Monday, August 24, 2009

UBS: the bad news

Our colleagues at Citizens for Tax Justice in Washington have published some interesting comments on the UBS settlement. Whilst welcoming the investigation into the 4,450 banking clients whose names UBS is now required to disclose to the IRS, they are concerned about some of the messages that can be read into the settlement, starting with the clients whose names won't be being handed over:

Of course the bad news is that the 4,450 names expected to be released to the IRS make up less than 10% of the estimated 52,000 American-owned accounts. Without 100% disclosure, American taxpayers may in the future be tempted to play the "audit lottery," assuming they have only a 10% chance of getting caught.

Whilst some might be tempted to think that size is everything, one of the risks of targetting accounts with balances above a specified level is that the crooks will be encouraged to spread their cash assets across different accounts and banks:

Another piece of bad news is that the criteria used to select the UBS account holders to be disclosed to the IRS will not be released. But there is a strong indication that the size of the account has some importance. Taxpayers might avoid this danger in the future by spreading their offshore funds among several accounts and numerous banks so that they can "fly under the radar."

Which raises questions about the treatment of UBS itself. The bank has been revealed as a criminal enterprise, but far from being tough on crime the authorities have been relatively lenient:

What also seems like bad news is that under the settlement, UBS will pay no civil penalties. It has already paid $780 million in criminal penalties for the actions of certain bank employees facilitating illegal tax evasion.

What's even more alarming is that the IRS will withdraw its "Notice of Default" that was issued to UBS for violating the agreement it entered into with the U.S. government. This agreement, which made UBS a "Qualified Intermediary" or "QI," is one that foreign banks enter into with the U.S. in order to get favorable treatment in return for complying with certain reporting standards. Given that UBS bankers came into the U.S. to solicit illegal business from Americans with the express purpose of helping them evade taxes, it's hard to believe UBS is not in default of such an agreement. If this egregious behavior can't get a bank kicked out of the QI program, what in the world can?

Good question (we suggested last year that UBS should lose its licence). All of which leads CTJ to conclude that the road ahead remains long and largely uphill:

So the settlement certainly does not mean that the offshore tax evasion problem is resolved. If anything, it shows how badly we need legislation to deal with the problem, since there are apparently limits to how far the U.S. government will go, using existing laws, to crack down.

You can read the full text of their article here.


Anonymous Taxes DIY said...

Ya, its bad news for all I agree. Sad, no idea what this will bring upon the US in the future.

8:52 am  
Anonymous Mike Licht said...

Is former U.S. Senator Phil Gramm still Vice Chairman of the Investment Bank division of UBS?


7:36 pm  

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