How to Lose Allies and Alienate Clients, a Swiss Approach

August 6th, 2009

By now, I’m sure you’ve heard of the Swiss bank giant and scandal headliner UBS.  The scandal broke early this year when the IRS caught wind that Swiss bankers were traveling to the U.S. and systematically offering wealthy Americans the opportunity to evade taxes in Swiss banks.  In addition, UBS formed offshore non-U.S. companies for investor’s assets and then engaged in an aggressive cover-up to conceal these activities.

The Bank pled guilty to the criminal charges, was fined $780 million and forced to hand over 250 names of tax-evading Americans.

Next there was the civil case held in Miami.  As of a few days ago, the U.S. and UBS have allegedly reached settlement.  The settlement itself was a disappointment.  We were hoping for a trial with the outcome that UBS would be forced to divulge 52,000 names of American clients suspected to be hiding about 20 billion dollars in UBS vaults.  We were also anticipating a hefty fine.

Swiss bankers and officials argue that divulging these names would violate domestic banking secrecy laws and therefore Swiss sovereignty.  But as Raymond Baker, director of Global Financial Integrity, argues, “When you step onto U.S. soil and repeatedly commit a criminal offense, in my judgment you’ve lost the right to hide behind your sovereignty.”

The settlement will likely be finalized tomorrow and the rumors about its details are not looking good.  Purportedly, the Swiss will release only 5,000 names and will pay no fine at all.

This is most likely because the Swiss government panicked and stepped in.  Swiss officials said they would seize UBS records before allowing the company to hand over secret account information.  This gave UBS an easy out.  If the U.S. had won rights to the names, the bank would have just said “Sorry, your honor. We don’t have that information.”  And the case would be closed.

I imagine that Secretary Clinton’s flashing smiles, as she posed next to the Swiss foreign minister on Friday, were quite strained.  I’m willing to bet that behind those smiles is a glaring truth: far from a “relieving” outcome, the U.S. was given no other choice.

The good news is: Swiss banking secrecy is still reeling towards a bloody demise.  As Richard Murphy has pointed out, even if they just disclose 1 in 10 names, the trust in complete secrecy has been lost and Swiss banking clients have been left afraid and alienated.

The bad news is: Switzerland is not the only place in the world to hide your money.  Spooked depositors are not bringing their money back to the United States and giving themselves up to the IRS.  They are sending it somewhere even more secretive, like Singapore and the United Arab Emirates.

The worst news is: we’ve missed a major opportunity here.  And now the rest of the world, without a precedent for action, has little hope of succeeding where America has fallen short.

The Swiss have lost.  The Americans have lost.  The rest of the world has lost.  And now – as I can’t think of a light note to end the blog on – you lose, too.

Written by Ann Hollingshead

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