Continuing pressure on UBS (UBS) from the U.S., Italy, France, Germany and the Netherlands to reveal information about its tax-evading account holders has taken a toll on the Swiss bank's holdings. With fear rising that the bank's promise of secrecy may not stand much longer, UBS's wealthy private banking clients pulled 33.2 billion francs ($31.13 billion) out of the institution in the fourth quarter of 2009. That's up from an outflow of 16.8 billion francs ($15.75 billion) in the third quarter.Even though a Swiss court blocked the treaty that would have required UBS to turn over the names of 4,450 of its account holders to the IRS, much of the damage had already been done. In order to avoid the risk of being charged with criminal tax evasion, more than 14,700 U.S. taxpayers came forward voluntarily during a tax amnesty that ended in October 2009. The data those amnesty-seekers provided to the IRS has been invaluable.
As IRS Commissioner Doug Shulman said in a recent speech "Mining for information from the more than 14,700 disclosures that came in during our recent voluntary disclosure program is a way to identify financial institutions, advisors, and others who promoted or otherwise facilitated U.S. persons hiding assets and income offshore and attempted to shirk their tax responsibilities at home."
It is worth noting that the IRS has said it will drop its suit against UBS if, among other conditions, it acquires data on at least 10,000 UBS clients who allegedly used offshore accounts to evade taxes. While UBS doesn't believe the IRS has data on 10,000 UBS clients yet, thousands did disclose their information voluntarily during the amnesty. The IRS so far has not said how many of the U.S. taxpayers who came forward were UBS clients.
Europeans Say Stolen Bank Data Is Fair Game
Italy, too, has aggressively sought voluntary compliance through a tax amnesty plan that started in October 2009. Under this plan Italians had until Dec. 15, 2009, to repatriate funds from tax havens in Switzerland, Monte Carlo and San Marino. Provided they repatriated funds by then, they would pay a fine of 5% and wouldn't have to declare how they earned the money.
Italy reports that 95 billion euros ($130.7 billion) worth of assets were declared by Dec. 15. The Central Bank of San Marino reported outflows of 3.25 billion euros ($4.47 billion) by December. News estimates are that between 30 billion euros ($41 billion) and 40 billion euros ($55 billion) had been repatriated from Swiss banks by December.
Since then, Italy has extended the tax amnesty and promised just a 6% fine on funds repatriated by Feb. 28, and a 7% fine on assets declared by April 30.
Other countries have take a different type of action. France used stolen client data it obtained in December 2009 to catch tax cheats. In response, Switzerland threatened to freeze a treaty it had signed to help France catch tax evaders. France agreed to return the stolen client data to Switzerland, but indicated it would continue to use the data. In January, the French government indicated that most of the 3,000 taxpayers whose names had appeared in the stolen files had contacted French authorities to legalize their holdings.
On Feb. 1, Germany told Switzerland it was ready to pay for stolen data on cross-border tax cheats. German Finance Minister Wolfgang Schaeuble has defended his decision to buy stolen Swiss bank account data from a whistle-blower, saying the public demands fair tax collection. Also last week, the Belgian and Austrian governments also expressed interest in obtaining a copy of the data Germany intends to buy.
On Feb. 2, the Netherlands released data showing that wealthy savers in 2009 declared more than 2 billion euros ($2.8 billion) hidden in overseas accounts, with one-third of that in Switzerland. The report came out after it was confirmed that the Netherlands, too, was seeking to buy copies of stolen Swiss data.
Clearly, there is worldwide movement to expose Swiss banks' secrets, as well as the banking secrets of other countries that have allowed tax evaders to hide their riches. UBS has been the public whipping boy in this effort so far, but as countries collect data from those who voluntarily come clean, more and more will become known about other banks and financial advisers helping people hide their funds and evade taxes. And as more data becomes public, other Swiss banks will surely feel the pressure as well.
Investing Like Warren Buffett
Learn from one of the world's best investors.View Course »