I’ve written before about the jurisdictional competition for trust funds, both within the U.S. among various states and internationally [click here]. Internationally, Switzerland has long relied on its reputation for banking secrecy (dating back to the Middle Ages) as a competitive advantage in this market [click here].
However, in a post 9/11 world financial transparency has become a national security issue [click here]. Which means jurisdictions like Switzerland, that sell their services in part on the assumption that government authorities in home-country jurisdictions will NOT be able to crack their veil of secrecy, are facing enormous pressure to open up. The latest battle on this front was reported on today by the WSJ Law Blog in a post entitled: A Falling Shelter? DOJ Playing Hardball with UBS, Swiss Regulators. Here’s an excerpt from the WSJ Law Blog post with links to underlying source materials:
. . . In an unprecedented move against a foreign bank, the DOJ is seeking to force UBS AG to turn over the names of wealthy U.S. clients who allegedly used the giant Swiss bank to avoid taxes [click here]. Here are stories from the WSJ’s Evan Perez and the NYT’s Lynnley Browning. [Click here, here, here for a copy of the government’s ex parte petition, a supporting memo of law, and exhibits, all seeking disclosure UBS bank records in Switzerland.]
In seeking a federal court order Monday, the Justice Department ratchets up the pressure in its high-profile case, which has spawned federal criminal and civil probes into the alleged tax evasion. The matter places UBS in a bind between U.S. tax authorities and a Swiss law that prevents banks from disclosing confidential information without client approval.
. . . . .
The Justice and Internal Revenue Service investigation has been aided by information from a former UBS banker, Bradley Birkenfeld, who pleaded guilty June 19 to helping his U.S. clients evade taxes. Birkenfeld told U.S. prosecutors that UBS holds an estimated $20 billion in assets for U.S. clients in undeclared accounts. These accounts generated $200 million a year in revenues for the bank, prosecutors said.
Switzerland’s loss is Florida’s gain:
Florida trust companies cannot compete with off-shore jurisdictions willing to protect banking clients from legitimate investigations by home-country authorities. To the extent jurisdictions such as Switzerland are compelled to open up their banking records to legitimate investigations by government authorities – or face pariah status in world financial markets if they don’t – that can only be a good thing for Florida trust companies.