Friday, June 06, 2008

On singing parakeets and tax evaders

Bank secrecy is, it appears, no longer what it was. Take a look at this new story from the New York Times, which begins with a tale of an élite luncheon party in April:

"The host of the exclusive gathering was the Swiss bank UBS, whose elite private bankers built a lucrative business in recent years by discreetly tending the fortunes of American millionaires and billionaires. As the wine flowed and Mr. Loyrette spoke of the glories of France, UBS bankers courted their affluent guests.

But now, as the federal authorities intensify an investigation into offshore bank accounts, the secrets of this rarefied world are being dragged into the open — and UBS’s privileged clients are running scared. Under pressure from the authorities, UBS is considering whether to divulge the names of up to 20,000 of its well-heeled American clients, according to people close to the inquiry, a step that would have once been unthinkable to Swiss bankers, whose traditions of secrecy date to the Middle Ages.

Federal investigators believe some of the clients may have used offshore accounts at UBS to hide as much as $20 billion in assets from the Internal Revenue Service. Doing so may have enabled these people to dodge at least $300 million in federal taxes on income from those assets."

This follows the widely reported Liechtenstein Affair, when that tiny country's supposedly impregnable bank secrecy blown apart when the German intelligence services got hold of data on tax evaders using Liechtenstein's banks to undermine Germany's tax system. Among many other things, that affair exposed the pitifully inadequate nature of the world's foremost schemes to tackle the rot in international taxation: take the Financial Action Task Force, for example, whose blacklist of tax havens not only excludes Liechtenstein, but is, astonishingly, completely empty.

"As the investigation tears holes in the veil of secrecy surrounding tax havens like Switzerland and Liechtenstein, other names are surfacing, according to the authorities," The New York Times said. New revelations are likely on Monday, when a former UBS banker is expected to testify in a court in Florida about how he helped clients evade taxes. He will, a former client said, "sing like a parakeet."

Are the tax evaders running scared? They are, and they should be, we are delighted to report. Take a look at this Wall Street Journal blog, whose first sentence starts like this:

"Here’s a frightening scenario: For years you’ve been using offshore bank accounts to illegally shield income, and, fortunately, have never been caught. But then you start reading reports about investigations into bank accounts in places like Liechtenstein and Switzerland, your sleep becomes tortured, and you begin to wonder: Will the tax man come for me?"

And it continues - quoting a tax official as saying:

"Lawyers are advising tax-dodger clients on a few alternatives: “They can confess and plead for mercy. They can quietly file amended tax returns, pay up, make other required disclosures and hope overworked government prosecutors won’t follow up. Or they could choose to do nothing and pray their names won’t turn up.

Read it - it is a pity that the WSJ blog could not find it in itself to censure the criminals and instead offer them advice on how to mitigate the consequences of their crimes. The comments underneath the blog are interesting too - relatively little sympathy for these people.


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