U.S. Fed Moves Against Offshore Banking
In an unprecedented move, the U.S. federal government has ordered Swiss Bank UBS to hand over information on all U.S. taxpayers who may be using Swiss accounts. This is the first time that an authorization of this kind has been made over a foreign bank.
Perhaps the demand for corporate reform by Americans, political election-year fears and heightened government privacy invasions in the United States have finally come to rest in the judicial branch of the federal government. For centuries, Swiss banks have been a haven of secrecy to the world. With the help of the U.S. judiciary, the U.S. government is a step closer to removing the band of secrecy from the Swiss and the realm of offshore banking.
Simply put, the federal government through its’ agent the Internal Revenue Service wants to collect taxes due. Rampant foreign tax evasion is suspected. A federal judge in Miami issued an order allowing the Internal Revenue Service to forcibly retrieve information from UBS about U.S. taxpayers who may be using Swiss accounts to evade income taxes. As part of the U.S. housing debacle crackdown, a UBS banker pleaded guilty on Tuesday to assisting a California real estate developer to evade taxes.
To avoid a market reaction, the judgment was issued after the close of U.S. markets today and in close proximity to a national holiday. The court ruling states that UBS must produce records identifying U.S. taxpayers with accounts in Switzerland.
United States law requires any U.S. taxpayer to report all financial accounts in a foreign country if the total value of the accounts exceeds $10,000. Failure to report a foreign account will lead to a penalty of up to 50 per cent of the amount in the account at the time of the violation.
What is the point of Swiss banking that is not secretive? That is the question that UBS must be grappling with right now. The political and financial move is likely to spur a confrontation with authorities in Switzerland. Swiss law provides that banks cannot disclose confidential information without client approval.
UBS is currently struggling with an internal management crisis related to the U.S. sub-prime mortgage crisis. The board is in the process of dismantling management to run the bank directly. The Swiss Federal Banking Commission is breathing fire at UBS, angry that the bank and its rivals have brought the good name of Switzerland into disrepute by making bad investments and poor judgments.
Speculation about increasing losses and banking writedowns have already caused clients to flee. The industry fears that writedowns have destabilized the bank. Wall Street is already anxious and the fallout from this event could be significant. This event definitely adds to the atmosphere of gloom as the federal government continues to tighten thumbscrews on the banking and finance industry.