Sunday, September 13, 2009

Switzerland to Disclose Accounts

Financial Times; Remarks by Commissioner Doug Shulman on UBS
PR News Wire; U.S. Discloses Terms of Agreement With Swiss Government Regarding UBS
IRS; IRS to Receive Unprecedented Amount of Information in UBS Agreement

The United States successfully challenged Switzerland’s banking secrecy practices. Some say Switzerland was the first true tax haven, allowing its customers to deposit money in its banks at low tax rates and protecting those funds from bankruptcy creditors. The country also declined to assist others in uncovering tax fraud offenders by refusing to disclose the names of its banking customers.

The challenge began when the United States filed a lawsuit against the Swiss government earlier this year. In August the two countries reached a settlement under which the Swiss government agreed to cooperate with U.S. authorities in tax fraud prosecution. Under a new treaty, Switzerland will disclose details of approximately 4,500 American accounts in UBS Bank and other Swiss banks upon the United States' request.

The United States has offered amnesty to anyone voluntarily disclosing a hidden account by a September 23, 2009 disclosure deadline. The Swiss will disclose names on a rolling basis and anyone found to be in violation of U.S. tax laws without coming forward voluntarily will face criminal prosecution and full monetary penalties. Voluntary disclosure will result in reduced penalties and amnesty from criminal prosecution. Neither the United States nor Switzerland has released the exact terms of the agreement.

The United States is not the only country seeking to recoup unpaid taxes. France, Canada, and India have also successfully pressured Switzerland into providing information about citizens hiding taxable money in Swiss accounts. The agreements do not require Switzerland to release the names of all its foreign customers, however, as requesting nations will need to provide evidence to substantiate a claim of wrongdoing before Switzerland releases account identities.

What does this mean for Switzerland and UBS? It is difficult to determine just how much money is in question, but some believe that American depositors at one time held over $18 billion in Swiss accounts. UBS is a large part of the Swiss economy and faces additional financial challenges in the wake of this agreement and the global financial crisis.

Discussion Questions:
1. How will Switzerland reposition itself as a global financial leader without its favorable banking secrecy laws?
2. Switzerland has maintained banking secrecy for a long time. Why did the United States wait until 2009 to pursue this issue? Could it have something to do with its global standing? The financial crisis?
3. Will the cost of imprisonment of tax evaders justify the IRS income obtained and the potential damage to the U.S.–Switzerland economic relationship?

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