A Death Blow?!
June 25th, 2009
The New York Times published an article today about a wealthy former UBS client, Steven Michael Rubinstein, who plead guilty to filing false tax returns – failing to disclose his offshore UBS accounts that he was funneling money through. The article goes on to provide analysis of the fallout surrounding UBS as would be expected. However, while providing background information, the New York Times threw in this gem:
UBS, the world’s largest private bank, admitted in February to conspiracy to defraud the Internal Revenue Service by helping scores of wealthy Americans hide nearly $20 billion overseas.
The bank paid $780 million to settle the charges, but it remains under investigation, as do its American clients, whom prosecutors have pledged to pursue. The admission has helped to open the world of offshore banking and dealt a death blow to Swiss financial secrecy.
A death blow to Swiss financial secrecy!? That’s quite a statement, particularly given the fact that the Swiss government has refused to divulge any more bank account information since February. Sure, they’ve sent their diplomats from country to country, trying to sign Tax Information Exchange Agreements (TIEA), in an effort to be removed from the OECD’s gray-list of tax havens. But as we mention several times on this website and in our reports, TIEAs are essentially meaningless under the current standard. They only require the Swiss to divulge bank account information to the US if the US proves to the Swiss that a person has committed tax evasion – a scenario akin to locking your car keys inside your car – you can’t unlock your car without your keys, but you can’t get to your keys because the door’s locked.
Although the details of the US-Swiss tax treaty that was announced last week have not been disclosed yet, we do know that this is an exchange of tax information by request (as opposed to automatic) treaty; it’s a neutered agreement. Indeed had this agreement been in effect last year, the IRS wouldn’t have any more information than they currently do now. It would have changed nothing. So, instead of affirming the false notion that banking secrecy is over, a more accurate article from the New York Times would have read: “the admission has helped to launch a global public relations campaign by the Swiss.” A public relations campaign – that’s all this is.
If we want more than a PR campaign, we need to adopt a standard of automatic exchange of tax information. As we’ve demonstrated, it would not be difficult to do; it’s merely a matter of political will. However, until then, as Tom Cardamone wrote in his blog post yesterday, the IRS and DOJ need to continue pressing the Swiss for the information related to these accounts.