IF SWITZERLAND CAN ..... / THE NEW YORK TIMES EDITORIAL ( RECOMMENDED READING )

August 22, 2009

Editorial

If Switzerland Can ...

At a time when money can flow halfway around the globe in an instant, international tax evasion has become a major threat to government finances in countries big and small — putting the income of wealthy evaders out of sight and beyond the reach of their tax authorities.

The deal struck between the United States and Switzerland last week to provide the names attached to 4,450 secret accounts held by Americans at the Swiss banking giant UBS is a blow for fairness. If Switzerland lives up to its commitment, it may well be a watershed: the beginning of the end of international tax cheating.

The deal promises to move Switzerland — whose banks are estimated to control a third of the multi-trillion-dollar market in private wealth management — out of the tax refuge business. It sends a warning to other such havens, and their banks, that if they don’t get out, the United States will come after them, too.

Switzerland didn’t do this willingly, of course. It caved after UBS was caught offering to help Americans hide their money. The bank agreed to pay $780 million in fines and restitution. And the Swiss government was suddenly in a more compliant mood.

American and Swiss officials have jointly agreed to a system to identify 4,450 accounts — out of 52,000 — that are most likely to have been set up to evade taxes. The Internal Revenue Service estimates that at their peak these accounts held $18 billion. American officials are keeping secret the criteria used to identify these accounts — hoping that nervous evaders will turn themselves in voluntarily before a September deadline to get a reduced fine and avoid criminal prosecution.

Yet what is most significant is that the Swiss are handing over any information at all. A year ago, they argued that providing any of the desired names to the I.R.S. amounted to a breach of bank secrecy law.

The deal is not perfect. Washington must still make formal requests for the names to the Swiss authorities under the terms of a bilateral tax information exchange treaty. And each account holder can appeal the decision to a Swiss court before the holder’s name is handed over.

The Swiss government is insisting it will cooperate. And if the names are not handed over expeditiously, the I.R.S. can reopen its suit in federal court to get the names of 52,000 account holders. If UBS resists, it could end up facing criminal charges.

There is a growing international backlash against tax evasion. The Tax Justice Network, a research and advocacy organization, estimates there are $11.5 trillion in global assets hidden in offshore havens. In recent months, dozens of formerly uncooperative sanctuaries from Singapore to Lichtenstein have rushed to sign on to new multinational norms on information sharing.

More needs to be done. Congress should pass the tax-evasion legislation that was wrapped into the 2010 budget proposal. It would entitle the I.R.S. to demand that foreign banks doing business here disclose information about their American account holders and withhold the appropriate taxes. If they didn’t, the I.R.S. would be entitled to automatically withhold income taxes on payments into those accounts.

More international cooperation is needed to determine standards of compliance with newly devised tax information exchange agreements and police them. And pressure should be brought on recalcitrant countries like Panama. If Switzerland can be persuaded to get out of the tax haven business anyone can.

Copyright 2009 The New York Times Company