italy on Tuesday launched its third tax amnesty in seven years, and while the U.K. and Germany also have launched amnesties recently as governments look to plug holes in their budgets, Italy's will be by far the biggest.

Italians hide an estimated 600 billion in overseas tax havens, according to the Bank of Italy. In two previous tax amnesties, in 2002 and 2003, Italians came clean on a total of 73 billion, with 58% coming from Switzerland, according to Magstat, an Italian research firm.

This time, with tax cheats spooked by the global campaign against tax havens, Rome expects Italians to bring back as much as 100 billion. The seven-month amnesty comes just as private banks are scrambling to hold on to clients upset by deep losses in their portfolios. The Italian government is offering a good deal. Tax dodgers who come clean must pay a penalty of just 5% of the total they want to declare. Their identities also remain secret.

"The Italian amnesty is much more favorable to the taxpayer than anything contemplated in other countries," said Nicolas Pictet, a managing partner at Pictet & Cie., a Swiss private bank that has four branches in Italy.

[Italy tax]

During past Italian tax amnesties, investors were allowed to declare the money but leave it abroad. As a result, about 41% of the money remained offshore. This time, Italians with money stashed in European Union countries can declare it and leave it there. But those with money in non-EU countries, such as Switzerland, must bring it back to Italy.

Germany, meanwhile, has a program allowing taxpayers to disclose previously undeclared income. The taxpayer must repay any undeclared tax and interest but won't be subject to further penalties. The U.K. is giving tax cheats six months to come clean -- at a cost of 10% of their undisclosed money.

Swiss banks were the winners in the previous Italian amnesties. Back then, Credit Suisse managed to keep 60% to 80% of the assets its Italian clients declared by moving a large part of it to new branches in Italy. UBS kept about 50%, or more than 6 billion, fueling a drive to become the largest foreign private bank in Italy.

But with Swiss banks on the defensive because of the erosion of bank secrecy, Italian banks want to give the foreign banks a run for their money. During the previous amnesties, Italian banks' private banking services were paltry. They offered few of the sophisticated investments products, such as hedge funds, that investors could find in Switzerland. In the past few years, however, Italian private banks have improved the range of products they offer. The number of family offices -- independent wealth-management companies that manage the assets of a single, wealthy family -- in Italy also has risen, to 86 last year from 13 in 2003.

Now, Italian banks are mobilizing, working closely with tax lawyers, holding seminars for clients and educating their bankers on the intricacies of the amnesty law. They are offering to lend investors the amount they will pay for the penalty and discounting their commissions. One of Italy's largest banks, UniCredit SpA, which has a 25-person task force working on the amnesty, hopes to garner about 10% of the total scooped up in the amnesty.

The Italian banks are also highlighting the lofty fees Swiss banks have often been able to charge on hidden money. "When you have money in a place where you can't talk about it, a lot of bad management isn't penalized," said Franco Aletti, the head of the trust company of Italian bank Banca Leonardo.

The Italian tax amnesty will accentuate a bigger shift by the Swiss banks away from managing offshore, nontax-compliant money and toward an onshore model, where banks manage a client's assets in the investor's home country.

[Italy]

Swiss banks with large onshore operations in Italy are moving aggressively to encourage clients interested in using the amnesty to move money from Switzerland to Italy. For instance, Credit Suisse, which has five private-banking branches in Italy, has a 50-person task force including tax lawyers to help train its staff to respond to clients' questions about the amnesty. Banks such as Julius Baer, Vontobel Holding AG and Bank Sarasin & Cie., that have expanded in recent years in Germany and Italy, also can hope to capture some of the repatriated money.

"The Italian banks have improved over the last few years, but they are still mainly commercial banks," Mr. Pictet said. "Italy is still an interesting playing ground for the traditional Swiss private banks."

Write to Deborah Ball at deborah.ball@wsj.com

Printed in The Wall Street Journal, page A25
Magstat Consulting S.r.l. Via Monte Grappa, 3 - 40121 Bologna - Italy