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.
You won’t get it today.
Newly confirmed Secretary of the Treasury Timothy Geithner was slated to announce details of the revised bank bailout plan on today but that’s not going to happen. The Treasury is moving the planned speech ahead to tomorrow in order to focus on the economic stimulus bill. The bill is being debated today in Congress and most pundits expect a long day.
A spokesperson from the Treasury, Isaac Baker, said, “With record high job losses, and weakening economic forecasts, we’re focused on working with Congress to pass an economic recovery bill so we can create the jobs and make the investments necessary to get our economy moving again.” His announcement comes amid news of more layoffs. Nissan has indicated that it will axe more than 20,000 jobs today.
Realistically, more taxpayers likely care about the stimulus plan than the revisions to the Troubled Asset Relief Fund, or TARP, which was created to save the nation’s banks. Considering the news of office renovations, planned purchases of private jets and sports teams and disturbingly high bonuses for underachievement which have been earmarked by the banks so far, taxpayers are growing increasingly cynical (if that’s possible) that any additional money will be put to good use. Banks are not making new loans in the amounts anticipated and they have not made any advances on stilling a growing tide of foreclosures. It has made many taxpayers question what the point of throwing money at the banks was in the first place.
Despite the mood on Main Street, Geithner will announce how Wall Street will get to use the remaining $350 billion. Most experts anticipate that Geithner will announce a mixed bag of TARP measures, from buying up “bad assets” to insuring other assets, including mortgages and adding new capital.
But what will be done about the foreclosures? This is politically tricky. It’s important to stop the bleeding, all sides agree, but many taxpayers are wary of their own money being used to “rescue” homeowners who may have overborrowed. President Obama has indicated that nearly $50 billion to $100 billion will be spent to save homes. How that money will be spent is still uncertain.
It’s a scary proposition, isn’t it? Government throwing money – in amounts that we can’t even really grasp – at a problem with no guarantees that anything will change. In fact, since the TARP money has been paid out, initially under the Bush administration, with sums totaling more than $350 billion, little to no real change has happened. Arguably, the economy has gotten worse with more foreclosures and more layoffs. The so-called experts say that if we fix the banks, we can fix the economy. So, what’s the answer to the banking industries’ woes? We’ll have to wait one more day to find out.
Boy, am I glad that the government pumped billions of dollars into the banking industry!
Since that time, borrowing has become significantly easier. Wait, that hasn’t happened?
Well, at least the Dow regained its faith in the market. Wait, that didn’t happen either?
What did happen? Oh yeah, banks made more money.
Need proof? I mean, beyond the loss of bad debt and influx of capital, courtesy of we, the taxpayers? Look no further than PNC Financial Services Group Inc. According to reports, PNC will save billions in federal taxes after its purchase of National City Corp now that the IRS has issued a controversial notice following the failure of the original bail-out package.
So here’s what happened. It used to be the case that the built-in loss that a buyer could use to offset income after an acquisition was capped at 5% of the purchase price per year for five years. The new rule removes the limit for the banking industry – and only the banking industry – resulting in an immediate and significant tax benefit. The new rule is effective “unless and until” additional guidance is issued, whenever that might be.
How much of a benefit does that give PNC? Tax analysts have tossed around numbers as high as $5.1 billion. And PNC isn’t the only bank to benefit. Banks which gobble up other banks with just bad housing debt (not counting other bad debt) may now save up to $140 billion in taxes – about 20% of the total banking bailout put up by the feds. And who pays for that? Who do you think? Tax savings for those banks equals lost revenue in an already strained economy.
And you don’t even have to be a “real bank” to qualify. All banks, including credit card companies, industrial loan companies, trust companies and thrifts (used for mortgages) are included.
Congressional officials – who weren’t consulted on the IRS notice – are not necessarily thrilled with the results. Senator Charles Schumer (D-NY) who sits on the Senate Banking Committee voiced concerns that the ruling would give some banks an unfair advantage. For example, Schumer claims that Wells Fargo will save $19.4 billion in federal taxes for its win over Citibank to purchase Wachovia, an amount which surpasses the proposed purchase price.
Those cheering the notice say that this gives banks an additional incentive to buy “struggling” banks. But opponents say it just feeds merger mania, giving mega-banks an disproportionate financial incentive to take on more bad debt. Further, those in other sectors of the economy question why incentives were limited to the banking industry; so far, the IRS has not issued additional comment.
I’m not sure where I fall. I believe that something needs to be done to get us out of this mess – but the fixes seem haphazard and short sighted. Plus the timing and process of this tax incentive doesn’t quite meet the smell test: one day after Congress rejects the bailout, the Treasury changes the rules on its own? What do you think?
You can read the entire text of Notice 2008-83 here.
