Offshore, Out of Mind?

Feb 6 2010 | 10:08am ET

But the big cahuna was Switzerland, where banking secrecy has been enshrined in law since 1934, and in particular UBS AG. Back in February of 2009, UBS admitted that it had assisted a number of US citizens to evade tax. In the early summer, the US Government agreed to settle its case with UBS, in which the Department of Justice (DoJ) had demanded on behalf of the Internal Revenue Service (IRS) that the Swiss bank hand over the names of 52,000 of its American customers, while the Swiss government threatened to seize this information to prevent its disclosure.

As part of a deal to avoid prosecution, it agreed to pay a fine of $780 million and to hand over the names of 250 clients. But it was reluctant to go further without government-to-government negotiations, because of the conflict between Swiss banking secrecy laws and the requirement under US law that all offshore accounts of its citizens containing more than $100,000 are reported to the IRS. Those negotiations ensued and a deal was struck.

In October it emerged that over 7,500 US citizens had come forward to declare back taxes as part of an amnesty. A leading Democrat, Senator Carl Levin, whose committee had exposed the UBS violations, felt vindicated by the response to the amnesty. ‘The fact that more than 7,500 US taxpayers took advantage of the IRS voluntary disclosure programme to disclose hidden foreign accounts at more than 100 banks in 70 countries suggests that our efforts to end tax-haven abuses may be making progress,’ he said.

‘Some evidence of that progress is that many Americans are losing confidence in the ability of tax havens to hide their assets. But it is also clear that thousands of other taxpayers are still in the shadows, working to keep their offshore accounts hidden.’

One outcome of the UBS negotiations that irked the US authorities and offered some consolation to the Swiss authorities was the agreement that information would only be supplied by Swiss banks when the IRS presented provable evidence of a tax fraud by a US account holder. Since then, however, the US has devised a new means of bringing Swiss banks to heel. Continued on next page...

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