UBS settlement: Uncle Sam has shown its might in the UBS settlement. The country achieves the key aims of its lawsuit seeking to expose suspected tax dodgers among the Swiss bank’s clients, and collect on their wrong-doing.
Swiss officials are to provide the US Internal Revenue Service with details related to 4,450 UBS bank accounts, which at their peak held some $18bn. The Swiss will also stretch their resources to gather the information in a race against further US action. The IRS isn’t relenting yet – and other countries will feel emboldened to redouble their claims against Alpine bank secrecy.
The Swiss weren’t entirely overpowered. US tax authorities originally sought information on 52,000 account holders, though they are now counting on many to step forward voluntarily rather than play the odds of not turning up on the shorter list. Switzerland also found a way to comply without breaking domestic law, even if it required Olympics-calibre legal gymnastics. The country’s vaunted bank secrecy has long hinged on a pedantic distinction between tax fraud and tax evasion. The Swiss have assisted revenue officials elsewhere when it comes to the former but not the latter.
But Switzerland is now bending close to breaking point. It is conceding that “tax fraud or the like” in an existing co-operation treaty with the US is not restricted to overt cases of fraud. Instead, it is now being interpreted to include repeated evasion of large tax bills.
To help the US quickly, Switzerland is pulling out the stops. Government lawyers and tax specialists will be redeployed to process the information. If the Swiss don’t act fast enough, the IRS may delay its promised withdrawal of the “John Doe” lawsuit demanding more taxpayer information.
As for UBS, the bank has escaped a fine and can start drawing a line under the 15-month-old saga. The reputational damage isn’t quite over, however. Prosecutions of its customers will create ugly headlines for months to come. Pressure will persist at home, where some politicians want former UBS chairmen prosecuted. But all told, Switzerland’s largest bank still looks better placed to move on from this damaging episode than does Switzerland.