US regulators and the Swiss banking giant UBS are embroiled in a battle over information on UBS’ private depositors. The US says UBS is facilitating tax fraud, and is demanding information on 52,000 account holders with nearly $15 billion in assets.
The latest development comes on the heels of a groundbreaking concession. Last week, UBS agreed to demands by the US taxing agency to release the names of about 250 private account holders, who may have used UBS to evade taxes in the US.
Illustration: Jayachandran / Mint
But the push and pull between the US and Swiss banking system has broader resonance for the global financial system: Secretive banks and tax havens—free from regulatory scrutiny—are simply unacceptable.
Swiss banks have long been a safe haven for the loot of autocratic strongmen. Reports abound of the most reviled individuals of the 20th century stashing their funds in Swiss accounts, including Zimbabwe’s Robert Mugabe and those close to Saddam Hussein. In 2001, the US accused Swiss banks of clearing Osama bin Laden’s financing.
And the number of offshore banking systems, beyond Switzerland, abound: Singapore has notably followed Switzerland’s lead on privacy, even wooing the banking behemoth Credit Suisse. The Bahamas has been a notorious location for tax havens. The Cayman Islands in the Caribbean has faced scrutiny from IMF for dubious banking practices.
In the midst of global recession, which many blame on misinformation—such as repackaged mortgage-backed securities and indiscernible financial instruments—transparency in financial institutions is absolutely imperative. UBS’ admission that its depositors were using its offshore banking services to avoid paying taxes was a surprising, yet welcome, move. For what legitimate practices do depositors actually need clandestine, private, offshore bank accounts?
As long as privacy precludes transparency—especially for a financial institution—the banks won’t seriously be held accountable. And that means dubious financial practices associated with money laundering, financing terrorism or mobsters, or tax evasion, may continue.
Under the guise of Swiss nationalism—and its heritage of banking privacy—Swiss banks essentially profit from foreign tax evasion. And because their books—and those of other secretive banking and offshore systems—are closed, we don’t know what else they may be supporting.
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