The U.B.S. Case: The U.S. Attack on Swiss Banking Sovereignty
Brigham Young University International Law & Management Review, Vol. 7, Spring 2011
29 Pages Posted: 20 Feb 2010 Last revised: 25 Jul 2011
Date Written: July 15, 2011
On August 1, 2006, the U.S. Senate’s Permanent Subcommittee on Investigations (PSI), a branch of the Committee on Homeland Security and Governmental Affairs, released a report in conjunction with a Senate hearing that revealed alarming statistics regarding wealthy Americans’ love affair with offshore banking. The PSI report culminated in the subcommittee’s investigation into tax haven abuses, providing the most detailed look at high-level tax schemes to date. The report revealed that an alarming number of rich Americans are using offshore accounts to evade taxes, and suggested that law enforcement would be unable to control the growing misconduct. Senator Carl Levin, the PSI Chairman, stated, “The universe of offshore tax cheating has become so large that no one, not even the United States government, could go after it all.” This investigation marked the first salvo of the federal government’s new attack on offshore tax evasion. The principal focus of this attack appears to be unreported offshore bank accounts. Due to its stringent banking laws and its stronghold on foreign money, Switzerland has historically been considered a bastion for banking secrecy, and a favorite place for U.S. residents to hold such accounts. While there is an existing tax information exchange agreement (TIEA) between the United States and Switzerland - last significantly revised in 2003 - a judicial battle has evolved over the United States’ new efforts to focus its attack on Swiss accounts and obtaining account-holder information from UBS.
The policy goals of the United States are clearly legitimate, but the means of obtaining the information are overreaching given how vigorously the United States guards its own legal exceptionalism. The Swiss are understandably concerned that the United States is not respecting Swiss domestic law. After all, the United States has personal jurisdiction over its own citizens; therefore, there should be better ways of obtaining this information while simultaneously respecting the domestic laws of another sovereign country, especially a friendly country such as Switzerland. This paper will dissect the intricacies and arguments surrounding the U.S. attack on offshore banking; discuss the U.S.-Swiss TIEA; and take a detailed look into the development, policy implications, and consequences of U.S. v. UBS AG.
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