Wall Street Journal: U.S. Pushes for Crackdown on Tax Havens: 03/05/09
Fresh off a U.S. victory over Swiss bank UBS AG, which admitted in a recent plea deal with the Justice Department that it aided tax evasion by wealthy American clients, Congress and the White House are trying to press a wider crackdown on the lucrative tax haven business.
UBS last month agreed to pay $780 million in fines as part of a deferred prosecution agreement with federal prosecutors. The bank is outing clients attached to about 250 accounts that the Justice Department alleges were set up as shell entities in tax avoidance schemes. The bank admitted to violating regulations set under a treaty that requires banks to submit information about their U.S. clients’ tax obligations.
Sen. Carl Levin, (D., Mich.), chairman of the Permanent Subcommittee on Investigations, which has delved into alleged tax haven abuse for years, said he hopes a bill he is sponsoring, and similar legislation in the House, will stop banks from doing what UBS has admitted.
Mr. Levin’s committee is set to hear testimony Wednesday from Mark Branson, a senior UBS wealth management executive, as well as senior IRS and Justice officials overseeing the tax haven investigations. The hearing is expected to focus on details of the bank’s deal with prosecutors, including documents that investigators say show how UBS trained its bankers to avoid detection by U.S. investigators.
At a House hearing Tuesday, Treasury Secretary Timothy Geithner said the Obama administration supports the tax haven legislation, which is similar to a bill Mr. Obama co-sponsored as a senator.
Among other things, the proposed legislation would close certain tax loopholes and give U.S. regulators the authority to take special measures against foreign jurisdictions and financial institutions that impede U.S. tax enforcement. The proposal also would treat foreign corporations managed and controlled in the U.S. as domestic corporations for income tax purposes.
Mr. Levin said the administration’s support for the bill “sends a strong signal to tax havens that this Administration is not going to tolerate the kind of offshore tax abuses that have been draining $100 billion a year from the U.S. Treasury and that, as a result, offload the tax burden onto the backs of honest taxpayers.”
The U.S. investigation of UBS was aided by cooperation of a former UBS banker who turned over information about UBS’s activities as part of a plea deal to settle charges of aiding tax evasion. U.S. officials last year also brought charges against a former senior UBS private banker in Switzerland who since has been declared a fugitive by a U.S. judge.
Under the deal with U.S. authorities UBS is allowed to fight U.S. efforts to obtain the names of another 52,000 accounts. That is a key issue for Swiss officials, who say they are preserving the lucrative Swiss banking secrecy tradition even though they allowed UBS to share some information with U.S. authorities.
In a briefing with reporters on Tuesday, Mr. Levin expressed frustration that despite treaty obligations Swiss authorities and UBS continue to hold out against U.S. demands.
“We cannot rely on the Swiss; that’s the bottom line,” he said. He said the 2001 treaty served as a “shield” to protect tax dodgers, instead of being a “sword to go after tax evasion.”
Among the documents set to be released by Mr. Levin’s committee is an investigative report issued by the Swiss Federal Banking Commission, known as EBK, that largely disputes the allegations by U.S. prosecutors that top UBS executives directed their bankers to assist clients in defrauding the U.S. government.
The report “admonished the bank” for violating requirements of the tax treaty. But it added that the investigation “did not find any indications that the bank’s top management had any knowledge of violations of duties under the treaty….Quite to the contrary, UBS AG undertook great efforts between 2001 and 2002 to ensure that it meets its obligations under the QIA in its entirely.”