UBS Offshore Accounts Closed To US Clients

Having talked yesterday about Swiss banks needing to extricate themselves from 'unfriendly jurisdictions' and consolidate back here in the shadow of the Alps, UBS has announced that is to stop providing offshore banking services to American Citizens.

The offshore banking business has already been closed but they have gone a step further and have said that it will now not allow bankers from Switzerland or elsewhere in the world travel to the US to meet clients on banking matters or securities transactions

That decision follows an earlier ruling by a Florida judge to give the IRS permission to serve legal papers on the bank to attempt to force it to hand over the names of up to 20,000 US clients.

Mark Branson, UBS Global Wealth Management's chief financial officer, yesterday revealed the change of tack during a US Senate hearing on the issue of tax avoidance. He said that while UBS is winding down its offshore business for US citizens, there will be "no new accounts opened".

It looks like the writing is on the wall for Swiss banks in the US. If UBS cannot deal with the legal issues then who can?

It does bring up the interesting issue of others providing offshore services to the US. I did a Google on "Offshore Tax Shelters For US Clients" and the list came to 104,000 pages. Wouldn't want to own one of those businesses....

Another thing to consider is that the news coming from the US is that some of the rules on 'assisting US citizens to avoid tax' are looking to be retrospective. This holds up the frightening prospect of advisors in the US being hauled up to court for advising clients on tax avoidance, legally, but now, with the rule changes it will have been illegal.

Tell me how that will work?

I have made no secret on this blog of the fact that I am not particularly enamored by some of the under hand tactics being used by tax authorities all over the world, from the Germans bribing bankers to the US arresting them. I think it is becoming a sinister plot to castrate the tax efficient structures that people put in place to protect their assets.

Of course, I am aware of the need for citizens of a country to pay tax proportionate to their earnings, but is it any surprise when stealth taxes take their toll?

I posted on the blog some time ago a calculation on how much tax is paid on £100 spent on goods and services. This was when oil was at $60 per barrel. If you are a higher rate tax payer in the UK and you spend the £100 on a range of mundane weekly items you will be paying (with oil at $60 remember) £77 in direct and indirect taxes. That means for every £100 you spend you were only getting £23 in goods and services....

Can you blame people for seeking to protect some of their wealth from the tax man?

This issue of retrospection also throws up all sorts of problems for those seeking to structure their taxes efficiently. What you do today could be illegal tomorrow... surely that is against some fundamental principals of law?

I was going to go on to say that we can all do something about it at election time, but the thing is, with politicians spouting populist rhetoric it would be easy to put up a picture of a billionaire private equity fund guy and hoodwink the general public into voting for the most heinous of restrictions on protecting your wealth.

Come back Maggie and Ron, you knew the value of wealth creators and saved the world... this current crew are leading us down the path to oblivion.

IRS To Close Offshore Account Loophole

The fun-busters at the IRS are up to it again and the Swiss banks are the targets.

The IRS is to close a loophole relating to its agreements with foreign banks that allegedly led to UBS's troubles.

Barry Shott, the IRS's deputy commissioner of international affairs, said in an interview the crackdown will make it harder for Americans to conceal assets in offshore shell companies. The agency for the first time will require accounting firms to report any activity that may constitute fraud as defined by the U.S., he said.

``We're trying to pierce the veil,'' Shott said. ``It's going to happen in the near future. This is not a long-term project.''

The legislation has been brewing for 2 years and is aimed at tightening the 'Qualified Intermediary' contracts. This program was original developed so that the IRS could keep a beady eye on US citizen’s money in foreign banks.

Under this contract the banks would confirm the identities of the account holder and notify the IRS of income earned within the accounts. The pay-off was that the banks could eliminate withholding taxes or withhold taxes at favourable rates. Without this agreement they would have to withhold 30%.

Banks participating in the program also must agree to be examined by external auditors approved by the IRS. Foreign banks generally agree to take part in order to maintain access to U.S. markets.

The new rules would require banks to identify the actual owner of an account's assets and the recipient of any interest payments. If the individual is an American, the bank must file a 1099 tax form with the IRS and withhold taxes at a 28 percent rate or face possible criminal charges, Shott said.

Shott said the IRS is still in discussions with the Treasury Department over whether to make the rules retroactive.

In court papers filed last month, the IRS quoted former UBS official Bradley Birkenfeld as saying the bank separated clients into those willing to comply with disclosure rules and those who wanted to remain hidden. Many of the clandestine depositors hid assets by using layers of shell companies.

Basically, the new rules would require banks to let officials know the ultimate beneficiaries of the shell company to determine whether it is an American that owns the account.

This opens up all sorts of questions about dealing with offshore banks in the US. For example, does this mean that if you are not a US citizen, using a shell company to protect your assets that an IRS approved auditor will then sift through to the beneficial holder to see if it is a US citizen. If so, and they find that the beneficial holder is not a US citizen, what will they do with this information?

To suggest, in the current climate, that the IRS would not share the information with the UK tax authorities, for example, is far fetched...I would say.

What we are seeing is an international tax conspiracy aimed at wiping out any sort of tax loophole. It is, in my opinion, futile. Yes, for the average Joe trying to save a few bucks on tax it is going to become very, very difficult. Swiss banks, for example will be turning away 'unofficial' American clients by the truck load. Would you, as a Swiss banker, now take on an American client? Me neither. But there will be others clever guys working on news ways of saving tax... it's a big industry. To stamp it out will be impossible.

Bradley Birkenfeld knows only too well the fate of those who are involved in this area, however.``I was employed by UBS and paid a large salary and incentivized to do this business,''
Birkenfeld, 43, said to U.S. District Judge William Zloch in Fort Lauderdale, Florida, at his plea hearing. Birkenfeld faces a maximum sentence of five years in prison at his sentencing, set for Aug. 13.

Birkenfeld implicated other unidentified UBS bankers and wealthy clients in his plea, helping U.S. prosecutors as they deepen their probe of whether the bank assisted Americans in evading taxes. In a document accompanying his plea, Birkenfeld described the bank's systemic efforts to help U.S. clients conceal $20 billion in assets abroad. UBS collected about $200 million in annual revenue through those efforts, he said.

In court, Mr. Birkenfeld wore a charcoal pinstripe suit that was as solemn as his face. He told Judge William J. Zloch that he knew he was breaking the law but did so because of the “incentives” UBS offered him, meaning large bonuses.

Judge Zloch asked if he had not been troubled by his actions.

“It did concern me, your honor,” Mr. Birkenfeld said. (... hmmmm..no comment)

Is this the end for Swiss banking and the offshore tax industry in general? I don't think so. The Swiss have said that their banking secrecy rules are not up for negotiation which I hope is the stance they continue with.

It appears to me that the business model is changing and this change is going to kill off the world-wide nature of Swiss banks such as UBS. The model going forward would be best seen as 'localisation' of services.

What I mean by this is a pull back, by banking and wealth management operations, into Switzerland. Closing offshore operations in unfriendly jurisdictions or structuring such companies under separate ownership with defined rules that do not allow links between citizens of unfriendly jurisdictions to open swiss accounts.

This would be a great boon for the private banks and wealth managers who are solely based in Switzerland, protected by the laws of this country.

Personally, I find the current nature of the tax authorities to be very sinister. It appears that countries such as the United States can impose on the rest of the world their own rules when it suits them, but who avoid international feelings on other matters.

Take Kyoto, for example. The US refuses to sign up to this agreement. In rejecting the Kyoto Protocol, which 178 other nations had accepted, President Bush claimed that the treaty requirements would harm the U.S. economy, leading to economic losses of $400 billion and costing 4.9 million jobs. Bush also objected to the exemption for developing nations. The president’s decision brought heavy criticism from U.S. allies and environmental groups in the U.S. and around the world.

No worries about the Swiss banking industry going under though, is there Mr President?

Should Switzerland therefore ban US imports or perhaps detain US citizens working in 'polluting industries'.

Unlikely, n'est pas.

I know you will say this is comparing apples and oranges and that tax issue are legal matters blah blah... but see my point on this, where does it end?

When will a corporate advisor be arrested for advising a US company on its tax strategy or a CEO arrested for moving his company offshore to save taxes.

Sounds ridiculous right?

Tell that to Bradley Birkenfeld and UBS.

UBS On The Front Line Of The 'Tax Wars'

I make my report from under a my desk, via satelite phone, risking my very life to bring you the latest from war torn Switzerland. We are hearing from the troops that a captured ex-banker has been interogated by the US tax special forces known as the 'IRS' and after a brave few minutes of resistance has spilled the beans.

Having wilted under the barrage of $39bn of US Toxic Mortgages our hero, UBS Bank, is now under constant attack and we fear the worst. Sketchy reports from intelligence, within enemy territory, tell us that a faction of the 'Federal Prosecutors Office' in Miami is to launch a strike on the Zurich head office of UBS in the form of a summons.

With a background of previous cordial relations between the two countries the summons is all the more frightening as it will be the first such action against a foreign bank. The summons is aimed at UBS revealing the names of 20,000 of the US's own citizens who have alledgedly used the services of UBS to hide money from the rampant IRS forces.

An expert on offshore banking in the US doesn't hold out much hope for named individuals and believes all is lost "The bank is in a very difficult position," Blum said. "If I were advising clients, I'd tell them to come clean; the people who come clean early will probably be allowed to get off with paying the tax, the interest and the penalties. Others could very easily face criminal prosecution."

UBS have been caught up in the 'War on Taxes' and are evidently on the list of the 'Axis of Evasion' targetted by the IRS. It appears that old allies and foes alike are joining forces to put paid to the 1000 years of peace in our country by declaring war on the very center of the country's tax and banking system.

First we saw the UK Tax Mafia forcing banks who had branches in the UK to give over information on individuals who held offshore accounts, this resulted in 50,000 souls giving up their banking information to the Men In Biege without so much as a fight.

Formidable forces were then mobalised in Germany with a first strike on Lichstenstein being waged by the secret police bribing an ex-bank employee to fess-up the names of all account holders. He did so for a new identity and six million Euros. This battle is ongoing on the borders of Switzerland but it is only a matter of time before the focus is aimed squarley in our direction.

Reports are also coming in that initial resistance fighters known as 'lawyers' in the US have pretty much folded and UBS are working with the IRS to resolve the accounts issue.

John 'Mad Dog' DiCicco, deputy assistant attorney general in the Justice Department's tax division, said in a statement that the U.S. has been "working cooperatively" with UBS and the Swiss government to obtain the account information.

An un-named source added "I love the smell of ruined fondue in the morning, it smells like victory"

Switzerland has steadfastly resisted calls from Europe and the US to revise its tax structures and banking practices saying they are 'not up for negotiation' but here on the ground we are concerned that international attacks will sap the will of our troops.

An unamed Swiss resistance fighter is calling on the Swiss to fight back. In a stirring speech he said:

"I have, myself, full confidence that if all do their duty, if nothing is neglected, and if the best tax arrangements are made, as they are being made, we shall prove ourselves once again able to defend our banking system, to ride out the storm of war, and to outlive the menace of tyranny, if necessary for years, if necessary alone.

Even though large tracts of Europe and many old and famous States have fallen or may fall into the grip of the IRS and all the odious apparatus of Taxation Rules, we shall not flag or fail.

We shall go on to the end, we shall fight in the Alps,
we shall fight in the lakes and rivers,
we shall fight with growing confidence and growing strength on the Internet, we shall defend our system, whatever the cost may be,
we shall fight in the mountains,
we shall fight on the fondue shops,
we shall fight in the fields and in the streets,
we shall fight in the watch shops;
we shall never surrender,

Stirring stuff.

As I report here, the situation does indeed look dire, but if history has taught us anything, might is not neccessarily right.... Pray for our souls dear friends..... until next time.... Asset Manager... signing off.