21 Aug The Dangerous Precedent of the UBS/IRS Atrocity
The more I think about this story regarding UBS’s settlement with the IRS, the more dumbfounded I am. (In full disclosure, I left UBS over two years ago after seven years at the firm as a First Vice President in the private client investment group; I have no loyalties or biases there whatsoever). This is not a story about financial services companies, and it is not a story about the ultra-wealthy getting caught cheating on their taxes. It is a story about a petrifying precedent being set that is going to change life for a lot of regular people.
UBS and the Swiss government have succumbed to the unbelievable pressure of the IRS and Justice Department to turn over the names of 4,500 UBS clients who are believed to have used Swiss accounts as a tax haven. Having international bank accounts is not against the law. Violating financial secrecy in Swiss financial accounts is against the law. There is no way around this simple fact: Without the due process of law, and without the customary courtesy of this thing in the 4th amendment called “probable cause”, American governmental authorities are forcing a sovereign nation and a foreign company to illegally turn over confidential information that will be used to build a case against private American citizens. Did some of these 4,500 people cheat on their taxes? Perhaps. I don’t know, and I really don’t care. Tax havens in and of themselves are not only perfectly legal, but they are very, very beneficial. Tax havens are an incredible means of maintaining competition among sovereign nations. Cheating on one’s taxes is illegal, and the IRS has a duty to build their own case, assembling their own evidence, based on the due process of law, when prosecuting tax offenders. This case is permeated from top-to-bottom with governmental abuses of power, and an oppressive sort of behavior wherein the ends are assumed to justify the means. The embedded arrogance is sickening to behold.
The Swiss government should be ashamed of themselves for giving in to the American government’s demands. They owe it to their nation’s banking customers to protect what they covenanted with their customers to protect – in this case, identity and privacy. UBS did not have much of a choice here, as the strong-arm tactics, threats of fines and regulatory actions, and other such bullying left them in a no-win situation for their stakeholders. The American authorities ought to be utterly ashamed of themselves, and perhaps should reflect on Al Pacino’s moving speech at the end of Scent of a Woman before the school assembly. If you can not get your job done without forcing other free citizens to turn into rats, then too damn bad.
And people like you and me? How should we react to this news? We should be mortified. Because a government willing to exert these tactics against the hyper-wealthy, will use them against anyone. A government who holds the rule of law in such low regard, will eventually express that contempt for law and order in a way that affects people who are on our “approved list”. You may consider these 4,500 people “tax cheats”, but last I checked that principle of “innocent until proven guilty” had not yet been repealed.