UBS Will Release the Names of Tax Evaders

August 21, 2009

The Swiss banking giant UBS has agreed to turn over the names of 4,450 American clients suspected of tax evasion in the US. Switzerland has always had strong bank secrecy laws and has therefore been an attractive option for individuals seeking to hide income. According to the IRS the 4,450 accounts held over $18 billion at one point. The New York Times reports:

The agreement is another victory for the I.R.S. and the Justice Department in the long-running case against UBS, which in February paid $780 million and admitted to criminal wrongdoing in selling offshore banking services that enabled tax evasion. Larger Swiss banks like UBS and Credit Suisse have curtailed banking services for wealthy Americans in response to the increased scrutiny.

At the same time, former UBS bankers are being charged for aiding tax evaders. From the AP:

Among the allegations in court documents against banker Hansruedi Schumacher, 51, and 42-year-old attorney Matthias Rickenbach is that they told a New York businessman they paid an unnamed Swiss government official a $45,000 bribe for information on whether the businessman’s account would be revealed to U.S. investigators.

It should be noted that tax evasion is not the same as tax competition. Everyone should pay what they legally owe. But countries have different tax laws and rates, and locating in certain countries may allow individuals and corporations to legally pay lower income taxes. Robert Carroll explains in a paper titled “Bank Secrecy, Tax Havens and International Tax Competition“:

By no means is enactment of a low tax rate in itself a harmful tax practice. It is the low tax rate in combination with the other criteria—the lack of transparency, the lack of information exchange, and the presence of special tax regimes—that defines a tax haven. Indeed, enacting a low tax rate to compete for investment is a legitimate way to expand a nation’s tax base and increase the living standards of all residents. Ireland, Switzerland, Poland and Slovakia might, to varying degrees, have low tax rates, but they are regarded as having “normal” or “conventional” tax systems in most other respects.

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