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Austrians' love of bank secrecy has deep roots

A woman takes a deposit box out of a compartment in the safe room of an Austrian bank in Vienna April 10, 2013. REUTERS/Heinz-Peter Bader
A woman takes a deposit box out of a compartment in the safe room of an Austrian bank in Vienna April 10, 2013. REUTERS/Heinz-Peter Bader

By Michael Shields

VIENNA (Reuters) - Call it the battle for grandma's passbook.

That is how politicians here are framing a debate over whether Austria should roll back banking secrecy and share information on depositors with European partners and the United States. Luxembourg's decision this week to open its books has fixed attention on Austria, the last EU holdout.

The discussion has touched a nerve in a country where the confidentiality banks offer is so cherished that banking secrecy is anchored in the constitution. Why Austrians are so wedded to such secrecy is answered in part by a distrust of authority. The country's Catholic identity and a nod-and-wink approach to off-the-books work in the shadow economy may play a role too.

"I and certainly many other customers require two things above all from banks: reliability and discretion," reader Florian Stadler wrote to Krone, Austria's most-read tabloid. "It is no one else's business how much money I save or spend or with whom I do business."

Officials insist they will defend Austrian citizens' privacy from the taxman and discuss revealing details only of foreigners with accounts in Austria.

Unlike in Luxembourg and Cyprus, brought to the brink of bankruptcy by its overblown banking sector, foreign deposits play a relatively modest role in Austria.

Central bank data show other EU citizens have around 35 billion euros ($45.9 billion) in banks here, a tenth of overall deposits. In all foreigners have 53 billion in local banks.

Finance authorities can already get access to accounts if they have well-founded suspicions of wrongdoing.

Politicians like to say that Austrian bank secrecy is centuries old. Vienna finance professor Werner Doralt said the real roots of modern bank secrecy stem from the post-war era of contraband trading in a makeshift economy flattened by World War Two's devastation.

UNDER THE MATTRESS

"There was a lot of dirty money that people did not want to put in the bank because they were afraid. Then we said in Austria it is better to have dirty money in the bank than under mattresses at home, then at least it is in circulation and can be lent on," he said.

"To give people a feeling of security, the anonymous bank account was made possible. That is the real history. Our banking secrecy was stronger than that in Switzerland."

Anonymous accounts - accessed with a passbook and secret code - ended only under international pressure a decade ago. There was a popular uproar but scant outflow of funds.

Confidentiality was diluted again when Austria determined that authorities could get access to bank records when checking specific allegations of tax evasion, not only when a formal investigation had been opened, Doralt said.

But secrecy remains strongly embedded in popular culture.

"We are a 'do you need a receipt?' society. That is why it is so sensitive," political analyst Peter Filzmaier said, adding people fear more transparency would mean the taxman or social services could suddenly see the few hundred euros people may make on the side by helping out on a construction project.

With elections due by late September, "no one wants to be the pioneer who cries out this is no longer acceptable. You know that lots of Austrians - and thus voters - do this," he said.

Erich Kirchler, a business psychology professor at Vienna University, said many countries cling to traditions. "But in this case it concerns banking secrecy, which is something very special in Austria. It doesn't exist in Germany, for instance."

FEAR AND ENVY

Much like Austria's political neutrality, however, bank secrecy has been surrounded by myths, particularly that it is needed to keep snooping eyes away from people's wealth, Kirchler said.

"The fear of envy, the fear of checks by the authorities may be especially relevant here from a psychological perspective. There is fear that giving up banking secrecy could make people transparent, helplessly exposed to the state or other powerful figures. This fear is certainly there, whether justified or not," he said.

When people feel their freedom is under attack, they quickly go on the defensive, even if they would be hard pressed to explain exactly why they feel that way about bank secrecy.

Austria's traditional Catholic roots also come into play.

"For Catholics money and wealth is not necessarily a sign of God's favor. On the contrary, the poor will pass through the eye of the needle into heaven," Kirchler said, citing the Bible.

"In Protestant or Calvinist culture, wealth is seen as the result of the positive virtues of hard work and thrift. There are certainly things here that you can explain with the country's religious background and ideology."

Austrian banks at times use banking secrecy as a marketing tool, noting that only a constitutional amendment could end the practice.

Austria does not share personal data on EU citizens' wealth, but imposes a 35 percent withholding tax on their interest income and returns most of those funds anonymously to home countries.

Peter Pilz, a member of parliament from the opposition Greens party, said the Italian mafia, especially the Calabria-based 'Ndrangheta, had years ago used Austria as a money-laundering centre, cleansing around 2 billion euros.

"Now it is mainly a matter of Russian money. A lot of banks must be afraid that the Russians will take their millions and flee to Asia," he said.

($1 = 0.7618 euros)

(Additional reporting by Angelika Gruber; editing by Janet McBride)

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