August 19, 2009 / 7:37 PM / 10 years ago

U.S./UBS deal ramps up pressure on tax havens

MIAMI (Reuters) - More overseas tax havens could turn into traps for tax cheats as the U.S.-Swiss settlement over UBS AG UBSN.VX (UBS.N) invigorates an international campaign to flush out hideaways for illicit or undisclosed money.

Swiss bank UBS Chief Executive Officer Oswald Gruebel (R) and Chief Financial Officer John Cryan attend a press conference in Zurich, August 4, 2009. REUTERS/Christian Hartmann

The long-awaited deal finalized on Wednesday, under which foresees Switzerland handing over details of some 4,450 UBS bank accounts to U.S. tax investigators, was hailed by experts as a masterpiece of diplomatic compromise that allowed both sides to claim a measure of success.

But the experts say that despite this “diplomatic cover,” there is little doubt that Switzerland’s much vaunted reputation for bank secrecy has taken a dent, sending a powerful deterrent message to tax havens around the world.

“This is no mere keyhole into the world of bank secrecy ... This agreement represents a major step forward ... to pierce the veil of bank secrecy and combat offshore tax evasion,” U.S. Internal Revenue Service Commissioner Doug Shulman said after Wednesday’s UBS settlement details were announced.

“The agreement we reached today sends an unmistakable message to people hiding income and assets offshore. The IRS will vigorously pursue tax cheats around the world, no matter how remote or secret the location,” he added.

Global leaders campaigning for an end to secretive tax havens hope this “nowhere to hide” warning will be heard by tax cheats and jurisdictions which might host them, from tiny Vanuatu in the South Pacific, to bustling trade hub Panama and the historic Alpine principality of Liechtenstein.

Tax experts believe the high-profile U.S.-UBS deal, coupled with an ongoing campaign against tax havens by the G20 group of leading industrialized and emerging market nations, will crank up the pressure for offshore financial centers to put their houses in order with regard to tax transparency.

“As my old university professor used to say, when a tax loophole becomes well known it turns into a noose,” said William Sharp, an attorney with Sharp Kemm PA in Tampa, Florida, who represents American clients of UBS.


Some territories in the Caribbean — a piracy hotspot in centuries past which then gained a modern-day reputation as a hideaway for ill-gotten funds and fugitive financiers — have scrambled to get themselves dropped from an Organization for Economic Cooperation and Development “grey list” of states which have not signed off on transparency accords.

Last month, the British Virgin Islands and the Cayman Islands joined the OECD “white list” of countries using internationally recognized tax standards after signing at least 12 bilateral tax agreements in line with OECD standards.

“The tax haven window is closing down. People do not want to take on the U.S. government,” Sharp said.

Calls for improved financial regulation and transparency in the Caribbean have increased after the collapse in February of Texas billionaire Allen Stanford’s business empire, which was centered on a bank he owned in Antigua and Barbuda.

Stanford, a flamboyant sports entrepreneur who was granted a knighthood by Antigua and Barbuda, faces U.S. civil and criminal charges related to an alleged $7 billion fraud that prosecutors say he operated with associates including a top Antiguan financial regulator.

Several governments, including the United States, have launched programs inviting tax cheats to come clean and reveal themselves. Britain last month signed with Liechtenstein an agreement to encourage British clients with secret accounts there to voluntarily disclose their untaxed money.


But some experts say that despite the recent crackdown and increased scrutiny, tax havens will continue to exist.

“There are 55 to 60 airtight secrecy havens that dot the globe which have for the last 25 years been subjected to intense pressure by the industrialized nations — the G8, U.S., EU, you name it — and they withstand the pressure and they don’t cave in,” former federal prosecutor Charles Intriago told Reuters.

Intriago is founder of the International Association for Asset Recovery, an industry group for those who hunt down criminal assets.

He believes that between 20 and 25 percent of the UBS accounts sought by U.S. authorities could be hiding “criminally obtained or wrongfully held assets.”

“For UBS to sanctimoniously say ‘We have standards; these are only people who don’t like to pay taxes,’ that’s a bunch of baloney,” said Intriago, who called for tougher measures by U.S. authorities to shut off access to tax havens.

“The way to stop this is to block financial secrecy havens from dollar clearance in the United States,” Intriago said.

A traffic sign is seen next to an UBS logo in Zurich August 19, 2009. REUTERS/Christian Hartmann

He said that even in the United States it is easy to create “shell” companies that hide the owners’ identity, to set up Internet bank accounts and to move money to offshore havens without leaving a trail.

“Just go on the Internet. We’ve got our own Caymans here,” Intriago said.

Additional reporting by Tom Brown, writing by Pascal Fletcher; Editing by Tom Brown and Gerald E. McCormick

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