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The US – Swiss tax dispute, and why the US is sure the UK’s got this wrong

Switzerland, Tax evasion, Tax Havens, USA 8 Responses »

Sep 052011

The following is reposted from the Tax Justice Network blog, with permission:

The United States has written to Switzerland to demand it hands over detailed information this week on its citizens using Swiss accounts to dodge tax or see Credit Suisse and nine other banks face charges, newspapers reported on Sunday.

and

Banks may be required to pay up to 2 billion Swiss francs ($2.5 billion) in fines, SonntagsZeitung reported, citing a separate, unidentified person with knowledge of the situation. The U.S. may also seek client details from Swiss wealth managers in addition to the 10 banks, according to the newspaper.

The Financial Times adds:

Switzerland and the US are gearing up for another bruising confrontation over bank secrecy . . . The letter would represent a significant increasing of the pressure on Switzerland to again bend its once watertight bank secrecy rules and deliver further client names to the US.

Here is a description of details added by Switzerland’sSonntagszeitung newspaper, which is one of the two to have broken the story, courtesy of TJN correspondent Steven Eichenberger:

“The Swiss German weekly newspaper, the SonntagsZeitung, has published an article yesterday revealing a correspondence between Michael Ambühl, Swiss state secretary, and James Cole, US Deputy Attorney General.

Ambühl has apparently approached Cole with the idea of introducing a “new” instrument to the 2009 DTA [Double Tax Agreement] between the US and Switzerland, an agreement which has not yet been ratified. This “new” instrument foresees enabling the US authorities to submit group requests without receiving individual names in return. This sounds a lot like the withholding tax solution, except that it is sliced up into several requests. Ambühl must have been guided by the recent success encountered in negotiations with Germany and the UK.

Cole answered that this solution could be tested, but only under the following conditions (listed by the SonntagsZeitung)

He wants comprehensive statistical information about US citizens and their assets in ten Swiss banks (amongst which of course Crédit Suisse, and furthermore the Bank Wegelin (Konrad Hummler), Julius Bär and the Zürcher and Basler Kantonalbank).

The Swiss authorities have to reveal a quantity structure of US assets in Swiss banks

Simultaneously, Cole wants to make use of judicial orders (Grand Jury Subpoena, John Doe Summons) in order to enforce disclosure of customer information with regards to the ten banks

Individual deals will be sought with the ten banks

An agreement for all remaining (not the ten) shall be reached, disclosing “certain account information”

According to the SonntagsZeitung, there is a sense of alarm amongst the Swiss banking community. When reading the article one gets the impression that this is because they will be forced to reveal some information and will have to pay fines as was the case with the UBS. Could this, however, be a concerted plan, by the Swiss government and financial institutions, to sell some names and pay some fines in order to enshrine a DTA very much in favour of Swiss Banks?

We think that the United States, unlike the UK and Germany, is unlikely to be railroaded by too-clever-by-half Swiss proposals. The U.S. has taken the aggressive (and correct) approach: obtaining initial data, then making tax evaders and their pinstripe intermediaries feel the heat, do deals with a few of them in exchange for more data, then spread the investigation further. There’s no telling where this might stop.

Another TJN correspondent, this time based in the U.S., said this:

“The Swiss banking community should prepare for the worst, at least with respect to US clients, either direct or indirect. There is surprisingly widespread consensus here that the UK treaty approach is completely unacceptable.”

Why have Germany and the UK been so feeble, and damaged so much progress?

A look at the world’s new corporate tax havens

Conservatives, Corporation Tax, Ethics, Tax Havens, USA 4 Responses »

Aug 152011

CBS broadcast a programme with the above title this weekend.

As they point out the US loses $60bn a year to tax havens from its big corporate sector alone.

And it’s all just a game – using places like Zug, in Switzerland.

Except the game has consequences; real consequences for real lives blighted by cuts in the USA.

And the same is true here in the UK where I estimate the total loss to tax havens to be up to £18 billion a year.

Corporations say they have to do this. That’s not true. No one under any law obliges anyone to play such abusive games – except to trigger the bonus schemes of company directors – which are a prime cause for this activity.

The US can’t afford this abuse.

We can’t afford this abuse.

But are we hearing from David Cameron and US politicians that this abuse is high on their priority list? No, we’re not.

Because our politicians are frightened of these corporations. And they’re not frightened of imposing cuts.

It’s a sad sign of their moral malaise that this is the case.

The rot in the UK starts at the top.

It looks the same in the US too.

And until the rot at the top is cut out nothing will get better.

Jon Stewart Reacts to Isle of Man Having a Better Credit Rating Than USA

Isle of Man, USA 2 Responses »

Aug 102011

And although not embeddable (don’t know why) look at this too.

And then realise how ludicrous credit ratings are.

US draws attention to a key issue in global recession – the role of tax havens

Economics, Secrecy jurisdictions, Switzerland, Tax evasion, Tax Havens, Uncategorized, USA 2 Responses »

Aug 082011

As the FT notes this morning:

At least six more Swiss and one Liechtenstein private bank have attracted the attention of US prosecutors investigating whether Swiss bankers helped rich Americans evade tax.

The revelations, contained in the latest court documents, show how inquiries by the US authorities that started with UBS in 2007 have mushroomed to include a swathe of the country’s financial sector.

The banks involved included Swiss private banks, one Liechtenstein company, and possibly two Swiss cantonal banks.

As markets slip steadily down and as social tension rises we shouldn’t forget the central role of tax havens in feral capitalism.

Feral capitalism is the unfettered, wild form of capitalism that we have suffered for thirty years: a form where people are constrained but money is allowed to roam free whence it will with consequences now all too clear.

Tax havens were fundamental to this form of capitalism – they let the money flow unhindered and unaccountable; they were in effect the aircraft carriers from which assaults on major democratic states and their policies could be launched.

The US is right to attack them.

My point is though that this is not an issue relating to a few banks: this issue is systemic. The entire tax haven structure needs to be dismantled if we are to restore order to the global economy. The opportunity for money to float free of regulation, waiting to attack the well being of whole nations at will has to be dismantled, once and for all.

USA to tackle secret ownership of US companies?

Corruption, USA 2 Responses »

Aug 022011

My Task Force on Financial Integrity and Economic Development colleagues at Global Financial Integrity have sent me this press release, which I consider a matter of some considerable importance ein tackling the tax haven status of the USA, if it were to be passed:

WASHINGTON, DC – Senators Carl Levin (D-MI) and Chuck Grassley (R-IA) introduced bi-partisan legislation today, which would require companies to disclose the names of the beneficial owners of corporations and limited liability companies (LLCs) when formed. Anti-money laundering proponents, law enforcement groups, and financial transparency organizations consider the legislation a crucial step toward strengthening law enforcement and keeping criminal and tax evading money out of the U.S.

“Criminals, kleptocrats, and tax evaders from around the world are taking advantage of this loophole in U.S. law to hide and launder illicit money here,” said Global Financial Integrity’s Legal Counsel & Director of Government Affairs, Heather Lowe. “This financial opacity puts law enforcement at a major disadvantage. Too often cases are dropped, or investigations are closed, due to a lack of evidence connecting the illicit funds held in accounts owned by anonymous corporations to the criminal owners of those companies.”

A Reuters investigative series into the impact of corporate secrecy in the U.S. found that a single address in Cheyenne, Wyoming was home to 2,000 registered companies. The report looks at how U.S. incorporation services sell low taxes, minimal fees, and ownership anonymity in Wyoming, Delaware, and Nevada. A second report in the series, released this week, looks at how Chinese companies have utilized these incorporation services to gain access to U.S. capital markets with very little regulatory oversight.

“The U.S. financial system is a playground for corrupt, criminal, tax evading individuals from other countries,” said Ms. Lowe. “It is far too easy to gain access to financial services in the U.S. through anonymous U.S. corporations, while it is far too difficult for law enforcement groups to figure out who is really behind those corporations.”

The bill is supported by law enforcement groups and both the U.S. Department of Justice and the U.S. Treasury Department have agreed to provide a total of $30 million from their forfeiture fund accounts to help offset any costs that may be incurred in implementing this legislation.

Key bill provisions include:

Beneficial Ownership Information. Require States directly or through licensed formation agents to obtain the names of beneficial owners of corporations or limited liability companies (LLCs) formed under a State’s laws, ensure this information is updated, and provide the information to law enforcement upon receipt of a subpoena or summons.
Identification Information. Obtain beneficial owners’ names, addresses, and a U.S. drivers license or passport number; or if the owners do not have either a U.S. drivers license nor passport, information from their non-U.S. passports.
Shelf Corporations. Require formation agents that sell “shelf corporations” – corporations formed for later sale to a third party – to provide beneficial ownership information for those corporations.
Penalties for False Information. Establish penalties for persons who knowingly provide false beneficial ownership information or willfully fail to provide required beneficial ownership information.
Anti-Money Laundering Safeguards. Require paid formation agents to establish anti-money laundering programs to ensure they are not forming U.S. corporations or LLCs that facilitate misconduct. Attorneys using paid formation agents would be exempt from this requirement.
GAO Study. Require GAO to complete a study of State beneficial ownership information requirements for partnerships, charities, and trusts.

The full text of the legislation can be found here.

The USA: default deferred

Conservatives, Economics, Uncategorized, USA 7 Responses »

Aug 012011

So the USA has a deal on debt. In exchange for increasing the federal borrowing limit cuts of maybe $2 trillion in spending have been agreed, and it seems likely that the vast majority of these cuts will be borne by those least able to suffer the burden amongst the American poor.

This is as a result a day when all who campaign against injustice should rightly be angry.

And let’s remember this deal is not a solution to a real problem: this deal is a solution to a crisis deliberately created by far right politicians in the USA who were determined to increase the wealth of the wealthiest Americans at cost to the vast majority of the rest of the population of that country. It looks very likely that they have achieved their goal. It’s hard to celebrate a victory that will bring increased unemployment, an economic downturn, mass hardship and even a return to destitution for many Americans when that outcome has been deliberately planned and imposed by the country’s own politicians.

But there’s something even worse than that at the core of this deal which would be all too easy to ignore. The fact is that this deal is not going to solve the US debt crisis. By putting millions out of work, as I’m sure it will, US tax revenues will decline. Its fiscal position will deteriorate. And the Tea Party’s contempt for US debt repayment has now undermined the prospect of the US maintaining its debt position into the future. All things considered the US is now viewed in a very different way from three months ago, and its prospects are much the worse as a result of this deal.

All that though is exacerbated by another consequence of this deal: US states and municipalities were already near the tipping point with regard to bankruptcy before this deal. Forty states could face insolvency already, and with the increase in social deprivation this deal will cause increasing demand on their budgets the likelihood of there being major municipal or state default in the USA is now very high indeed. With over $3 trillion of municipal debt in the US economy, much of it owned, paradoxically, by those who support the Tea Party, the artificial crisis on federal debt may transfer into a real meltdown for municipal and state level debt in the near future. And that will have enormous impact: this debt underpins the pensions of what is called ‘Mom and Pop’ America.

The fact is that as a result of this deal the Tea Party are getting close to delivering what they want, which is a failure of US democracy and the collapse of government in that country. Of course, they think that such an outcome would be benign; that the end of effective government would enhance well-being, but there is no evidence from anywhere in the world this has ever been true. There is, however, ample that the opposite is the case.

There are, therefore, lessons in what we are seeing, and good reason why progressive thinkers and activists in the UK should take serious note. First, this crisis could have been averted if the impasse on the debt had been referred to the US people in an election. But, the US system of fixed term elections prevented that. Democracy could not, therefore, prevail, and nor could the common sense of the people, who are, I’m sure, over all revolted by the process that has been ongoing in Washington. The best possible outcome of that situation, that Obama would have walked away, gone to the people, called an election and sought of mandate for his policy, was not available. This electoral deficit is, however, precisely the scenario that the coalition government is trying to introduce to the UK by introducing fixed term parliaments. It is vital on occasion that an election can be called to ensure that sound policies can be put in place. The Conservatives want to prevent that in the UK so that they can exploit the same type of situation as the Tea Party did in the USA.

Secondly, this whole arrangement, whether with regard to the federal debt limit or with regard to state budgets which are required by law to be balanced shows the absurdity of imposing a legal structure on economic management in a time of crisis. Economic management requires the government have flexibility to deal with the situations that it faces and yet dogma wants to constrain that option. Any attempt to impose a balanced budget requirement in the UK would be catastrophic for our well-being.

Third, as is all too clear, we need courageous governments to stand up against the evil politics, based on contempt for the poor, that the right wing are promoting in both the USA and the UK. Belief in the duty of the state to ensure the well-being of everyone who lives in a country has to be restored if we are to hold our heads up high again. That is why I am working on a book on this issue at the moment.

Finally, and most importantly, the lesson of Keynes has to be noted: during good times you should not borrow. But that is exactly what George W Bush did. He took a good situation that he inherited from Bill Clinton, decided to fight two wars, refused to pay for them, gave tax breaks to wealthy America at the same time and in the process completely trashed on US economy, at cost to the ordinary people of that country, and ultimately to the world at large. Keynes was right: borrowing to stimulator demand during a time of deficit is essential, but repaying debt during a time of strong market activity is also vital. To argue, as some are, that the current crisis is a result of the failure of the Keynesian policies put in place to save the USA from a worse recession is completely false: this crisis is the result of George W Bush failing to heed Keynes during the good times, and in fairness, due to Bill Clinton letting the banks abuse their situation when he repealed the Glass Steagall Act.

There is much to learn from this current crisis, and much to fear, including the prospect of the Democrats losing the White House. But what we can do is make sure that the right wing of the Conservative party in the UK, that adores what the Tea Party is doing in the USA, does not wreak the same havoc upon our economy as the Tea Party are going to unleash in the USA

American democracy, dying after the Party

Politics, Uncategorized, USA 2 Responses »

Jul 312011

The USA is about to commit one of the biggest, if not the biggest, frauds in history. It is giving notice of its intention to default ion its creditors, not because it can’t pay, but because it won’t pay.

Or rather, a group of far-right wing, Christian fundamentalist politicians, rightly called ‘dangerous charlatans‘ by the Guardian this morning are seeking to force it to default on its debt even though it could pay.

Worse though, even if they agree to pay the debts, they’ll do so at a price that will devastate their country. Whilst they will grant the richest in their community lower taxes they will deny to the poorest many of the services, and indeed the incomes, on which they are utterly dependent.

These people, for the so-called ‘Tea Party’, claiming to be driven by God, are going to willingly unleash economic mayhem on their country and gross poverty on many people already desperately poor whilst they will, without doubt, drive millions out of work, hundreds of thousands of businesses into ruin and the world economy into deep recession, all they claim because of their love of the markets they seem so intent on destroying.

There is no rational reason for this act of wanton vandalism: it is motivated by dogma and nothing else. But that is a dogma of greed, that says ‘what is mine is mine’. And it’s a dogma of wealth – that says a few shall inherit the earth. It’s also a dogma of hate – that treats those without great wealth as contemptible. It’s based on a dogma that applauds ignorance – the ignorance that says that the way to reduce debt is to cut the very income income that is your only source of repayment of that debt. Of curse, it’s also a dogma of complete irresponsibility - because millions, if not billions of people will suffer and many will die as a result of the wanton acts of this group.

And in the process they will seek to destroy democracy itself, and the so-called American dream. Nye Bevan wrote in his classic book ‘In Place of Fear’:

The issue therefore in a capitalist democracy resolves itself into this: either poverty will use democracy to win the struggle against property, or property, in fear of poverty, will destroy democracy. Of course, the issue never appears in such simple terms. Different flags will be waived in the battle in different countries and at different times. And it may not be catastrophic unemployment. There may be a slow attrition as there was in Britain before the war, but poverty, great wealth and democracy are ultimately incompatible elements in any society.

He was right. Yet what we have in the USA is a group promoting massive increases in wealth for those already wealthy, massive unemployment for those already poor, an indifference to the rule of law by refusing to accept obligation for debts already incurred and the outcome will, undoubtedly, be a threat to democracy itself.

That’s what makes it so worrying that Barack Obama is not standing up to this mob (for a mob they are).

And if he fails to do so, then we all need worry. For not only is recession highly likely, it’s democracy that’s also under threat, and not just in the USA, but in all places where this logic prevails – as it undoubtedly does now in the right wing of the UK’s Conservative Party.

These are dangerous times.

I despair

USA 12 Responses »

Jul 232011

I despair that people hate their fellow people so much.

I despiar that people are so consumed by greed.

I despair that people are so willing to renege on their promises.

I despair that people suffer so little empathy.

I despair that people cling so strongly to the need for military might.

I despair of the America’s Republicans.

God save America.

It certainly looks like they’re not trying to.

Will the Archduke survive?

Banking, Economics, Europe, Uncategorized, USA 1 Response »

Jul 212011

To continue yesterday’s metaphor…it looks like the Archduke may survive after all. Merkel and Sarkozy supposedly have the umpteenth deal to save the Euro without making fundamental change and Obama is going to agree to slash spending and not increase taxes after all (the ultimate failure of the Courageous State).

We may get through the next week without financial meltdown.

The fact tat banks are insolvent despite that will however mean that this problem will recur, soon. Liquidity may remain intact for now, and that’s advantageous. But the crisis of solvency remains. Only radical action will solve that.