Swiss Parliament Rejects UBS Tax Data Deal with IRS

The Swiss and United States have been negotiating a deal on exposing American tax evaders. The deal has come to a halt as the Swiss Parliament has rejected a UBS data sharing deal.

The Swiss have long been known for their neutrality. Part and parcel to this, the strict privacy they observe has given rise to a lucrative offshore banking industry. Most countries assume their wealthy citizens are putting money into Swiss accounts without reporting and paying the appropriate taxes on them. Alas, most of them are right!

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The Swiss banking secrecy situation took a betting a few years back when a UBS employee, Bradley Birkenfeld disclosed a list of American taxpayers who were evading taxes. The IRS went nuclear as you might imagine. UBS took a pounding when it was revealed that the bank was actively helping taxpayers..well, not be tax payers. How many had it helped? The number is alleged to be as high as 52,000 Americans.

The amount of pressure that was applied to Switzerland was massive and unrelenting. In response, the country finally appeared to cave on the issue. It agreed to share certain banking information with the United States. The exact details of the agreement had to be worked out and it took some time. That finally occurred and things were ready to go. Actually, they were not.

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The news out of Switzerland is simple – the Parliament voted to reject the deal. This is actually a correct vote under Swiss law. Tax evasion is not a crime in Switzerland. Since there is no crime being committed under federal law, it would be a crime for officials to breach the privacy rights of bank account holders in the country. It is an interesting legal situation to say the least.

Thing get even better politically. The Swiss are a huge supporter of the United States in political situations. UBS is the biggest bank in Switzerland. If the deal breaks down, the federal government will sue the UBS in the United States. When the UBS refuses to reveal information on its clients, it will be found liable. It will refuse to comply and the only solution will be for the Federal Reserve Bank to yank its license to conduct business in the United States. That will be a huge blow and the Swiss will react viciously to such a move. In short, the United States either loses out on tax cheats or one of its best diplomatic partners in the world.

How’s that for a bad choice?