4th of July. Fireworks, picnics and parades. There must be more than a
few folks in Switzerland who were sweating this weekend out.
It
is not entirely clear at this point what the resolution to the UBS vs
USA case will be. Both sides have announced that a “deal” has been
reached. Details are due out next week. There are several press reports
that suggest that the deal may cover 7,000 of the 52,000 names. The
Justice Department indicated that it was after a “significant” number.
This strikes me as odd. What would the criteria be for non-disclosure?
If we get, “Accounts over $5mm will be handled separately”, there will be hell to pay. This would appear to be an ‘all or nothing situation’.
By
Thursday this should be behind UBS. It will be interesting to see what
additional fines may be involved. They already have paid $780mm, so
this is getting expensive. An analyst at Union Bancaire Privee put the
new fine as high as $5.5 billion. UBS shares caught a bid after the
news of a deal last week. The shareholders can only hope that the fine
is 20% of UBP’s estimate.
The question on my mind is where
does this go next? This has never been just a UBS problem. There are a
lot of other public and private Swiss banking institutions. There have
been estimates that as many as 50% of the accounts in Switzerland may
be ‘Black.’ It would seem reasonable to assume that less than half of
the black accounts were with US citizens. Therefore the ‘resolution’ of
the matter next week is just going to open up a whole new can of worms.
What about the rest of the banks and what about all the other countries
involved?
The Tribune De Geneve
posed the question: L’IRS et l’administration Obama persisteront-ils
ensuite dans leur lutte contre l’évasion fiscale en s’attaquant à
d’autres établissements?
They ask, “Who’s next"?
Note on Withholding Taxes:
There
is an aspect to all of this that I can’t understand. There are very
long-standing Tax Treaties between the US and Switzerland. Among other
things these treaties obligate each country to withhold tax on income
derived from accounts in each other’s country. A Swiss citizen has
withholding taxes applied to accounts maintained in the US. Similarly,
an American citizen has tax withheld from accounts maintained in
Switzerland. Both the US and Switzerland have similar tax treaties with
all other developed countries.
Let’s be very clear on this.
The Swiss government does not cheat on these Tax Treaties. All of the
Swiss banking institutions similarly follow the laws of Switzerland on
this. The tax treaties and the Swiss law require that a 35% withholding
tax be applied to income on all US citizens accounts. When the
withholding tax is collected it is sent directly to the Swiss
Government. From there it goes back to the US when it is claimed as a
foreign tax credit on ones income taxes. The only exception to this
rule is when 1099 income forms are filed on the account. Black accounts
by definition do not file income taxes so the amount of income that is
withheld is never claimed. Overtime these amounts add up to big
numbers. Some estimates:
The NY Times has put a number on the
dollar value of the accounts with UBS at $20 billion. Assume that UBS
has 50% of the US accounts and the rest of the banking industry has the
balance. Assume further that of all the questionable accounts 40% are
with US citizens and 60% are with the rest of the world. These
estimates would suggest that the value of the troubled accounts is in
the neighborhood of $100b. Of that, $60b is non US.
Another estimate comes from Reuters.
They estimated that the foreign-owned assets in Swiss banks are equal
to $2 trillion. The amount of hidden accounts would be just a fraction
of that. 25%? $500b?
An informed estimate comes from a leading Swiss Private banker, Ivan Pictet. He suggested in an interview with Le Temps
that the size of the offshore ‘private’ banking industry was about $1
trillion and that as much as half of that could be affected by changes
in banking secrecy laws. That leads towards a conclusion that the
problem is about $500B in total.
For the sake of discussion
assume the number is $250b. That would seem reasonable given the
foregoing. Assume further that income on these accounts averaged a very
modest 2% for the last ten years. The final assumption is that the
withholding rate on all foreign accounts was the same as the US, 35%.
If anything these are conservative assumptions.
That comes to
$17 billion. My own guess is that this number is closer to $40billion.
And this has been going on a lot longer than ten years.
Who has this money? It is possible that it is being held by the Swiss. Their attitude would be, “We have to pay this when it is requested. In the mean time don’t ask”. If the money was sent to the US Treasury with a note, “Sorry, no SSN’s/Names on these amounts,
you would have thought that someone would have woken up to all of this
well before last year. That leads to the conclusion that it is still in
Switzerland.
Either way, someone has some explaining to do.
Swiss Banks.
& other offshore banking countries.
Secrecy.-----. Secret numbered accounts.
The benefits to the bank are far greater than the benefits to the client .
The funds are easy to deposit but very difficult to withdraw.
You can/might be paid the interest accrued but don’t ask for the capital.
This type of banking facilitates crime. ( a place to hide criminally obtained monies.)
Category.
A. Drug Trafficking , Arms Dealing. International Fraud.
B. Organized Crime. Serious Fraud .
C. Tax Evasion . ( Income Tax – V.A.T—Corporation tax. Etc.
60% of the funds held in these banks fall into Categories A & B.
20% of the funds held in these banks fall into Category. C.
_______________________
If you have monies in one of these banks. ( either legal or illegal monies.)
Remember. ( do not die.)
Even if you have told your wife about your “secret account.” or your children , or solicitor ,or left documents with your Will , it is impossible for them to claim the monies from that account. ( clever these banks.)
Do you recall. ( Don Johnson--- in TV Show . Miami Vice.)
In 2003 he and three associates were sent by American Business Organisations to withdraw £,6.000,000,000. ( six billions.) from the accounts they had in Swiss Banks. (in bonds- securities etc.)
I wonder how the police on the Swiss border knew to stop their particular car that day after they had been to the Swiss banks . They were searched and arrested. Don and his friends made a mistake . They should not have asked for their monies back from the Swiss Banks.( clever these banks.)
ghostface: I did see the moodys thing. It confirms my thinking that there is no way to unscamble these eggs. The best solution is to put the GSEs to rest. They will be absorbed by Ginnie mae and FHA.
The time table for this set by Moodys is 18 months. They are probably right. These things take longer than they should.
That said I think a case can be made for this to happen more quickly. Possibly by the end of this year. There is no reason for delay any longer.
Here is my scenerio: In the next week or so FNM will announce a buy back of its sub debt. (same as FRE). When that transaction is completed the door is open for a nationalization and an end to concervatorship.
The question outstanding is what happens to the common shareholders when this happens and what happens with the $60 bil of Pref stock outstanding.
Bruce, did you see this today?
http://www.bloomberg.com/apps/news?pid=20601087&sid=abdjRIEF33yw
"Fannie Mae, Freddie Mac Likely to Be Wound Down, Moody’s Says"
Here's hoping they are correct.
I'd bet that the list would look like "whos'-who" in the social, government and financial world. I want to see the whole list.
What a sanctimonious bunch of idiots you are, as well as your government. Listen to you all pontificating self righteously... how quickly you all forget that tax EVASION is as old a sport in the United States as the arrival of the Pilgrims. The guy running the Treasury is tax cheat... half the cabinet secretary nominees were disqualified because they are tax cheats; why so judgemental on the comparatively small number of people, (and in real terms, small numbers of dollars) involved?
Wake up, sheep!
The puppets you see can only go so far.
Nuke them!
I can not believe that there are not some prominent American names, to include politicians, in those accounts.
Do the BarriO people really want to go there? Who is really pushing this?
Recall the move Putin made on his wealthy countrymen.
Perhaps the game is to move those certain someones out and move others in. 'wealth redistribution'
This scenario leads me to believe that the international bailout of UBS through AIG or the international agreements on tracking all money flows following 9/11 are the two possible reasons the US has authority in a foreign country's affairs.
If they turn over names, they should turn over all names to be fair. These accounts could include innocent individuals just storing gold & silver, individuals attempting to shield taxes, bribe & embezzled accounts associated with politicians around the world, and a dangerous criminal element with booty from drugs, prostitution, protection rackets, and gun running.
This appeared to be the country where questionable money could be hidden, not sure how their banks will hold up after they eliminate what appeared to be their competitive advantage. The Swiss have their own sovereign privacy laws, so if the information is actually turned over we can conclude that central bankers are indeed more powerful than governments.
This has been festering since WWII. A little sunshine would be a good thing.
Apparently, we were not concerned enough about this to stop the massive US tax-payer funded bailout of UBS by AIG - which would not be solvent if it had not received the payment. This is a farce and a a dog and pony show, we will not get the names, and the mega-rich American oligarchs will (yet-again) go un-punished. This is a case of "appearing to do something" rather than "doing something". If they were serious, they would have withheld the AIG payment.
Disagree, I've never considered tax evasion as immoral. People should have a right to their property, and I don't consider our current tax code to be the least bit fair to the rich. The top percentiles pay almost our entire tax burden, tax evasion is simply a protest of the confiscatory tax rates we have in this country. I'll pay my share for military, policing, and infrastructure, but I have no desire to fund other people's lives.
Those darn Japanese USTB-toters mucked up Tiny Tim's backdoor repayment plan. That is what happened.