Will the United States continue to tolerate offshore tax evasion?
June 23rd, 2009
The last G20 meeting declared that the era of banking secrecy is over. At a conference in Berlin, Ministers of Finance from the U.K., Switzerland, Austria and Luxembourg agreed that countries failing to observe OECD regulations would face the possibility of sanctions. In the United States, President Obama has promised to “level the playing field” by curbing tax havens and cracking down on the abuse of tax havens by individuals. Yet this morning, the New York Times published a story claiming that the Department of Justice may drop a case against Swiss bank UBS that would divulge the names of 52,000 Americans accused of offshore tax evasion.
From the article:
The reversal comes as UBS and senior Swiss government officials have mounted a fierce lobbying campaign to persuade Washington to drop the case. UBS argues that disclosing client names would cause it to violate Swiss financial secrecy laws and open its executives and bankers to prosecution in Switzerland.
Which leaves me to wonder: what about Title 26 of the U.S. Code which requires U.S. citizens to pay income tax on all holdings, at home or abroad? Are Swiss financial secrecy laws more important to the United States District Court in Miami (where the case is scheduled to be heard) than the U.S. Internal Revenue Code?
In February UBS agreed to pay a $780 million fine and divulge the identity of about 300 U.S. clients in order to avoid criminal charges against Swiss regulators. An IRS civil lawsuit pressed further, seeking information on the other 52,000 US clients keeping money in secret Swiss bank accounts. Now, however, after agreeing to sign a new double taxation treaty with the United States, Swiss Finance Minister Hans-Rudolf Merz said that US authorities could be willing to “strike a deal.”
I was thoroughly discouraged by the news until I saw Reuters wire which quoted the Justice Department as saying “there is no basis for the report in the New York Times.” Indeed, I called down to the District Court of Southern Florida to discern the situation myself and the Judicial Administrator there held that the case was on schedule to begin with a 4-day oral argument on July 13th at 9am.
For now, it’s impossible to know who is telling the truth – the NY Times or DOJ. Nevertheless, when honest Americans pay their due taxes we can only hope that the U.S. Justice system will do its part to hold its wealthiest citizens accountable for using offshore tax havens to deprive the U.S. Treasury of revenue.
As an interesting side note, after the New York Times published its article this morning, the U.S.-listed shares of UBS AG rose 5.8%…