Yesterday I posted about the German government looking to acquire stolen bank data from Switzerland. A friend from Germany emailed me with some interesting additional information, and with his permission, here it is:
Phil,
According to the news yesterday Angela Merkel supports buying the stolen data offered to the German government. There’s the usual slobber in the direction of the Swiss about mutual cooperation, respect, good relations, blah, blah, blah but the bottom line is they are prepared to pay to play. (The fact that crucial German mid-term elections in a heavily working-class state are coming up in May no doubt helped Angie & Co. overcome the ethical qualms raised by their (most well off) constituents about the unseemliness of buying stolen goods.)
In the meantime, the Frankfurter Allgemeine Zeitung (FAZ) reports today that, according to information available to it, the Swiss bank from which the data was stolen was not HSBC’s Geneva branch, as the Financial Times Deutschland was speculating yesterday but rather, Credit Suisse.
Since it was the FAZ that broke the story over the weekend about the offer to sell the CD with 1,500 potential German Steuersünder (“tax sinners”), I would be prepared to bet that CS is it.
And, if it’s CS, odds are pretty good that there will be some saleable US names on that CD as well.
{ 2 comments… read them below or add one }
Phil, hello.
As you know, there is precedent for Germany’s action, i.e., Germany’s purchase in 2008 of bank information from an employee of LGT bank in Liechtenstein, which led to prosecutions against Germans for tax fraud. The German government also shared the banking data with other governments.
We already know about the challenges to offshore banking secrecy from the institutional and government level; institutional level: banks like UBS providing account information to foreign tax authorities like the IRS; governmental level: the relaxation of banking secrecy laws and increased transparency of former tax havens like Switzerland, Liechtenstein, etc.
To these, we can add a challenge on the individual level: renegade bank employees looking to sell confidential bank data for a price. But this is nothing new. In 1999, the head of Guardian Bank in Cayman provided banking data to the US government in return for leniency in his criminal prosecution. In 2008, we saw the LGT bank info sold to Germany. In 2009, an HSBC employee provided banking data to France.
However, as we know, If the bank accounts are tax compliant (whether because the account owners have declared them all along, or brought the accounts into compliance via voluntary disclosure), then the challenges to banking secrecy are less of a concern.
Best regards,
Asher
I would like to second Asher’s remarks and add one additional scenario that could lead to disclosure: the foreign bank’s inability to understand its reporting obligations under the current QI regime.
Their QI agreement with the IRS requires foreign banks to prepare standard information returns to the IRS (1099-DIV, -INT, -B, etc.) for any of its US person account holders who happen to have income from US securities held with the foreign bank. Income from foreign securities, on the other hand, should not – under the current QI rules – be reported by the foreign bank to the IRS even when the foreign bank knows its customer is a US person. (Something UBS took pains to point out to DoJ in their pleadings before they ultimately folded their hand.)
Some foreign banks of my acquaintance simply don’t understand this and generate 1099′s for all sorts of otherwise non-reportable foreign-source income. When they do the results are sometimes comically wrong.
The IRS’s computers probably are not yet capable of distinguishing between information returns filed by a US and a foreign bank and, if the latter, matching that fact with the fact of FBAR filing or non-filing. So, for the moment anyway, no harm, no foul even though the US person may have no choice but to grit his teeth and report the foreign income actually received but erroneously reported to the IRS by his bank. The new FATCAT legislation, however, might eventually make that matchup technically possible.
John
P.S.
The German purchase of the allegedly stolen data received the legal all clear today and the Austrians have already announced they would like to take a peek too. The German authorities have not confirmed the identity of the bank – obviously in the hopes that until it is clear which bank it is there will be some Nervous Nellies who will voluntarily disclose (to escape criminal prosecution) out of concern that it might well be their bank.
Frontrunner still looks like Credit Suisse, though.
The Swiss are in high dudgeon, of course. One CH politician even referred to the German purchase as an “act of war”. Bring it on, Switzerland!
Fun to watch. Schadenfreude pur.
JN
PPS
And when are Les Froggies gonna let the IRS take a peek at the 130,000 files that good ol’ Hervé Falciani “voluntarily delivered” to them last year? Rumor control has it that in addition to French miscréants the names of some very ill-tempered Columbians were also on that list. Where there are Columbians can Dallas Texans be far behind?
J