Find us on Google+

Holes in Swiss Tax Case: Swiss Claim Tax Evasion Not a Crime

July 8, 2009 · 6 comments

As it turns out, the Swiss do have a little fight left in them after all.

The Swiss government has now advised that it would seize financial records from UBS rather than allow them to be turned over to the US. The Swiss Department of Justice and Police filed a statement in federal court advising that it would not allow UBS to participate in the handover. It posted a similar, brief statement on its web site (yes, click on over, it’s in English). You can read the actual legal filing here (also downloadable as a pdf).

Feds in the US have been pursuing the names of more than 50,000 high net worth taxpayers who have hidden funds in Switzerland to avoid taxation. UBS has formally admitted guilt in the matter. UBS has also agreed to pay more than three-quarters of a billion dollars as part of a settlement in what was deemed a massive scheme to assist US taxpayers in committing tax fraud. In February, the Justice Department filed suit to obtain the names of those taxpayers.

Interestingly, the Swiss government’s order would only apply to those taxpayers whose identities remain a secret. The Swiss government conveniently kept quiet earlier when UBS turned over the names of more than 250 clients during initial investigations.

Now, however, it appears that UBS is feeling less pressure than before to comply with the US requests. And the Swiss are finally ready to step in.

They will have to tread carefully. Relations between the US and Switzerland have been strained as a result of the ongoing investigations. Other countries such as the UK and Germany have made similar demands on Switzerland to turn over records; the OECD has threatened to put Switzerland on a list of uncooperative countries if the country doesn’t make significant strides towards banking transparency.

Switzerland promised to play nice. But here’s where the Swiss are playing fast and loose with the rules: Article 26 of the OECD tax convention requires the exchange of information in cases of “tax evasion.” The Swiss, however, don’t believe that that tax evasion is a crime, so they claim they don’t have to turn anything over. Case dismissed.

I’m not so sure. Again, UBS had a physical presence inside the US. And not just a big ol’ building in New York. All over the US. And not just in major banking centers – in locations like Bethlehem, PA, and Greensboro, NC.

And UBS actively solicited business inside the US for the purpose of committing a crime. They’ve admitted as much. And while the Swiss government might not believe that what happened was a crime, it’s a crime inside the US, committed by US taxpayers and induced by a Swiss company with a massive presence in the country. Just because those US taxpayers were able to move their funds outside of the US, proactively aided by UBS, doesn’t erase the crime.

I think about it like this: when I was little, there were rules at my house. Lots of rules. And we knew that just because we left the house didn’t mean that the rules didn’t exist. If my mom said that we couldn’t do something, we didn’t do it, even if some other kid’s parents thought that it might be okay. And if we did do it, we were in big trouble. The other parent wasn’t allowed to say “well, we always let kids do X at our house” and let that be the end of it.

Switzerland shouldn’t be allowed to be the “cool” parent that lets taxpayers from all over the world get away with tax evasion just because they think it’s okay. Their laws may control what goes on inside their own borders with their own citizens but once they open those borders to solicit taxpayers from other countries, they’re wrong and they know it. They can say what they want. But at the end of the day, their mothers taught them better.

Similar Posts:

{ 3 comments… read them below or add one }

1 My Journey July 8, 2009 at 9:47 am

Kelly,

I have to disagree. Switzerland is its own nation (albeit a small one) with its own culture, and as important its own laws. In your analogy you apply you going over to the cool parent’s house…but I think the analogy should read along the lines, if your parents wanted you not to go to the cool parent’s house they should have said “No” to you not try to change the rules of the cool parent’s house.

If the US wants UBS to follow the US’ rules and laws it should say to UBS follow our rules or leave our country, NOT “UBS follow our rules and not Swiss’”

Just some alternative thoughts.

2 garagefather July 8, 2009 at 9:58 am

It is ironic that an administration that has more known tax cheats than any other in U.S. history, is so actively pursuing like minded individuals for prosecution. Can you say hypocrites?

3 Patrick July 8, 2009 at 1:53 pm

Your first commenter is right. Try asking the IRS to disclose the names of people receiving more than $500,000 in US-sourced interest. Oops, can’t help you.

What about the recipients of payments from a Delaware GP or LLP? Do you have a specific crime in mind, committed by specific people (no John Does here thanks)? Um, no, ok so nope, not happening.

Not saying this is wrong or right. Just saying that everyone has their rules and we should respect them as we wish them to respect ours.

NB: for your other post, Switzerald has national service. So it is safe to assume that they have an army as well. In addition soldiers are required to keep their rifle at home for ready mobilisation – possibly the single country in the world most true to the spirit of the second amendment!

Leave a Comment

{ 3 trackbacks }

Previous post:

Next post: