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What’s the significance of the UBS disclosure?

August 19, 2009

Today it looks like Swiss bank UBS is going to turn over the names of 4,450 U.S. citizens who were suspected by the U.S. government of using UBS accounts to hide money and avoid paying taxes. In doing so, UBS is breaking the Swiss banking secrecy laws that are a key piece of making Switzerland one of the biggest tax havens in the world.

Will this undermine the appeal of Switzerland as a tax haven in the future? This isn’t a rhetorical question – I have no idea. Certainly it doesn’t represent a wholesale reversal of Swiss banking secrecy laws; this is a very specific situation in which an agreement was negotiated between the United States and Switzerland because, as the BBC puts it, “UBS had been caught between two legal regimes, essentially violating US tax laws if it had not disclosed the names and violating Swiss secrecy laws if it did.” Furthermore, even if Switzerland were to lose its “credibility” as a tax haven, I’m not sure how much it would matter, since there are plenty of other countries like Panama, not to mention states like Delaware, that are still providing cover for wealthy individuals, corporations and criminals to hide from taxes and conduct under-the-table transactions.

Why does this matter? I’ve always thought the front page of the Tax Justice Network offers an excellent summary of why tax havens are harmful. A brief excerpt on tax havens:

Tax havens and offshore financial centres have created an interface between the illicit and licit economies, corrupting national tax regimes and onshore regulation. The result is a shift of the tax burden away from capital and onto labour, and a dramatic rise in income and wealth inequality, as well as the corruption of democracies around the world as élites escape their responsibilities with impunity.

And on transparency:

Markets work better, and companies are more accountable, in an environment of transparency. Secrecy hinders criminal investigation and fosters criminality and corruption such as insider trading, market rigging, tax evasion, fraud, embezzlement, bribery, the illicit funding of political parties – and much more.

Flying Whale

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