Northern Country

How globalization changes capitalism, the economy and politics

The case US justice department against UBS

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250 – 52000 – 7000.

In February Swiss bank giant UBS to settle a criminal investigation agreed to disclose 250 secret accounts from US customers. A landmark decision as it turned out because now the IRS of course wants more. The US government is finally determined to crack down on tax evaders who for decades stashed away hundreds of billions of dollars in secret foreign accounts.

UBS had originally agreed to disclose this small number of 250 on potential evidence of fraud associated with the accounts. The IRS now wants 52000 more tax evaders hiding in the vaults of the Swiss bank to pay their dues or else face the justice department.

The Swiss bank is now caught in this vice between the mighty US Department of Justice and the laws of its own country. Swiss law in an attempt to provide confidentiality forbids the bank to hand over the list of accountholders to the IRS. Government has already threatened to confiscate any Swiss document UBS would be required to hand over to US authorities. No matter what UBS seems on track to break the law. It therefore requested help from its own government to engage in direct discourse with Washington.

Judge Alan Gold, who presides over the civil law suit against UBS in the federal district court in Miami, has set  July 13 hearing on whether to enforce the “John Doe summonses”. Washington has asked the judge to postpone his decision. It looks as if Washington is up for a diplomatic solution in this case, a kind of government bailout of a legal predicament UBS and the US Department of Justice got themselves into.

But no matter what UBS seems to be on the losing end of this conflict, because as all parties involved will try their best to save face the third way will require money, lots of it. UBS will be squeezed like a lemon. In February the bank had already settled its dues by disclosing 250 secret accounts and paying $780 million to the US government. This time we are talking about 52000 accounts that would amount to 150 billion US dollar. Others expect UBS to pay a fine tantamount to a certain percentage of total taxes still owned to the US government. I think that is more realistic, but whatever it is it will hurt the bottom line of an already beleaguered balance sheet.

Swiss law allows for disclosure of otherwise secret accountholders if there is evidence of fraud associated with them. The actual number of accounts at UBS drawing increased scrutiny will be more likely closer to 7000.  These ominous 7000 are tied to offshore companies and trusts and are therefore more susceptible to fraud. Another 17000 more lucky accounts are less prone to have violated the law and are therefore save.

Judge Gold in a sign of precariousness about the situation asked Washington if they would be ready to seize UBS assets in case of an adverse verdict. It is obvious there is no legal precedence for this kind of procedure and diplomatic intervention is called for to settle this dispute between the US and Switzerland. According to Scott Michel, a lawyer who represents about 200 UBS clients in this case, a direct engagement of the White House will probably prevent the disclosure of names from account holders all together.

Once again the balance of justice is on a very very fine scale, this time by creating two classes of tax evaders. Those who violate the law and those who only bend it, the former being punished the latter going free. High finance much like high politics seem to be stuck forever in a thicket of dishonesty which begets only more dishonesty.

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Written by Alfred

13. July 2009 at 5:01 pm

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