Global Financial Integrity

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Imminent Settlement Announced in Historic UBS Case

Monique Perry Danziger, +1 202 293 0740 ext. 222
Global Financial Integrity
Monique Perry Danziger, +1 202 293 0740 ext. 222

Next Steps Must be Improved US-Swiss Information Sharing, Says Global Financial Integrity

WASHINGTON, DC – Reacting to news today that a settlement agreement has been tentatively reached in the U.S. civil case against Swiss bank UBS, Global Financial Integrity (GFI) urges U.S. officials to pursue substantive changes to U.S.-Swiss protocols governing information exchange in tax law administration as a critical next step in efforts to end bank secrecy and prevent tax evasion.

“The UBS case represents a clear example of shortcomings in the current protocols governing cooperation between Swiss banking officials and U.S. tax enforcement authorities,” said GFI director Raymond Baker. “While bringing UBS and the U.S. citizens who hid their money there to justice is crucial, ensuring better compliance with tax laws in the future is even more important.”

The announcement in June of an agreement to update the existing U.S.-Swiss income tax treaty to provide for increased tax information exchange provided little detail, but according to a statement released by the U.S. Treasury Department on the new protocols, “exchange of information for income tax purposes would now be to the full extent permitted by Article 26 of the Organization for Economic Cooperation and Development (OECD) Model Tax Convention on Income and on Capital.”

“Article 26 dictates that both Contracting States exchange information which is foreseeably relevant, to the respective States’ domestic tax laws administration and enforcement,” explained Mr. Baker. “But Article 26 also provides that neither Contracting State is obligated to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State or supply information which is not obtainable under the laws in the normal course of the administration of that or the other contracting state.”

“In other words,” said Mr. Baker in reaction to the treaty amendment details, “if a national prerogative to maintain banking secrecy exists in one of the two Contracting States, than a request for foreseeably relevant information is by no means a binding mandate.”

In reaction to Switzerland’s vice president and economic minister Doris Leuthard’s comments that under the treaty amendment the United States would have to know the names of suspected tax evaders to obtain information about their Swiss accounts Mr. Baker commented, “this paradigm favors the tax evader, hamstrings tax collection authorities, and makes the process by which tax authorities investigate tax dodgers akin to a scavenger hunt.”

Global Financial Integrity recommends that the U.S. should not sign any tax treaty with Switzerland that fails to (a) more precisely define the scope of what is “foreseeably relevant” to avoid interpretations requiring impracticably precise requests from the requesting country, and (b) remove the provisions of Article 26 which permit bank secrecy countries to hide behind their laws in order to refuse requests for information.

“The UBS case is an historic event and represents an historic opportunity for change,” said Mr. Baker. “Beyond the terms of settlement, victory in this case will be in making long-overdue changes to our existing agreement with the Swiss that has been proven grossly ineffective when it comes to ensuring our ability to enforce our own tax laws.”