The US and UBS, a game of cat and mouse

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Forbes is on the UBS story this morning, quoting me:

Switzerland also has some cards to play in multilateral discussions, particularly when it comes to foreign affairs. The country's diplomats, for instance, have been representing U.S. interests in Iran since 1980. They have most recently been playing an important role in trying to find out what happened to three Americans who were reportedly captured in Iran after wandering in from Iraq's northern Kurdish region.

There's also trade: The U.S. is the main destination for Swiss direct investment, and Swiss exports to the United States totaled close to $19 billion in 2008, according to "It's not just a tax issue. There are greater complexities in the international relationship other than tax," said Richard Murphy, a director of the consultancy Tax Research.

Yet, in spite of the pressure to get information from Switzerland, it is probable that the IRS is not pushing the Swiss or UBS to hurry. Murphy points out that around 400 Americans who have bank accounts with UBS have already come forward to the IRS with their account details in one week.

The penalty of doing so is smaller than if the IRS pinpoints tax evasion via a full audit, suggesting many of UBS' private banking clients are facing a prisoner's dilemma. "The more who can be persuaded to confess, the better," said Murphy. "It's cheaper than a full IRS audit, even without the penalties. This is a game of psychology to get the information."

This is another iteration of the point I’ve made time and again on Tax Information Exchange Agreements: without a smoking gun or a requirement for the likely ‘supplying’ partner to act (as there is in the new UK / Liechtenstein deal) then TIEAs don’t work. here there is going to be a smoking gun — and played properly that massively increases compliance, which is what we want.

Automatic information exchange can also produce this. And I’m going to keep promoting my version.

Without those smoking guns — however secured - we have a lot of pieces of paper that will produce little benefit. That’s the problem.