Privacy in Switzerland Under Threat from the IRS

Woody Allen once said, “If only God would give me some clear sign! Like making a large deposit in my name at a Swiss bank.” For decades, the notion of having a Swiss bank account has been viewed as a status symbol.  With roughly 27% of the world’s foreign holdings in 2008 (an estimated $2 trillion – Bondi, Bradley J. 2010), the Swiss have certainly cornered the international market on discretely protecting assets.  In short, Switzerland has been the prestigious place for Americans to hide money from the IRS.  But thanks to proceedings between the IRS and the Swiss Parliament, such references may soon become no more than an outdated joke.

This past summer, the IRS took serious steps in an international attempt to cut down on tax evasion through the use of offshore accounts in Switzerland. The IRS has entered into an agreement with the Swiss Parliament to release over 4,000 names of U.S. citizen clients of UBS AG with significant holdings in Switzerland.

The trouble began when the IRS decided to investigate UBS for helping Americans evade US taxes.  UBS was facing potential criminal prosecution, which could have threatened the very existence of one of the largest and well-reputed banks of our time.  In a move to save the bank, UBS executives pressured the Swiss government for ways around the secrecy banking laws to give the…

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Taxing Banks for Risky Investments

As governments around the world broke open their piggy banks to bail out most of major financial institutions, it comes as no surprise that these governments are feeling a bit strapped for cash. In looking for a way to recoup capital spent on these institutions because of their risky investment practices, a popular proposal is the taxing of banks for such risky investments.

Numbers that the Americans are debating include a levy at 0.15% for 10 years on all financial institutions with more than $50 billion in consolidated assets.

With Germany and England ready to take action and implement similar levies, and with Obama seeking to push the US to do the same, it’s unclear what kind of overall effect these levies would have on banking if they are carried out on a piecemeal, domestic basis. These financial institutions are international in character. Their activities transcend national borders, and thus any attempt at regulation will need to account for the cross-border transactions and international nature of the institutions. Will domestic regulation really solve the inherent problem of big banks making big investments without thinking about the potentially big (and devastating) consequences?  Probably not.  So then what’s the point?

Edwin M. Truman, Senior Fellow at the Peterson Institution for International Economics in Washington, proposes a different analysis. He says, “There are two dimensions — paying for the past and paying…

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