Rumors previously circulated that the Swiss Government and the U.S. were negotiating to reach their own version of the "grand bargain" over Swiss skullduggery in secret bank accounts for U.S. depositors. See U.S. Swiss Negotiations for Multi-Bank Settlement on Swiss Bank Enabled U.S. Tax Evasion (6/11/11). Now the rumors are that U.S. terminated the negotiations. (One could have speculated as much from the announcement that the U.S. is stepping up its investigation of Credit Suisse. See DOJ Investigating Credit Suisse (7/15/11) .
The following are excerpts from a Reuters report (Swiss-US tax talks flounder as CS probed-paper (Reuters 7/17/11)) which cites a Swiss newspaper. The key points are (although I remind readers that this is probably the Swiss spin on matters):
1. "Citing unnamed banking sources, the Tages-Anzeiger daily said that negotiations between Switzerland and the United States had stalled because the U.S. Department of Justice was not particularly interested in a deal."
2. "The newspaper said the department was convinced it had enough evidence against Credit Suisse to force it to reveal client data, as it did in the case of UBS AG which paid a fine of $780 million in 2009 to avoid criminal charges."
3. "[T]he U.S. authorities were demanding the release of details of 6,000 to 8,000 secret Swiss accounts of U.S. citizens." JAT Note: Although it is not specific, I think this reference was to demands on Credit Suisse rather than across the whole Swiss banking industry. Even limited to Credit Suisse, the number seems smaller than I would have projected unless the U.S. had already scaled back its demands during the negotiations.
4. "Last month, sources told Reuters the talks had become bogged down due to Swiss insistence that any deal leave Swiss bankers free from prosecution in the United States." JAT Note: The Swiss are more interested in protecting their bankers than the U.S. depositors. That's not surprising, knowing the Swiss, but I am sure many depositors thought the Swiss would fall on their swords first. I also would have thought that the Swiss would even be willing to abandon some bankers if for the better good of mitigating the damage and permitting them some opportunity to move in the clandestine tax world in the future. (That would be collateral damage.)
5. "Any deal would involve the United States dropping its investigation in return for the banks paying a fine, exiting their undeclared offshore banking businesses for Americans, and turning over client names to the Internal Revenue Service." JAT Note: The Swiss may posture that they would be willing to abandon the business but I think the U.S. would be protected only by some on-site monitor with real power over an indefinite period of time. Keep in mind that the deal did not contemplate that the Swiss give up their equally lucrative banking practices for potentates stealing money from their people, drug dealers and other skullduggerers.
6. Other companies involved in the probe include HSBC , Europe's largest bank; Julius Baer, a private bank based in Zurich; and Basler Kantonalbank. JAT Note: The U.S. had leverage over UBS and has leverage over Credit Suisse because of their U.S. footprints. It'll be interesting to see how the U.S. taps into the private banks and banks without a significant U.S. footprint.
JAT Note: I will add further details as I become aware of them (and have time to post). In the meantime, hopefully, the commenters can flesh out some of the details and provide appropriate links.
Jack Townsend offers this blog on Federal Tax Crimes principally for tax professionals and tax students. It is not directed to lay readers -- such as persons who are potentially subject to U.S. civil and criminal tax or related consequences. LAY READERS SHOULD READ THE PAGE IN THE RIGHT HAND COLUMN TITLE "INTENDED AUDIENCE FOR BLOG; CAUTIONARY NOTE TO LAY READERS." Thank you.
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Monday, July 18, 2011
11 comments:
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Again we see the Swiss attitude towards protecting their own interests at the expense of the banking clients that held misguided trust in them. They are negotiating to protect the banks and turn over their clients. Their highest court has said that Swiss banking secrecy is only good as long as another government does not file suit against them. So the bottom line is that if sharks start to circle, the bank clients become chum. Anyone with a undeclared noncompliant Swiss account should be paying attention. Shame on the Swiss. They deserve whatever penalties they get on this matter x 10. They are greedy backstabbers unworthy of trust. The least they could do is try to include some protections for the clients they are betraying in the negotiations.
ReplyDeleteAnon123
Given the expanding offensive of the IRS and DOJ against Credit Suisse and other Swiss banks, this latest twist is not surprising. Clearly, the US has significant leverage against Swiss banks. From over twenty thousand voluntary disclosures, the US has a mass of information implicating many Swiss banks and individual bankers for their roles in tax fraud. Credit Suisse has a significant presence in the US - - employees, branches and valuable assets within the US, plus a lucrative US banking license. The same US presence and vulnerability compelled UBS to settle with the US in 2009 and avoid criminal prosecution. With such momentum and continued leverage on its side, no wonder the US is flexing its muscles and walking away from a settlement.
ReplyDeleteWhile I commend the exceptional efforts of American officials (attorneys from the US DOJ's various components and career diplomats from the State Department), I cannot and will not blindly endorse an attempt to trespass on another government's sovereignty. The Gestapo and Benito Mussolini governments tried to trample upon the Swiss government and failed. Let's take a lesson from history.
ReplyDeleteThree more points:
1. The United States government is not the World's police officer.
2. Imperialism is not and should not be an integral part of our foreign policy.
3. It is in our best national interest (including but not limited to our national security interests) to respect other governments, especially such friendly ones as the Swiss government, even if we do not agree with their banking secrecy policies.
The bottom line: All relationships are founded on respect. This includes relationships between governments.
To Anonymous 7/18/11 4:51pm:
ReplyDeleteRespect is something that is earned. Switzerland has not earned our (or any civilized country's) respect. (These were the people who tried to steal from Holocaust victims and successfully did so, I am sure, in many cases.)
It is unclear to me how Switzerland's existence and role in the world is in our national best interest. What exactly has Switzerland done for the civilized world other than permit despots, tyrants, brigands, theives and tax cheats a way to steal with impunity and hide? (Oh, the watches, clocks and chocolate thing is important.)
I am sure that Switzerland has some redeeming social value. But when it has built an economy around such behavior, then it has to suffer the consequences of coming into the community of civilized nations where such behavior should not be tolerated and, on the flip side, dealt with as harshly as necessary to discourage the behavior effectively.
Just my 2 cents worth.
Jack Townsend
Jack,
ReplyDeleteI agree that the Swiss banking industry has catered to criminals, despots, tyrants and other unsavory types.
I would note that Swiss banks operate under a charter or license conferred by the Swiss government.
In light of the foregoing facts:
1. Should we, as a matter of foreign policy, treat the Swiss government as a renegade government that acts contrary to the laws and interests of civilized nation?
2. Is the Swiss government an aider, abettor and counselor of criminals and despots (and potentially even terrorists)?
3. Should the Swiss government's conduct be equated to that demonstrated by the Cuban, Libyan, Syrian and North Korean governments? Or, is it bad but not quite as bad as the foregoing governments?
Looking forward to your views on this topic.
My answers to the 3 questions.
ReplyDelete1. Yes.
2. Yes.
3. Bad used as a relative term for crooks? Is a robber bad but not quite as bad as a murderer? I think we would all say yes to that proposition. The Swiss question, however, is not so easy. What the Swiss has done probably has had more corrosive bad effects than the Cubans, Libyans, Syrians and North Koreans. At least we are know that the Cubans, Libyans, Syrians and North Koreans are very bad -- enemies of democracy (at least as we perceive it). Switzerland claimed to be our friend (and by our I mean the civilized world) all the while stealing from us and enabling the worst elements of other countries (tyrants, despots, tax cheats) to steal on the sly. That's pretty bad and, I think, at least equally as bad as our known enemies. Of course, we are now learning that Switzerland is an enemy to the orderly functioning of government and democracy. So I guess my answer is that the question you ask -- bad but not quite as bad -- is at best too close to call.
Jack Townsend
It is Swiss self interest to have their bank system open to all kinds clients (no matter for whatever reason), this maybe also related to Swiss history of neutrality.
ReplyDeleteThat is certainly far from what US policy "either with us" or "against us"
Well, this stirs some passions, doesn't it? Maybe the Swiss are just functioning in the best Libertarian tradition of a certain segment of the GOP, where less government is best and taxation is not a right of any government.
ReplyDeleteI would think the Ron Paul or Bachman wing might be very supporter of Swiss Bank secrecy laws, as it being no business of any government what money you have.
Now that is an ideological position that I can see having some sympathy in the current T-party movement, who seem quite happy to have our government default on its obligations in 11 days (because we spend too much) and bring the financial system to ruin, so they probably don't think it is our governments place to tax us either or pri secrets out of the Swiss banks. They probably are rooting for the Swiss, in the name of Individual Liberty. I mean, aren't they wanting to do away with the IRS, income tax and end the FED? :)
Maybe the Swiss just need to hold out until the GOP comes back to power, and they reign in or de-fund IRS audit and judicial actions. Isn't that what they are trying to do with the Frank Dodd financial rules right now? They are sure trying hard to kill the Consumer protection agency.
We do live in interesting times. Will be interesting to see where the political winds blow on this issue. If the Swiss are reading the weather charts right, they might try to hold out to 2012 election and see if they get a more favorable weather pattern.
Time will tell.
Great post and great debate.
ReplyDeleteI do not believe that anybody thinks highly of the Swiss. Apart from the attrocity of stealing money from holocaust victims, it financed Hitler and acted as its banker (eg, Swiss Bank) and in todays world would have been stripped of its assets post-WWII. Putting that aside Mrs. Lincoln... On the other hand, the Swiss people are not its bankers in the same way as Wall Street thugs are not ours, so let's be precise who we are talking about when we say "Swiss." Getting back to the negotiations though
Why would the Swiss not agree to transparency and to cease and desist from facilitating illegality if they do not intend to get back in the game after a quiet period? Seems obvious to me and to the DOJ and IRS it seems.
There is absolutely no problem with having a non-US bank account. You simply need to declare it, and report the interest just like a US bank account. And if you take on a US depositor, you also take on reporting obligations, unless, of course, you have other intentions.
It seems to me that the DOJ needs to show that it is serious and will indict someone for this stuff. There is a point at which a public prosecution is necessary as a deterrent, fines are insufficient, and it seems this may be it for Credit Suisse. I sincerely hope so.
Just my 1c.
Patrick Carmody
Other countries are trying to resolve the same issue differently. According to reports, Germany and Britain are willing to sign an agreement that will honor the Swiss secrecy law and satisfy their own tax obligations. US was supposedly offered a similar "Win Win" arrangement but refused.
ReplyDeleteI also wonder what will happen when the IRS will have to deal with Hong Kong where the Chinese have the leverage being our major national lender.
I agree with 2 of Patrick's propositions:
ReplyDelete1. If the Swiss bankers avail themselves of the benefits associated with catering to Americans, they are subject to the full extent of our federal (and potentially, state) laws. Conversely, if a Swiss-based financial institution has no effective connection to or transacts business within the United States, then we need to respect the fact that we do not have jurisdiction.
2. If in the exercise of appropriate prosecutorial discretion a federal or state prosecutor believes that the evidence is likely to "super prove", that is prove before a jury beyond and to the exclusion of every reasonable doubt (and in circumstantial cases negate(s) every reasonable hypothesis of innocence or mitigation of guilt)that a Swiss banker has violated our laws, the banker should be prosecuted like anyone else.
The bottom line is: Our federal, state and tribal government officials do not have automatic, all-purpose, World-wide jurisdiction. This is because our government officials' ability to enforce our laws and prosecute wrongdoers is, to one extent or another, circumscribed by the reach(es) of our laws as well as our Federal and State Constitutional guarantees including, especially, but not limited to the guaranty of substantive due process of law, which as we know, place(s)some intelligble limits on the exercise of official powers.