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Swiss banking secrecy is not an impenetrable wall

July 1st, 2009

The Justice Department yesterday reaffirmed its intent to pursue the names of some suspected 52,000 secret account holders with UBS bank yesterday, putting to rest speculation that it might drop its case before a July 13th court date.

In a memorandum filed yesterday with the U.S. District Court for the Southern District of Florida, DOJ asserts that its John Doe summons are perfectly enforceable and that Swiss banking secrecy “is not an impenetrable wall.”

Specifically, the memorandum argues that the John Doe summons should be enforced as the agency is in compliance with rules established under United States v. Powell, which requires that a summons be issued for a legitimate purpose, that the information sought is relevant to that purpose, that the IRS is not already in possession of the information, and that the IRS has complied with its administrative requirements.

DOJ writes:

In fact, notwithstanding the claim that Swiss banking secrecy is absolute, the record here shows that it is anything but. While it is true that Swiss laws generally protect the privacy of bank information, those laws apply differently in different parts of Switzerland, and do not act mechanically as an absolute bar to disclosure.

On balance, therefore, the vital national interest of the United States in fighting attempts by U.S. taxpayers to avoid and evade their tax obligations outweighs the general Swiss interest in maintaining the secrecy of its banking relationships — especially for those of foreign lawbreakers

The DOJ memorandum also attacks the argument that the Switzerland-U.S. treaty preempts the IRS’s summons authority regarding UBS, reiterating the contention that the bank subjected itself to IRS authority through its own action and contending that the treaty cannot be read to limit the IRS’s summons power.

Perhaps most importantly, DOJ addresses UBS’s contention that its status as a qualified intermediary bars enforcement of the summons.

“Given its willful and systematic violations of the QI Agreement, UBS is really not in a position to argue that the QI Agreement should bar — or even limit — enforcement of this summons.” DOJ writes.

Written by Monique Danziger

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