Why U.S. Tax Evaders Can No Longer Rely on Swiss Secrecy
Switzerland’s oldest private bank, Wegelin & Co., had survived three centuries of upheaval on the continent, including Napoleon’s invasion of the country and two World Wars. But its illustrious history was brought to an end last month by an unlikely source: a U.S. government desperate to track down tax evaders.
In early February, in a move that rattled Switzerland’s financial industry, the U.S. Department of Justice indicted Wegelin on charges of helping wealthy Americans hide $1.2 billion from U.S. tax authorities. As the first foreign bank in history to be indicted by the U.S. government, the ruined Wegelin was quickly sold to a former rival, Raiffeisen Group. But the Obama Administration was just getting started — it also ramped up the pressure on 11 more Swiss financial institutions to hand over their American clients’ names. Now it looks like U.S. authorities might get their wish.
On March 4, the Swiss parliament approved an amendment to the country’s existing tax accord with the U.S., which, when ratified by the U.S. Senate, will give the American government unprecedented access to accounts held by its citizens in Switzerland. While the existing agreement has long allowed the release of tax information in cases of proven wrongdoing, various stumbling blocks, like different interpretations of tax evasion under Swiss and American laws, often slowed or even halted the process. (Evasion is a civil, not a criminal, offense in Switzerland.)
The amended treaty will now allow U.S. authorities to identify American tax evaders who exhibit certain “behavioral patterns” more easily. That includes stashing undeclared money in banks, “dummy” corporations, trusts and foundations created specifically to hide these assets. The new treaty will also allow U.S. authorities to request information from foreign banks that don’t do business on American soil but have U.S. clients. Banks and account holders who are found to be hiding undeclared U.S. assets will be forced to pay a substantial fine to the American government.
“This is a strike at the heart of the Swiss banking sector and a major breakthrough for the U.S.,” says Teodoro Cocca, an adjunct professor at the Swiss Finance Institute, a private foundation created by Switzerland’s banking and finance community in cooperation with leading Swiss universities. Cocca warns that the pressure on Switzerland, which has long prided itself on its banking-secrecy rules, will now increase dramatically if other countries “also demand the same exchange of information rights.”
The U.S. Department of Justice has been tightening its grip on Switzerland since 2008, when an investigation revealed that the country’s biggest bank, UBS, helped rich Americans hide billions in undisclosed offshore accounts. To avoid criminal charges, UBS paid a $780 million fine and released the names of 250 clients suspected of tax evasion.