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.