Locking the Swiss Bank Door

Bob Bauman (January 18, 2010)

When reading about the latest developments in the ongoing war on Offshore Banking, I was reminded of an old saying about taking action that comes too late to protect against already existing harm – “locking the barn door after the horse has been stolen.”

Now there’s a new variation – “locking the bank vault after the clients’ names have been surrendered in violation of Swiss bank secrecy law…”

Before we start, understand that the Sovereign Society does not condone tax evasion in any form, a point we have made repeatedly in our publications throughout our entire existence.

Last week the Swiss federal administrative court ruled that the surrender of confidential UBS bank details about American clients to U.S. investigators by the Swiss authorities in 2009 violated both Swiss law and the country’s constitution.

The court ruled that the Swiss Financial and Market Supervisory Authority (Finma) abused its power when it ordered that details of 285 account holders suspected of U.S. tax evasion be given to Washington in response to demands from the U.S. Department of Justice and the U.S. Internal Revenue Service.

The court ruling vindicates my own opinion expressed here last August when I noted that “in February 2009, UBS and the Swiss government violated due process of law when they handed over to the IRS the names of an accused 250-300 account holders, without permitting any appeal of this action as Swiss law allows.”

Carlo Lombardini, described as an “expert on banking law” in Geneva, favored the court ruling because he claimed it helped to reassure clients. “It proves that the justice system in Switzerland works,” he told the Swiss News Agency.

Still, it’s doubtful that any of the 285 UBS account holders will see much justice in the decision.

The IRS already has their names and is investigating many of them. Ten Americans already have pled or been found guilty of tax fraud and related crimes and two Swiss are being sought as fugitives according to Business Week magazine.

Weakened Bank Secrecy

In February 2009, Finma and UBS announced they would disclose details of 285 clients suspected of tax evasion by the IRS. UBS paid US$780 million in fines relating to this matter after admitting “improper activities” (willful tax evasion) by some of its employees.

That first action paved the way for a subsequent easing of traditional Swiss bank secrecy rules and Swiss official agreement to apply the tax information exchange standards of the Organization for Economic Co-operation and Development (OECD).

Last week’s court decision has caused speculation about possible legal actions from disgruntled U.S. clients of UBS against the Swiss government and the bank itself.

I’ll repeat what I’ve said before – Worst of all, what UBS did allowed the tax bullies at the IRS to:

1) smear thousands of honest Americans who bank offshore;
2) attempt to scare away thousands more who could benefit by doing so;
3) pretend to extend U.S. tax law jurisdiction to the entire world;
4) use blatant economic blackmail against not only an errant bank, but against a friendly country that has long been a faithful ally and against its 7.6 million people.

I think history will see this as a classic case of political face-saving by the Swiss politicians who surrendered to the IRS.

Sincerely,

Bob Bauman, Legal Counsel

Tags: offshore