March 30, 2010 - Phil Hodgen

Urs Zulauf of Swiss FINMA on Swiss/US tax situation

Speech [PDF copy of speech text] given 23 March 2010 by Dr. Urs Zulauf, Deputy CEO, Head of Strategic and Central Services Division of the Swiss Financial Market Supervisory Authority (FINMA). Key thoughts:

Uncertainty is damaging the financial industry in Switzerland:

Various banks have responded to the pressure exerted by the US authorities by terminating their business relationships with thousands of US clients. Many of these clients may have had no tax issues. Swiss citizens resident in the USA are having difficulty finding or maintaining a banking relationship in Switzerland, a development which is most unfavourable. While it regrets these circumstances from the client perspective, FINMA must tolerate and even encourage the policy of these banks, which is justified by risk considerations. Our activities touch upon a sensitive area. This uncertainty of the participants in the financial centre and of the clients will further damage the Swiss financial centre if the tax position for foreign client deposits is not soon clarified.

Legal risks are higher:

FINMA believes that the fiscal legal risks associated with cross-border private client business have increased. There is a very real risk of rendering oneself liable to prosecution and being held to account. In view of the heightened risks, one should avoid advising clients on what to do with untaxed assets. This by no means applies solely to banks or insurance companies, but also to advisors, fiduciary agents and lawyers.

Google “Klein Conspiracy” for the U.S. government’s idea on stuff like this, for example.

On the expected Parliamentary debate on ratification of the UBS settlement:

In line with the Federal Council’s decision at the beginning of 2010, the agreement concluded with the US authorities on 19 August 2009 is to be presented to parliament for approval. The agreement allows for the release, under administrative assistance provisions, of data on around 4,500 more UBS clients at the request of the US Internal Revenue Service. Should no agreement be reached, there is a risk of further proceedings being instigated against not only UBS but other financial institutions as well. Ultimately, the risk of new proceedings will persist until a solution can be agreed that regulates the circumstances of all existing offshore relationships between US clients and Swiss financial institutions.

Emphasis added by me.  Dr. Zulauf’s conclusion may or may not pan out.  Let’s say that Parliament blocks retroactive ratification of the UBS settlement, as a couple of parties are threatening. If the pinstriped lads at Department of State get involved, the train could jump the track and take any number of dirt roads to an uncertain destination.  Without the diplomats, default litigation mode would be reinstated at the Department of Justice.  And default litigation mode only causes happiness to ligitators.

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