Though the details won’t be available until the deal is signed, press reports have stated that the bank, UBS, will hand over several thousand names in exchange for Washington dropping its legal action against UBS in the United States.
Some experts say the agreement marks the beginning of the final countdown to banking secrecy’s demise. Others note that the agreement merely keeps the status quo in place, allowing financial crimes such as tax evasion and money laundering to continue.
The agreement comes during a year that has seen unprecedented attention on banking secrecy. Before the worldwide recession, the terms “Swiss bank account” and “offshore banking” conjured up popular images of intrigue, high-end criminals and corrupt dictators. The same phrases are now prompting recession-battered governments to try to squeeze tax revenue from the secret accounts held by their citizens. In April, the world’s biggest economies in the G-20 agreed to crack down on tax havens. That pressure prompted banking-secrecy countries including Austria, Andorra, Luxembourg, and Monaco to agree for the first time this year to exchange information with other governments on tax cheats and other criminals. Earlier this month, Liechtenstein agreed to push 5,000 British accountholders to disclose their accounts to London.
Suit Spurred Deal
The US-UBS deal stems from a US Justice Department criminal suit that charged UBS with helping thousands of American citizens use Swiss bank accounts to evade US taxes. In February, the bank agreed to pay a $780 million settlement and turn over the names of some accountholders to avoid being tried in criminal court. One day later, the Justice Department filed a civil suit to persuade UBS to turn over the names of 52,000 American clients to the Internal Revenue Service.
Just how many names UBS will hand over is unclear. The Financial Times reported it could be as many as 5,000. US prosecutors this week filed court papers in Florida indicating that they were building tax evasion cases against more than 150 people.
Bankers warned that the case mean curtains for Switzerland’s lucrative confidential banking system. “There are two winners,” Swiss banking expert Hans Geiger told the Swiss weekly Sonntag, “UBS and the US Internal Revenue Service. Switzerland and our marketplace have lost.” UBS CEO Oswald Gruebel told the Wall Street Journal last week, “We suffer most, but clearly (the impact) will go through the whole of Swiss banking.” Earlier this month Gruebel told Reuters that other governments would watch the case closely. “It is not a very good development for the wealth management industry,” he said.
Bank Secrecy Not Ended?
But others note that neither the UBS case nor the new scrutiny of offshore havens mean the end of secrecy. Countries that have agreed this year to allow sunlight into their banking systems could very well follow the route of others in the past that made promises they didn’t keep. Jersey, for example, agreed in 2002 to share information with the US but has since agreed only four times to hand over requested information. The same year, Panama committed to more transparency but failed to make good; the country’s been on the “gray list” of the Organization for Economic Co-operation and Development (OECD) since earlier this year
. Public policy nonprofit Tax Justice Network (TJN) has also pointed out that some new agreements, particularly the Liechtenstein-Britain agreement, could use some teeth. That agreement, they’ve noted, encourages Britons to voluntarily tell London of their foreign accounts by 2015 or lose their accounts; TJN notes the agreement gives evaders and other criminals more than five years to move their money elsewhere. The group also doubts the recent UBS agreement is likely to change business as usual when it comes to investigating tax evasion or other crimes.
“[We don’t] feel that we can confidently predict the end of Swiss, or Austrian, or Luxembourgian banking secrecy,” said TJN international secretariat head John Christensen in an e-mail.
A US-based think tank that aims to staunch the worldwide flow of illegal money agreed. “It does not lend itself to investigation of tax evasion and other financial crimes,” said Monique Perry Danziger, communications direction of Global Financial Integrity (GFI). “The overall problem as we see it, is the US-Swiss tax treaty, and the majority of tax agreement treaties, set forward the same precedent for information exchange, which is that the state looking for information has to prove it has a clear case of suspected wrongdoing.”
GFI hopes the agreement will at least open up a renegotiation of tax treaties between countries so that more information is exchanged from the beginning, when a citizen of Country A opens a bank account in Country B. “It should give the US grounds to revisit the tax treaty, and that’s where the relationship with mutual assistance and investigation between the US and Switzerland needs to be improved, with better access to information and better reporting,” Danziger said.
-- Beth Kampschror
