And the absurdity continues...

There is currently an outright war going on by the US government on the Swiss banking industry. Actually, it is not so much a war as it is an incomprehensible extortion. A decision has been made to crack down on individuals who have evaded taxes in the US, and especially to crack down on those evil Swiss banks that have made all this tax evasion possible. Judging by the vehemence of the current attacks, one would think that these individuals who may or may not have evaded taxes, and especially the Swiss banks, are not only the single cause of the global economic crisis as well as the reason for the current US debt, but also probably the financiers of all terrorist organizations as well as any other large-scale criminal organizations you can think of. What is currently happening here is perhaps not getting all that much media coverage as I have seen little about it in the press outside of Switzerland, and whenever there has been something it was more in the line that the DoJ should be even tougher with the Swiss banks.

So what is the situation today then? Initially the DoJ went after the big Swiss banks (UBS and Credit Suisse) because they had been actively going after wealthy US clients in the US, proposing to them to establish confidential bank accounts in Switzerland in order to hide their money from the US tax authorities. I have no problem with this activity being severely reprimanded, and in a way that would deter others from doing the same. However, now the DoJ has decided to go after all banks in Switzerland, under the argument that it has been their responsibility to ensure that all US persons (and that comes with a very wide definition) are properly declaring all monies they may have on the Swiss accounts. If it now turns out that a Swiss bank is holding an account since 2008 for a US person, and that this has not been properly declared to the US tax authorities by the holder of the account, the Swiss bank will receive a fine equal to 50% of the highest value of assets on the account between 2008 and 2013. An example of what this now implies would be:

- A client, who is a US person living and working in Switzerland, opens an account with a Swiss bank in 2008. He deposits on the account a sum of $ 10 million, and then has this invested in various placements. Upon request from the bank, he also provides a copy of a W9 form indicating that the assets are properly declared. In reality, that W9 form was never actually submitted, but the bank obviously has no way of knowing that.
By 2010, the value of the portfolio has increased to $12 million through some more funds being brought in as well as profits on investments, and then begins to drop as the client spends some of it as well as uses an important portion for a real estate purchase. By 2013 the assets on the account are only $ 3 million.
The bank has declared that they may hold accounts for US persons with undeclared assets, and upon an audit it finally turns out that the client above had never actually submitted the W9 form. As a result, the bank will be fined 50% of the highest value of the assets since 2008 i.e. $ 6 million.

A lot of work is currently being done to evaluate the amounts of assets held by US persons in Swiss banks in order to determine the possible fines that will be imposed. The banks have been asked to place themselves in three categories:

1. Banks that estimate that total assets held for US persons is less than 2% of their total assets under management.
2. Banks that confirm that they do not hold any US person accounts that have not been properly declared
3. Banks that confirm that they may hold undeclared US person’s assets, and they will work with the DoJ to provide the details of this and accept the impeding fine.

It should be noted that if a bank places themselves in the second category, but then later it turns out that they actually had even one account where the assets had not been properly declared, they will receive at least double the normal fine i.e. 100% of the assets held. So, as a result, it is expected that basically all will select the third category, and at present the total fines expected to be collected exceeds $ 10 billion.

It does obviously not end there. The DoJ will then also be going after the US individuals who have been doing the tax evasion, imposing considerable fines on them too. What this will means in the end is that if a wealthy person held an undeclared account of $ 10 million, the US government will not only take all of this money, but slap considerable fines on top of that.

All this at present concerns the DoJ. However, there is then also the IRS who will claim unpaid taxes on the assets, and that are more than likely to then also launch civil procedures against the Swiss banks for amounts that can not even be imagined at this point.

There are obviously many reasons why all of this pisses me off. The main however being that I do not see how it can be the responsibility of a bank in Switzerland to ensure that a US person does his tax declaration. Also, I don’t understand how the DoJ can impose a fine on a bank in another country unless it is related to illegal activity on US soil. To be honest, if I was running a Swiss bank, I would first refuse to participate in the program mentioned above, and basically wait until the DoJ tries to sue me. Then, if they did, I would simply refuse to pay the fine based on the fact that it is simply not legitimate here in Switzerland. I really wonder what action will be taken against a Swiss bank that refuses to cooperate.

To compare, it is a bit like if the US would attack the German car manufacturers BMW, Mercedes, Porsche etc. because they are unable to prove that any US person that may have driven one of their cars did not respect US speed limits while driving in Germany. Then, if it was found that a US person had driven a Porsche in German at over 60mph, Porsche would have to pay double the initial fine.

Finally, the US banks are currently the ones that hold the biggest portion of assets for wealthy South Americans. However, the US authorities are not requiring them to ensure that these clients provide valid proof that they have indeed declared properly for taxes in their home country. Additionally, whenever a request is made from a South American country to the US requesting information about their citizens having assets in US banks, unless it is for a serious criminal activity which also spills over to the US, the request is turned down.

All of this has spun way out of control, and it currently looks like it might even get worst. Instead, the US should focus on properly taxing their big corporations as well as their wealthy citizens at home. Being the only country that actually requires tax declarations from all their citizens even when they do not live in the US is just wrong in my opinion, and one that is creating huge problems these days for many Americans living outside the US.

The Swiss need to tell us to take a hike. I'm sorry but I have to declare all foreign accounts on my tax return every year. If I don't I am liable for the action and can get a nice audit. That is where the action should stop. It shouldn't be your responsibility to follow up with the action.

This bottom feeding started with Bush, but Obama has taken it to a new level. Originally the law was setup to stop terrorists from banking, but they turned it on the regular folks. Now it is a nice way to get headlines, and to attack anyone the DOJ doesn't like.

As for here in the states, we haven't seen a word of it in the news. All we get now is the latest tragedy called Obamacare.

Indeed I wish they would tell the US to take a hike. If not, you can bet that the rest of Europe will be requesting the same from the Swiss banks shortly after.

Problem is, I don't think they will.

And idea for the IRS

(Yes, I am sure you are seeing a trend here with my rants. I suppose I could instead talk about wiretaps and tracking GPS data from mobile phones around the world…)

One thing that has always gotten me angry over the years is when an official government agency decides to criticize offshore banking in general, and Swiss banking in particular, when the situation in their own country is often far worst and more corrupt than the one they are criticizing. With regards to Switzerland it started in the end of the 80’s, as they were made out to be the only place where the entire world’s money laundering was being conducted. Hollywood loved portraying the bad criminals as always having their financial business taken care of by the Swiss bankers. For sure, at the time there was a lot of dirty money circulating in Swiss banks, but there was even more dirty money doing the rounds in US banks. However, it was very convenient to get the focus on somebody else because, let’s face it, you don’t really want to saw off the branch you might be sitting on.

When the money laundering issue started cooling down a bit, basically as banking on a global level began being a bit more careful about identifying their customers (although I could still open a bank account in the US without any sort of identity papers). It was time to go after the funds deposited by European Jews before WW2 that apparently had been seized by the Swiss banks since the beneficial owners had died at the hands of their Nazi “brothers”.  After a lot of negative press about Swiss banks at the time, the issue ended up being settled by a payout of some $ 1.9 billion to a Jewish organization set to distribute the funds. What was not really spoken of was that the accounts had initially been opened BECAUSE of the Swiss banking secrecy, providing a way for the European Jews to hide their money away from Nazi Germany. Also, the banks had not stolen the money at all, and it finally turned out that the total amount of unclaimed money that had been deposited but there was no trace of the beneficial owner was less than 10% of the actual payout. The real kicker is that the case that started the whole scandal related to an old lady claiming that her parents had left funds in a Swiss bank, and they had taken the funds for themselves. The funds eventually turned up, in a bank in Israel.

Next came terrorist financing. As it turned out, the Swiss banks actually had an edge over all other banks in fighting terrorist financing, yet in general media they were still being made out to be aiding all the various terrorist groups around the world. Incidentally one of the biggest scandals involving money laundering, terrorist financing etc. was BCCI, and it is an interesting read. Funnily enough, this scandal involved the US, UK, Luxembourg, Hong Kong and several Arab states but not Switzerland.

And now we are on to tax evasion. Well, my idea for the IRS rather than trying to make it the responsibility of foreign banks to ensure Americans are making their tax declarations would be to first ensure that tax declarations in the US are done properly.

One thing that always bothers me is gratuity when you are in a restaurant or a hotel. I believe that the service should always be part of the price, and that an employer should not base an employee’s salary on potential tips. I like to see up front what something is going to cost me, and not receive an invoice in the end with recommended gratuity amounts for 15% or 20% indicated for me to add to the bill (not to mention varying taxes from one state to another that are not mentioned in prices either). Tips should be, if anything, like a bonus paid for an exceptional service. However, the biggest problem with the whole gratuity system is that this is basically money that is off the books. Yes, the IRS requires that staff declare all tips received over $ 20 per month, which hopefully should cover all service staff. The employer then needs to have these amounts also declared in order to pay the proper social charges on this “salary” as well. However, the IRS themselves estimate that up to 40% of all collected tips are not declared, which computes now into something like $ 15 billion per year of undeclared income. Now I don’t mean to go after the low wage earners, and even if they declare their tip income they will most likely not be liable for income tax in any case, but the employers. $ 15 billion of undeclared salary annually is a pretty big amount.

But okay, perhaps we should leave that one alone for now. The most likely outcome there will be that the employers will end up reducing the number of staff if their costs increase, and so we would ultimately only increase unemployment. Still, you can’t deny that it is illegal, and if the fines that are about to be imposed on the Swiss banks is anything to go by, the IRS should probably also slap a fine of 50% of a restaurants annual income on those that are found to have not declared even a $ 20 tip. However, it is far more popular to go after those rich foreigners, especially as there should be no social fallout to deal with.

Actually, in a previous post I mentioned that the US government is currently waging a war against the Swiss banks. If you think about it that is actually a perfect economical allegory. Throughout history, one country has often declared war on another in times of financial difficulty. The objective has been to focus the nation’s people on a foreign enemy in order to get their thoughts away from the trouble at home, and then the hope of obtaining new riches from the defeated countries. I guess today they just don’t use guns…

Nevertheless, this is all kid stuff compared to what is going on in “back home” in places like Delaware. An article in the Economist in February wrote on the topic of tax havens:

Not all these havens are in sunny climes; indeed not all are technically offshore. Mr. Obama likes to cite Ugland House, a building in the Cayman Islands that is officially home to 18’000 companies, as the epitome of a rigged system. But Ugland House is not a patch on Delaware (population 917’092), which is home to 945’000 companies, many of which are dodgy shells. Miami is a massive offshore banking centre, offering depositors from emerging markets the sort of protection from prying eyes that their home countries can no longer get away with. The City of London, which pioneered offshore currency trading in the 1950s, still specializes in helping non-residents get around the rules. British shell companies and limited-liability partnerships regularly crop up in criminal cases. London is no better than the Cayman Islands when it comes to controls against money laundering. Other European Union countries are global hubs for a different sort of tax avoidance: companies divert profits to brass-plate subsidiaries in low-tax Luxembourg, Ireland and the Netherlands.

You will note that the author of this article seems to have also come to the conclusion that Switzerland is no longer the center of all evil financial matters. That particular title probably should go with Delaware for a number of reasons. The first being the fact that they do not tax corporate income, and have made it their business to sell this advantage to most domestic big corporations, but also a host of foreign ones.

The second point, and this is actually one that is currently the case in all of USA, is that there is no requirement to disclose the beneficial owners of a corporation registered there. It is therefore the perfect way for any individual, dodgy or not, to hide their identity with regards the assets they hold. This is the core of any money laundering scheme. While the FATF (Financial Action Task Force), an international body that sets standards for the fight against money laundering, terrorist financing and other threats to the international financial system, repeatedly criticizes America for failing to comply with a guideline requiring the disclosure of beneficial ownership, the US government publicly chooses to attack countries such as Switzerland for being instrumental in tax evasion. It is actually funny to think that the NSA seems to know just about everything through spying, yet they would not be able to determine the beneficial owner of thousands of corporations registered in the US (see, I end up talking about the NSA and wiretaps afterall…).

So, to end this extensive rant, I provide this quote from an article in the Economist:

“Getting rich people to pay their dues is an admirable ambition, but this attack is both hypocritical and misguided. It may be good populist politics, but leaders should focus instead on cleaning up their own back yards and reforming their tax systems.”

This is cracking me up. This administration has made it standard op to point in another direction when it comes to assessing blame. They point to your Swiss banks, and claim it is the reason for all the banking issues, and lost tax revenue in the US. They then follow it up with class warfare to make it a us vs them situation.

As for not disclosing owners, I know why they are doing this. The owners do not want to be publicly identified for lots of reasons. One is political. They don't want political parties attacking them if they own certain things. I agree with the practice. We see it play out all the time with public companies. One side will attack a guy for owning a huge portion of a stock, or was an officer for a company.

I view it like this, you should have the right to privacy with what you own, and where you hold your money. It is nobody's business what I own.

That said government entities should have full disclosure. Like the Federal Reserve. We can't even audit the thing, and it controls our banking policy. It is as bad OPEC with its cartel tactics.

Personally I totally believe in banking secrecy. I simply do not trust any government with full access to my finances. The problem today though is that the government is working under the basis that all people are criminals and terrorists, and they can't be trusted in any way. That is why I also find it strange that there is no need to disclose the beneficial owner of companies. For starters, the banks should at least know who their ultimate clients are, even if they don't provide this information to whoever may ask.

So who fining these banks? Is the Swiss government doing it?

Nope, the strange thing about it is that it is the DoJ. To be honest, it doesn't make much legal sense.

Do you get a chance to read Private Eye magazine, Henrik...?
They publish once-a-fortnight.
One of their current bugbears is the UK's super-lax taxation on LLPs, and how the UK Government is legally allowing "Brass Plate" companies to flourish in the UK: thus aiding-and-abetting the international flow of non-taxable / criminal funds.
Private Eye joined-up with the BBC's Panorama program circa 6 months ago, and successfully exposed legal scams being perpetrated / invented / actively encouraged by bona-fide card-carrying HMG Tax "Advisers".
I could fill the internet with quotes from Private Eye's investigations and published scoops, relevant to your above points.
Instead, I'll just actively encourage you to beg, borrow, or steal a copy - laugh at the funny bits - and then get as depressed as the rest of us UK readers when we are informed of the legal tax avoidance being perpetrated by our very own government.

I'll have to look that up! I am sure my London colleagues can get me copies.

Thanks Gelert.

The DOJ is fining foreign entities! That is the most ridiculous thing I ever heard. Please tell me the banks are not paying?

An update….

I am sure you are all excited to know the latest development (not!). Monday fell a deadline for all Swiss banks to submit their intentions to the FINMA (Swiss Financial Market Supervisory Authority), confirming if they would participate in the program and if so in which category. The actual deadline for submission to the DoJ is December 31st, but the regulator here wanted to know in advance what the situation was going to be.

After having issued a statement a bit over a week ago saying that the banks were STRONGLY advised to participate in the program, the FINMA seemed eager to get the response yesterday. Some rumours had circulated that those who did not participate might risk having their banking license withdrawn, but this really seems as something far too extreme. The problem is, this whole affair has shown us some absurdities already, so I am sort of ready for anything at this point.

There is not to be any announcement today by the FINMA as to what bank decided to participate and in which category. From the media however, it seems there have been 5 banks that have decided to participate. This is out of several hundred banks, and so if that is anything to go by it seems as if the participation in the program is very limited.

Two days later, and the indication is that perhaps 30% of the banks in Switzerland have decided to join the program in one form or another. There has actually been one to state they will opt for Group 3, a group most specialists had earlier claimed nobody would be able to join. They are basically saying they have no undeclared US assets.

Some of you, like TC, are wondering why the hell a Swiss bank would even bother to answer to the DoJ. After all, they have no jurisdiction in Switzerland. I suppose that in a perfect world that would be true, but unfortunately we do not live in a perfect world. As my boss put it, the Americans run the world.

The fact is that no financial institution in the world can survive without being able to use the US financial market. The dollar remains by far the most traded currency, and the various US markets are simply unavoidable to any institution doing investments. As a result, the DoJ has a seriously big stick. Additionally, many foreign institutions also have some sort of operation in the US, be it a branch or a domestic wealth management company. Should these be closed down, and clearly if an institution decided to ignore a fine issued by the DoJ, their US operations would see their licenses to operate terminated quickly, there would be a considerable loss of income, not to mention loss of reputation. I am sure there are many institutions here that would want nothing more than to tell the DoJ to go to hell, but they simply don’t have the balls to do it. The only thing that might have an impact would be if Switzerland on a national level stood up towards the DoJ and refused their ridiculous claims. You would think that the US might not actually black list Switzerland from a banking and finance perspective as it would have some pretty serious international relations incidents well beyond just Switzerland. For starters all those major US corporations with headquarters setup here would not be able to continue functioning.

But, that is not going to happen. Hopefully enough banks will decide not to participate and instead wait to see if the DoJ decides to go after them.

I'm not convinced that the subject matter here has fully encapsulated the meaning of the word "Absurd".
For sure, the above is a strong contender.
But frankly, it pales into insignificance against "Double Points for the last race-of-the-season".
Perhaps the Swiss could take a leaf out of F1 history, and just declare the next financial year as a "non-championship event"...?  

Indeed, F1 is more absurd....

Henrik wrote:
Some of you, like TC, are wondering why the hell a Swiss bank would even bother to answer to the DoJ. After all, they have no jurisdiction in Switzerland. I suppose that in a perfect world that would be true, but unfortunately we do not live in a perfect world. As my boss put it, the Americans run the world.

T

To be exact;

American Zionists run the world, and it is a sadder place because of it (they even turned Mandela into an Uncle Tom when he came to power).

I haven't added anything to this "monster" for a while, so it is time for another rant...

Credit Suisse Senate Hearing 27 February 2014

I have been reading a number of reports from the ongoing senate hearing of Credit Suisse regarding tax evasion etc. To be honest, things are so pathetic it is almost funny.

To kick things off, the Senate has issued a report that newspaper articles are saying “blasts credit Suisse”. Now I have not been able to see the report itself, although I would love to get my hands on it, and all I have been able to read are reporters commenting on it. In all the reports the comments are referring to the same specific things, which lead me to think that there can’t be much more to it. These are:

The firm, which had more than 1,800 bankers working on American business, emphasized discretion and advised wealthy clients to travel to Switzerland to avoid creating a paper trail that would undermine their accounts' secrecy, the report said.
One former customer told Senate investigators that a Credit Suisse banker handed over bank statements concealed in a copy of Sports Illustrated and ushered the client to a meeting in Switzerland in a remote-controlled elevator.
The allegations are the latest black eye for Swiss banks, which are under scrutiny by U.S. authorities, including the Internal Revenue Service and Justice Department, for aiding offshore tax evasion.

So let’s look at these statements then.

1. Clients were advised to travel to Switzerland to avoid creating a paper trail that would undermine their accounts’ secrecy. Now do they really need to inform their clients of this? I have been involved with Swiss private banking for 30 years, and I can’t tell you how many times it is the client that are saying to us that this is specifically what they want to do. It is just common sense. But then again, I suppose the Senate can’t understand why anybody might want to keep things from the government, or that somebody might not outright trust any government with their lives.

2. One former customer said a Swiss banker handed over the bank statements in a copy of Sports Illustrated. Well, do they want them to hand them over in a copy of Playboy? No but seriously, again these sorts of things are often upon the request of the client. The most common thing is just to have any documents in a white unmarked envelope though.

3. Remote controlled elevator?! I love this one! Some newspaper reports have used this specific issue saying the Swiss banks work like something out of a James Bond movie. Have they never seen a modern elevator that has no buttons, but uses swipe cards? Even our offices in Miami (yes, in the US!) have an elevator like this. What does that have to do with tax evasion and dirty tactics?

That’s it! Those are the only specific quotes I have been able to find relating to this report from the Senate.

Now I have no doubt that Credit Suisse, like UBS before them, have been aggressively going after US clients in the US, and this is not legal. They should be penalized for this. However, Carl Levin, or any other Senator, simply can’t expect to impose US law in a foreign country, but that is what they are asking.

Oh yeah, Levin apparently made a comment that the Government should withdraw the banking licenses to all the Swiss banks in the US. That would scare them… Well, to some extent I wish they would, and we would see how this would ultimately harm the US economy as well. Not necessarily as a result of the loss of jobs and income Swiss banks actually generate in the US as this may been seen as trivial, but probably more as most other foreign banks begin to seriously question US government policies.

A few days have gone since writing the beginning of this post, and I have been able to obtain a copy of the actual report. It is interesting to note that this report is some 180 pages long, and suffice to say that I have not yet had the time to go through in the sort of detail I would have liked to. However, what really got me riled up is the fact that every single news article that I have read on this topic has only provided feedback and quotes from the first four pages! We have a 180 page document, and the media reports on the first four pages of it. I think today’s journalism is beginning to reach new lows. It used to be that journalists would actually do some research when writing an article, now it is just a question of getting something out there as quickly as possible.

Henrik we call that DriveBy Media. They only read the first few pages to get a headline and ignore the other stuff. Face it, the US Government has for years portrayed Swiss banking as an evil deed done by crooks. They will keep doing it.

TopContender wrote:Face it, the US Government has for years portrayed Swiss banking as an evil deed done by crooks. They will keep doing it.

Whilst they keep doing it, the US G will keep portraying it...   

I am reading today some further updates about the US Tax Probe in to Swiss banks. Basically the banks are accused of actively helping clients commit tax evasion. The most recent development is a certain Josef Dorig who has gone to Washington and decided to cooperate with the authorities. He is pleading guilty to actively aiding clients.

Mr. Dorig has explained that he worked for a company that was initially created by Credit Suisse that specialized in helping clients set up off-shore companies and accounts for US customers.

Now that in itself is not an illegal activity. Off-shore accounts are perfectly legal, and trusts and foundations are perfectly legal investment vehicles that have been used for a very long time. As far as I am aware, it is each individual citizen’s responsibility to declare to the US taxes, not that of a foreign bank or investment company.

So, if prosecuting a foreign bank for providing the tools to a US citizen to commit tax evasion is acceptable, then why does not the DoJ prosecute all arms manufacturers for producing and selling the tools to citizens to commit violent crimes?

Off-shore is just as bad a word as Swiss bank account. The government is wasting billions chasing millions with this probe. Meanwhile we have an insane amount of illegals here that have never paid taxes.