It is clear that inviolability of foreign accounts as a means to dodge the local tax authorities is coming under an increasing threat. According to a news item appearing in the Business Recorder on 5th September, 2011, the United States has given an ultimatum to Switzerland saying Credit Suisse and nine other banks could face charges unless detailed information on US tax evaders using Swiss accounts was handed over this week.
A letter sent by US Deputy Attorney General James Cole on August 31 is reported to have asked Switzerland to quickly deliver a significant number of client accounts, adding that the US authorities are also prepared to examine a Swiss offer to settle the dispute. Switzerland, it may be mentioned, had made a proposal last month to try to kick-start talks to settle the impasse with the US authorities, offering to hand over data on a group of clients under a pending new bilateral tax treaty despite strict bank secrecy laws.
Although, Swiss bankers have also called for a solution to the ongoing dispute with the US, they have rejected the ultimatum, arguing that friendly states must have a will to negotiate. I am sure that the United States understands that we are not a banana republic and that we want to defend our legal order just as America also wants to do and that is why I am hopeful that a solution is possible, Swiss Bankers Association head Patrick Odier told a news conference.
It is, however, no secret that Switzerland along with several offshore locations have long been considered a safe haven for tax dodgers and other unscrupulous elements in various countries to park their undeclared wealth. Switzerland, in particular, has earned an uncanny reputation in this business and is reported to have built up a $2 trillion offshore financial industry due to its enduring tradition of bank secrecy. Of late, however, most of the governments seem to have lost patience and demanded details of their citizens accounts maintained in foreign countries in order to plug this loophole.
Only last year, Switzerland had to allow UBS to bend strict secrecy laws and reveal the details of around 4,450 clients to the US authorities to avoid criminal charges. Now the US is quoted to have asked Switzerland to reveal the particulars of all US clients worth at least $50,000 between 2002 and 2010 banking in that country.
This could imply tens of thousands of accounts. If Switzerland does not comply with its demand, the US could issue a subpoena against the banks to force them to hand over data, as it did in the case of UBS. The problem from the Swiss side, however, is that though it is keen to find a solution, its parliament would block any new breach of bank secrecy as it had only reluctantly agreed last year to the UBS treaty under emergency law.
The continuing tussle between the US and Switzerland highlights the complexities of an international financial order structured on the belief that it will not be allowed to be abused for dubious purposes. However, with the passage of time, selfish tendencies to hide wealth from governments and the greed of the bankers in certain parts of the world have caused the system to degenerate and opened the door for its exploitation. As the present set-up leads to massive tax evasion and could also be used to promote criminal activities, the tolerance level for maintaining the status quo has been reduced to a very low level. In the instant case, the Swiss authorities may be able to find a compromise formula to appease the Americans and save their banks from heavy penalties for the time being, but, in our view, the issue needs to be taken in hand at a much broader level and by an independent agency like the IMF or the World Bank.
Pakistan needs to show a special interest in the crackdown on tax havens due to the widely held belief that richer and influential circles of its society have stashed away huge assets abroad, which otherwise, could have been used for the country s development. We feel that international condemnation and pressure would help reverse the flow of these assets somewhat but more important in this context would be the creation of necessary conditions that would help induce foreign assets holders to bring their money back and use it productively within the country.
Courtesy: Business Recorder
Forex open Market rates & comments Archive