The Swiss banks involved included Credit Suisse, Julius Baer and Basler Kantonalbank.
The transferred data is reported to "between 4 million and 6 million e-mails between Swiss bankers and their U.S. clients, including the names of those involved." Randall Jackson, Swiss Banks Turn Over Encrypted Data to U.S. Officials, 2012 TNT 21-6 (2/1/12).
This new Swiss gambit of complying but not complying is apparently an attempt to show good faith on their part. I doubt that compliance without compliance will be perceived by the U.S. as any form of good faith. In truth, it appears just a way to stall the process. If the U.S. was really serious about the 1/30/12 deadline, the deadline has now been passed without any semblance of good faith compliance. The ball is in the U.S. Court. I suspect the U.S. knows how to parry that thrust and thrust back (to mix the metaphors).
Oh, we might all shrug, this is just the Swiss being the Swiss. That is the point. (In an analogous context, we might just say "Oh, with a shrug, it is just the Somali pirates being Somali pirates," but we take measures when feasible to move them into compliance or make them suffer if they do not.)
Links:
Emma Thomason, Swiss banks hand over encrypted data in U.S. tax row (Reuters 1/31/12), here.
Addendum 2/4/12:
This is a short discussion about the Fifth Amendment issue of forcing a U.S. person to disclose the encryption key. In United States v. Fricosu, 2012 U.S. Dist. LEXIS 11083 (D. CO. 2012), here, an encrypted laptop was seized. The issue was whether owner of the laptop could be ordered to decrypt or produce the encryption key over her Fifth Amendment objection. The Court rejected her Fifth Amendment argument. The Volokh conspiracy blog has an excellent discussion of the issues that swirl around that Fifth Amendment claims. See Encryption and the Fifth Amendment Right Against Self-Incrimination (Volokh Conspiracy Blog 1/24/12), here. Of course, the Swiss banks do not have a Fifth Amendment claim. And probably the Swiss officials turning over the encrypted information or having access to the key are outside the U.S. compulsory jurisdiction.
I have said it before and say it again. The Swiss are yellow bellied backstabbing cowards. They pushed and sold this activity when they could and now betray those that they pushed and sold it to when their nose is put to the grinding stone. Now they only negotiate to save their own rear ends and they leave the clients that they used, to fend for themselves. Real Classy! The more they have to pay financially for this mess, the better.
ReplyDeleteDisclosure: My account was not Swiss.
Anon123
"I have said it before and say it again. The Swiss are yellow bellied backstabbing cowards."
DeleteWhat a sweeping generalization. Allow me to offer another:
The US government are overbearing hypocritical bullies. They placed unconstitutional laws on the books, left them quietly un-enforced for years while it was in their interest to do so, and then sprang an extraterritorial tax trap when they became strapped for cash. Real classy! The more the US loses inward investment from foreign countries, the respect of other nations, and even their citizens over this through renunciation, the better. Disclosure: I am not American.
Wealthy Latin Americans from Mexico, Brazil, etc. stash their funds in the US. I am sure the US government does not play games like the Swiss, and discloses information about accounts held by foreigners in US banks.
ReplyDeleteAs to the Swiss, I believe the only viable alternatives were to comply or not comply. Sending encrypted data makes no sense.
Don't be so sure about that. There is big fight brewing with banks in Florida and Texas over the IRS wanting to collect information about non resident account holders from Latin America. Even with this new non resident account holder information collection requirement what the US is collecting from its own banks is far less detailed than what they want everyone else to collect through FATCA.
DeleteUm yes, I know that there is no withholding on foreigners' interest income, no info sent to the IRS, and that Mexican President Salinas complained to Obama about this. I was being sarcastic. (Ia m the Feb 1, 8:01 poster.)
DeleteI am not a computer nor encryption expert, but I find it odd that the Swiss would think that the resources of the American government would not be used to crack the encryption used. It's almost a belief that Swiss encryption is better than American counter encryption. But then again, the Swiss once believed that their banking secrecy was invincible also.
ReplyDeleteGenerally encryption is cracked using brute force techniques. This means in layman terms trying all possible key combination and see which one works.
DeleteDepending on the power of the computer used and the encryption algorithm used it can take up to 60 years, no kidding.
Unless IRS will hire NASA;s supercomputer to crack the key or the Swiss used some lame duck algorithm there is not much to worry about.
At some point, the Swiss bank account data, currently encrypted but in U.S. hands, will be revealed. This can happen by way of a global settlement with the Swiss (as the Swiss hope), going after individual banks one at a time (first UBS, then Credit Suisse, now Baer, Wegelin, the Kantonals, etc. . . ), or the US cracking the encryption. Once that happens, depending on the number of U.S. taxpayer account holders revealed, this could be the biggest breach of Swiss banking secrecy since UBS revealed close to 5,000 names of U.S. account holders. Good thing the U.S. re-opened the OVDI a few weeks ago.
ReplyDeleteQuery whether other countries, such as Britain and Germany, which reached agreements with Switzerland on non-compliant accounts, will now attempt to get more out of the Swiss.
Asher, you are right in saying that it is a good thing the IRS re-opened the OVDI. Persons with non UBS Swiss bank accounts should be reassessing their exposure.
DeleteAnd, of course, there are ways for the IRS to get the information even when they don't get it officially from the Swiss banks through the Swiss Government processes.
Those really at risk, of course, are the ones with criminal exposure but I suspect that there are plenty of those who should be seriously concerned.
Jack Townsend
There are encryption methods such as one time pads that are unbreakable unless you know the key. And they are easy to implement. The Swiss could have used that.
ReplyDeleteNormally, the problem with using such one time keys is that you need to distribute the key also to whoever wants to decrypt the message. In this case, that is not an issue, the Swiss will just give the key over when/if a deal is reached.
I believe there was recently a case discussed on this blog of someone trying to claim a fifth amendment priviledge to not have to reveal an encryption key for their personal laptop computer. The latest ruling went against the appellant but my understanding is the case is still under appeal. However my send is if the government could have broken the key I suspect they would have instead getting involved in a messy court fight that could go all the way to the Supremes.
ReplyDeleteTo Anonymous Feb 1, 2012 12:35 PM
ReplyDeleteTake a look at the Volokh conspiracy article, Encryption and the Fifth Amendment Right Against Self-Incrimination (1/24/10, here http://volokh.com/2012/01/24/encrytion-and-the-fifth-amendment-right-against-self-incrimination/
The Swiss behavior is infantile but typical. Find a way to technically comply with the deadline (sort of anyway), while not complying. Of course, the CH tactic brings into high relief why the US force the Swiss banks to reveal actual US account holders, and not be duped into a UK style "global settlement" (now viewed with great suspicion in the UK btw according to taxcutUK): we don't want an endless debate with weasels.
ReplyDeleteFrankly, if I were the DOJ at this point, I would send the banks copies of the indictments, and tell them when they will be filed absent compliance. Sometimes there just ain't no high ground!
This is like a Russian novel: takes forever to get to the point.
What seems to be forgotten in this whole thing is that Switzerland is a soverwign country with its own legal system. That includes strict laws on individual privacy, and I'm not talking about Banking Privacy. There are Individual Privacy Rights which many in the US only dream about. Nonetheless, how would the US react if Argentina requested US Banks to send their Gov't detailed information about Private Bankers in Miami (who by the way, don't fool yourselves, travel anonymously to Latin America with coded documents to service non declared LatinAmerican accounts at US banks in Miami etc., exactly what the US accused the Swiss of doing). Also forgotten in the comments is the fact that there signed are Treaties between the US and Switzerland which are being completely ignored by the US at the moment. But what else can be expected when a friendly country is compared to Somali Pirates and who need to suffer if not compiant to US will. The US may be right on the issue, however their methods does not win friends the world over.
ReplyDeleteI’m not sure if I should even reply here, seeing how the tenor is towards the Swiss weasels, but I’ll take my chances. I’m a dual citizen (Swiss / American) I have no preference of one over the other. I consider myself one of many on the face of this planet trying to make a living. Yes I have Swiss bank accounts, no ‘til last year I have not been either tax compliant or fbar compliant. Why you ask, well to tell you the truth I didn’t know I had that obligation after being tax compliant in my place of residence. Now that I do know my obligations I will comply with them. If they are fair or not is a totally different story called citizenship based taxation which I will not get into now. There is a great site (issaacbrocksociety.com) for all those who would like to learn and educate themselves on the hot issue.
ReplyDeleteBut folks please before posting here try to learn and understand ALL the facts in this issue.
1. The US is a sovereign country and has its own set of laws that it has to obey and follow.
2. Switzerland is a sovereign country and has its own set of laws that it has to obey and follow.
3. Switzerland and the US have signed a valid tax treaty
According to Swiss law, banks are prohibited to give any information to a 3rd party they can only give data to the Swiss justice department. The Swiss justice department can only ask the banks for this information when another govt. has placed a formal request according to the rules agreed upon in the applicable tax treaty. As far as I know the the Swiss govt can only ask the banks for information if the questioning govt is able to:
a) give the name of the account holder
b) give the name of the bank involved
c) give the account number
Yes I agree with you this is an impossible task, but the sole purpose of OVDP and OVDI was and still is to try and get as much of this information from US taxpayers who turn themselves in through these programs as possible. The problem is the US most likely has so far only gotten the people who turned themselves in and some bank names and names of bankers who helped them. I, like you in no way condone the behaviour of these banks and or bankers.This is unfortunately not enough, because like I mentioned above the treaty provisions that the US and Switzerland have both ratified have not been met and the Swiss are by law not allowed to surrender this information as long as the treaty provisions have not been met, even if the wanted to. Believe there is a substantial amount of Swiss parliament representatives that would like to give the US want they want BUT they have to change the laws first. Please correct me if I’m wrong but I think Delaware and some other states in the US also can not or will not (not sure which is correct) reveal information to foreign govt’s of their own citizen’s who are evading taxes by using US banks.
Now, if and when all the requirements are met and adhered to, or the laws are changed, I would offer to personally deliver the information to the DOJ. As far as I know the Swiss have made the US a proposal for a new tax treaty that would make it easier for the US to obtain the data they want. Please don’t misunderstand me, I am NOT FOR either tax fraud or tax evasion, I DO however believe in complying with the laws. The only thing the US can do and has been doing is to use the media to it’s fullest extent to give Switzerland and it’s financial institutions a bad name. By reading this particular post I believe that they have done an outstanding job so far.
Please correct me if any of my information is incorrect.
To Anonymous @ Feb 2, 2012 02:42AM
ReplyDeleteI don't usually respond to Anon posts in any forum, my view being that if you don't identify yourself, you are not deserving of being heard, but for this I make an exception, with Jack's indulgence ...
"What seems to be forgotten in this whole thing is that Switzerland is a soverwign (sic) country with its own legal system."
Respectfully, that is not forgotten at all: the issue is criminal violation of US laws on US territory through physical presence here. The US is not indicting Swiss banks for violating Swiss law, or claiming such. But neither will or should it allow anybody to shelter behind laws created to enable such ex-territorial criminal conduct--the idea of church sanctuary has long been dispensed with in all civilized countries, I had thought, though I beg correction if I am wrong.
If there were a violation of say Argentine law on Argentine territory, Argentina would be within its rights to pursue the US banks and such like that violated those laws in Argentina, and I, for one, would support that activity.
But Anon., I do not believe your analogy is fair or valid. The Swiss banking industry, or at least a substantial part of it, is based on actual criminal violation, and conspiring with others to enable those violations, of the sovereign laws of other countries, through devious means and careful calculation. The same cannot be said of the US banking industry, whatever its other shortcomings, of which there are many no doubt.
Perhaps we see things as we are, not as they are? Someone may have said that once.
Apologies for not using my name here before(I was not clear over the rules and to be honest was a bit lazy) but I am the anonymous who is always is commenting about Canada. I think anonymous from Switzerland bring up some very valid points about dual nationality and citizenship status that until now are not being recogonized by all involved. I do recommend anyone go the Isaac Brock Society website based out of Canada. I do think there are some very valid differences between accidental dual nationals (and I think accidental dual nationals realize this) however, to the extent their are grouped with hardcore "tax cheats" as has seemed to be the case I suspect will some take the view that the enemy(hardcore tax cheats) of my("accidental" dual nationals) enemy(US government) is my friend. Do people such as yourself Patrick who want to crackdown on "hardcore" tax cheats really want these individuals to have any type of grassroots support from anyone. Note: There are supposedly over a million people in Canada with some type of US descent in a country of only 35 million. Many Canadian elections are decided by far less people than the number of accidental Americans living in Canada.
ReplyDeleteFirst, Tim, this is not my blog, nor was I requesting that you or anyone else reveal yourself. Nor does Jack require it, to the best of my knowledge.
DeleteNot that it matters what I think, but I agree with the situation for dual citizens and accidental non-compliance which I think should be treated differently from those deliberately and intentionally avoiding US tax law, and those banks who enabled that behavior.
Innocent non-compliance is very different and should be treated as such. On the other hand, I believe the "clever" tax cheat and his or her faciliators and enablers, a la Credit Suisse, HSBC and UBS should be hammered.
My understanding at least in the case of Switzerland it was well understood in the industry and at individual institutions at the time there were differences between what you might call legitimate accounts held by Swiss residents(of any nationality including US) and "illegimate" being solicited of non residents especially in the US. One of the easy indentifying marks is Switzerland for domestic tax compliance purposes imposes a pretty hefty witholding charge on domestic accounts however, non resident accounts aren't charged any Swiss witholding. I'll also note that by directly soliciting US residents they were breaking a whole bunch of other laws(Securities, state banking etc).
DeleteWhat I have also been told is while these types of practices had been going on between Swiss banks and residents of other European countries for many decades they in general stayed away from directly soliciting US residents. However after Americans began to get kicked out of the some of the more traditional tax havens in the Carribean ala BVI, Bahamas, Caymans etc in the late 1990s they saw an opportunity to "pickup" this business thinking the US would take them same benign view of it as other Continental European countries did. In this sense I think they badly misjudged the US and is such have probably created a lot of problems for themselves in other European countries where the issue tended to ignored up to now. From a Canadian perspective I view it similiar to Conrad Black who thought he could get away with the same type of nefarious activities he pulled in Canada in the US.
To Mr. Carmody's point above on indictments ("if I were the DOJ at this point, I would send the banks copies of the indictments, and tell them when they will be filed absent compliance"):
ReplyDeleteOne must ask whether the Swiss would try such a tactic - - revealing, but not actually revealing - - within the context of an actual lawsuit. The provision of the encrypted data was within the context of a DOJ investigation and settlement negotiations, not within the context of an actual lawsuit like United States v. UBS AG. An actual lawsuit would be held before an actual judge. A judge would probably not think very highly of purported compliance but not actual compliance. The U.S. assets of the Swiss banks (branch offices, assets on deposit, banking licenses) would be vulnerable to an adverse judgment or finding of contempt by a U.S. judge.
Mr. Rubenstein,
DeleteI may not have made my point clearly. If DOJ officials believe that the CH negotiators are gaming them (with technical compliance only), I suggest they prepare a draft of the indictments and let them see what the documents would look like, as a way of smartening up their approach to negotiations, and of indicating an indictment is imminent, or in your words the lawsuit is about to commence, which will leave all parties less room to manouevre. Were I the DOJ officials, I wouldn't allow my opposite numbers to game me or appear to do so.
And if CH does not comply by the deadline given, the DOJ should file the indictments (always assuming there is sufficient evidence to do so). The negotiators will have a fair feeling for the seriousness of CH efforts to comply and be in a good position to judge just what this encrytion nonsense was all about.
To Asher Rubenstein's comment above
ReplyDelete"Query whether other countries, such as Britain and Germany, which reached agreements with Switzerland on non-compliant accounts, will now attempt to get more out of the Swiss."
Enormous pressure is being brought to bear by an organization called TaxCutUK, a private foundation (in the UK sense of that description) that has garnered an enormous amount of attention in recent months. The public thinking in the UK is that the UKGOV, Cameron Brown and Blair, were and are too cozy with the British establishment and the tax deal with CH was designed to accommodate and conceal the identity of prominent citizens and tax evaders. Whether the charge is valid or not is unclear, but certainly the evidence of sweetheart deals with prominent corporations has brought HMRS (the equivalent of our IRS) into disrepute. So where there is one cockroache....(though they may not have those in London!)
Of interest to Jack: the leaders of UKTaxCut read this blog diligently!
I don't know about France and Germany, but, based on what I hear on French news programs,, and read in French language media (I don't speak German unfortunately) I suspect that the heat is rising on CH, and the public's tolerance for CH tax evasion facilitation has fallen dramatically.
Not sure who you mean by "TaxCutUK" or "UKTaxCut". Neither seems to exist. Perhaps you meant "TaxResearch UK". Unfortunately, despite the name, this is really little more than a mouthpiece for TUC propaganda, fronted by a self-proclaimed but inept "tax expert" who leans so far leftward that he's virtually horizontal. Far, far from real, actual research, and never garnering anything close to an "enormous amount of attention".
DeleteThe UK foundation that is making much noise in mainstream media is called UK Uncut (www.ukcut.org.uk). Its legal action against a sweetheart deal between Goldman Sachs and HMRS has garnered much attention. It seems to be well funded. Apologies for the mis-write above.
DeleteIn response to Patrick Carmody, just because some bankers traveled to the US to actively assist in tax evasion does not mean that all did. I believe that there are banks that never sent bankers abroad and, more important, people who opened accounts in person in Switzerland with funds which did not originate in the US (for example dual US/Swiss or US/EU citizens) and do not see how Swiss laws were violated in such cases, certainly not by the banks.
ReplyDeleteAgreed. My comments are confined to CH banks, and their bankers, with operations in the US that purposely and with intent to help US citizens and residents evade US taxes, and those they helped. I would include within that group banks to whom illicit proceeds were transferred by the transgressing bank, under assignment of interest/co-conspirator theories, even if they didn't actively engage on US territory.
DeleteDual citizens innocently caught up in this "clean up" process should be treated much more leniently, perhaps not penalized at all, just brought into compliance by amending US tax returns going back or simply filing back US tax returns. The burden would be on those types to establish their entitlement with severe penalties if it is later discovered that they did not satisfy the conditions of the amnesty. No amnesty for accounts held through entities or under nominee ownership.
That would be fair and reasonable and shouldn't be difficult to administer.
Patrick,
DeleteYou should have been put in charge of a fair and reasonable process at the IRS. Coming up with something "not difficult to administer", is exactly the opposite of what they have done.
Yours is an excellent suggestion,(also made by many others) and to date, as been totally ignored in the IRS OVDP and OVDI programs. They assumed all were UBS tax cheating Whales, and treated all alike, as you know, even removing the FAQ35 when it appeared there were too many tying to just "clean up".
If the IRS were smarter on their "so called" amnesty programs,(that is a misuse of the word) they would have allowed for just the things you have suggested. They could have gotten a lot more compliance. They would have gotten a hellva a lot less resentment and bad will for the practices they have deployed.
Look, even now, at the poor minor offender trying to decide what to do with the OVDI, recognizing that to "clean up" will have a big cost in time (LCUs), penalty, emotional distress and expense, with the 'opt out' option coming at the end of a hellish process, rather than some simple front end filter.
"Fair and reasonable" is not what we have gotten to date, and we still wait to hear what the IRS response will be to the TAS report to Congress and the TAD.
I fully support the IRS desire to crack down on US Homelander's tax evasion using secret offshore accounts. I do resent the impacts on Expats around the world, new immigrants to the US who didn't fully understand what the laws were, and accidental dual citizens struggling to figure out what to do now. The IRS has yet to create an easy path out of this minefield that their enforcement actions have created in the eagerness to go after the Swiss Banks.
Ultimately, the entire Citizenship taxation method, unique to America has to be reexamined, but that is a subject for another day.
I do wonder whether the games are being played with the US government, or with the banks' depositors, you know, by sending data that is very weakly encrypted so the Swiss can claim to have protected privacy but are in fact cooperating?
ReplyDeleteN0 0N3 <AN R3@D TH!s 3NCRYPT3D M3$$@G3!!!!
I believe in the original accord related to UBS there were very specific provision related to the fact that the clients in question had to reside(be domicilied) in the US itself not be US citizens/persons living abroad. Having said that these provisions have not seemed to have inspired on that much confidence on dual citizens living outside the US.
ReplyDeleteI don't want to sound as if I am a nut but if you go to Isaac Brock Society there are law abiding US/Canadian dual citizens hoping all the major Canadian banks get indicted by the US like UBS over dual nationality issue disclosure issues and provoke a big fight between Canada and the US. The US right now is Sweden circa late 1970s/early 1980s were beating up on the tax man was a national sport.
Although it probably will obtain its own post, take a look at this
ReplyDeletehttp://www.bloomberg.com/news/2012-02-02/swiss-private-bank-wegelin-co-charged-in-u-s-with-aiding-tax-evasion.html
One down!
"Swiss behavior is infantile"....
Delete"The Swiss banking industry...is based on... criminal violation......through devious means and careful calculation."
and last but not least...."one down"
How primitive.
Add to that not respecting "Anonymous" as "not deserving to be heard", shows how litte is understood about Privacy.
The more you write, the more it is obvious how one sided your agenda is, and, moreover, sadly, how misinformed your comments are. Though to quote you on the only thing we agree...
"Not that it matters what I think"
To Anonymous Feb 3, 2012 02:50 PM
DeleteI have to take Patrick's side in this discussion. Privacy is important but needs to be overridden in some cases. Almost every modern tax system requires that citizens yield some privacy to the community (nations / states) in which they live.
All antisocial actors -- whether drug dealers, tax evaders or otherwise -- want privacy so that they can do what they want and undermine society. The Swiss promoted their conduct and, since the underlying conduct is criminal, by aiding and abetting the conduct became equally culpable with them.
It does matter what you think and it is important that you express what you think. I just happen to disagree.
Jack Townsend
I guess the argument I would make is that if lived as a Swiss resident in Geneva lets say and got divorced and tried to keep money from spouse or you operated a business and absconded with investors money Swiss privacy/asset protection would do nothing to protect you from legitimate claims. Yet in many of these cases thats exactly what people were trying to do.
DeleteI do happen to believe that legal comity has gone to far and fundamentally violates the rights of citizens of democratic states to elect representitives to create laws and public policy preferences as to please not to have been governed by technocrats in organizations like the OECD, UN, IMF etc. However it don't believe their should be no respect for comity. Almost none of the people involved in these cases short of the Andrew Silva guy from what I can see had any genuine tie to Switzerland or many cases had never even visited the place. In the case of Wegelin if they had wanted to be an insitution that exclusively operated in Swiss Francs and Swiss Investment I suspect they would be in s stronger position. However, its apparent many of its non US customers had very little desire to stick with a truely Swiss only bank that only did business in Swiss francs. The largest retail bank in Switzerland is actually the post office. Many of these "offshore" banks have no real connection to the actual Swiss economy and cannot cost effectively provide any real competition to those who actually need retail banking services in Switzerland not just a "Swiss Bank Account"
To Patrick:
ReplyDeleteJust posted a new blog on this. Thanks for the link.
Jack
Unlike the smaller Canadian banks, the Big Five are not just Canadian banks, but are instead better described as international financial conglomerates,
ReplyDeleteeach with a large Canadian banking division. In fiscal 2007, RBC's
Canadian segment called "Personal Financial Services" (the segment most
related to what was traditionally thought of as retail banking) had
revenue of only CAD$5,082 million (or 22.6%) of a total revenue of CAD$22,462 million.
Your qualification of "... every modern tax system ..." refers exclusively to the taxation of income which requires minimal privacy for the tax payer in order to function. The fact that this minimalization is a fundamental desire of that organism we label 'government' as much as anything else drives the insistence upon an income based tax system. Read The Fair Tax Book for a view of something less available to political manipulation and more beneficial to both the economy and the taxpayer while generating as much, if not more, revenue for the federal government.
ReplyDelete