Sidebar:

Asset fire sales and purchases and the international transmission of financial shocks

The global financial crisis and the Financial Stability Forum:

Chris Brummer, How international financial law works (and how it doesn’t)

Beckett G. Cantley, The UBS case: The US attack on Swiss banking sovereignty.  Available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1554827

Abstract
On 1 August 2006, the United States Senate’s Permanent Subcommittee on Investigations (PSI) released a report in conjunction with a Senate hearing that revealed alarming statistics regarding wealthy Americans’ love affair with offshore banking. The PSI report was a culmination of the subcommittee’s investigation into tax haven abuses, providing the most detailed view to date of high-level tax schemes. The report revealed such an alarming number of rich Americans using offshore accounts to evade taxes that law enforcement is unable to control the growing misconduct. Senator Carl Levin (D-Mich), chairman of the PSI, stated,
 
“The universe of offshore tax cheating has become so large that no one, not even the United States government, could go after it all.”
 
This statement marks the first salvo in the new United States attack on offshore tax evasion. The principal focus of this attack appears to be in unreported offshore bank accounts.  The most conspicuous historical jurisdiction for US residents with such accounts is Switzerland due to its stringent banking laws and stronghold on foreign money.  While there is an existing tax information exchange agreement (TIEA) between the US and Switzerland (last significantly revised in 2003), the newly minted US attack focuses on Swiss accounts and the US attempt to obtain account holder information from UBS AG has allowed this fight to evolve into a judicial battle. The policy goals of the US here are clearly valid, but the means of obtaining the information is overbroad given how vigorously the US guards its own legal exceptionalism. Understandably, the Swiss have a valid concern that the US is not respecting Swiss domestic law.
 
The US, after all, has personal jurisdiction over its own citizens – surely there are better ways of obtaining this information while respecting the domestic laws of another sovereign country, especially an ally such as Switzerland. The focus of this paper is to dissect the intricacies and arguments surrounding the US attack on offshore banking in an attempt to curtail, arguably, rampant tax evasion, followed by a detailed look into the development, policy implications and consequences of the US v. UBS AG case.

CFR comment
Cantley, a professor at the Thomas Jefferson School of Law in California and author of Corporate inversions: will the Repo Act keep corporations from moving to Bermuda, Houston Business and Tax Law Journal vol. 3(1) (2003) (available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1552962), as well as a number of papers on tax shelters both on and offshore (his SSRN page is http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=1329152), provides a quick summary of the UBS dispute and situates it in the context of the 2003 agreement between the United States and Switzerland. He effectively points out the questionable tactics used by the US in pursuing UBS, concluding that “the US appears to be trying to have it both ways … they must follow US laws but they should not attempt to make us follow their laws. Given this contradiction, it is understandable that the Swiss have are concerned that the US is not respecting Swiss domestic law. The US, after all, has personal jurisdiction over its own citizens and therefore should be able to use other means of tax enforcement that respect the domestic laws of another sovereign country, especially an ally such as Switzerland.”