We totally agree with the following comments from the WSJ. Offshore banking adds little value to honest American citizens, given the protections, low costs and transparency of the U.S. capital markets. As the leading wealth advisor to affluent American expats with a goal to stay in full compliance with the IRS and foreign tax authorities, we totally support the U.S. in taking a hard line with the Swiss government on this issue.
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Do you know anyone with a Swiss bank account? I don’t, which is probably no surprise since the whole point is secrecy. But evidently there are plenty of Americans who do-at least 52,000 at UBS alone-whose identities the Internal Revenue Service and the Department of Justice are trying to learn.
In light of this highly publicized investigation into tax evasion, I’ve been wondering just why anyone needs or wants a Swiss bank account. For African dictators, international arms traffickers and terrorists, the answer is pretty obvious. And there are certainly citizens of countries whose own banking systems are so precarious, and the risks of persecution for any number of reasons so great, that a Swiss bank account may provide welcome security.
Ample Confidentiality
But the U.S. is not one of those countries. Despite our recent banking woes, the U.S. has plenty of financial institutions with impeccable balance sheets. It has a legal system second to none that provides ample confidentiality and due-process protections. But it doesn’t offer ironclad secrecy in the face of a legitimate, court-sanctioned subpoena, which means it doesn’t lend itself to tax evasion.
That is evidently why California billionaire Igor Olenicoff parked hundreds of millions of dollars with UBS, and subsequently pleaded guilty to a felony count of filing a false tax return. His former UBS banker, Bradley Birkenfeld, pleaded guilty to conspiracy and testified that UBS bankers prospected for wealthy U.S. clients eager to avoid taxes at art shows, musical performances, yachting regattas, golf and tennis tournaments-anywhere “rich people hang out.” They even served as couriers to avoid money transfers that might be detected by U.S. surveillance, according to Mr. Birkenfeld’s testimony.
All of this was met with depressingly great success: Prosecutors say UBS managed $20 billion for U.S. customers. Earlier this year, UBS agreed to pay a fine of $780 million, admitted that it helped U.S. citizens evade taxes and agreed to cooperate with U.S. investigators. But now it is balking at turning over its clients’ names.
UBS says it would violate Swiss financial privacy laws if it complied. In that case, UBS (and its government) should be faced with a simple choice: continue its policy of strict secrecy, in which case UBS should forfeit the right to do business in the U.S.; or compromise, aligning its banking laws with those in the rest of the civilized world.
Moral High Ground
I have no sympathy for the bank’s plight. Switzerland is a sovereign nation, free to pursue whatever banking laws it deems appropriate. That doesn’t mean the U.S. has to open its borders to the exploitation of its citizens for tax evasion and other nefarious purposes, nor should other countries.
A trade war would be unfortunate, and the Swiss might retaliate by banning U.S. financial institutions there. But the U.S. would have the great advantage of the moral high ground. I think the likely outcome is clear.
Nor do I have any sympathy for those Americans whose identities may be made known, especially those like Mr. Olenicoff, a billionaire who owned a yacht and maintained foreign accounts in multiple so-called tax havens. Those who have accepted an offer of amnesty should count themselves lucky. Paying taxes is an obligation all American citizens share, but somehow tax evasion seems more reprehensible when committed by the rich, who owe their prosperity to this country and could so easily meet their obligations.
With the Madoff scandal still fresh in the public mind, I hope the Justice Department maintains its tough stance. The wealthy need to be reminded that all Americans stand equal before the law.
Source: WSJ, July 15, 2009, by James B. Stewart
