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TAX NEWS - 2010

Switzerland: A safe haven?

In the world of financial managers, Swiss bankers rank among the most prestigious. In the world of crooks, tax evaders enjoy a similar … prominence.

Now after years of hardball legal and diplomatic negotiations, a natural kinship is being torn asunder.

Herr Swiss Banker, bid a farewell "Tschüss" to your client, Mr. Tax Evader.

Until recently, it was a rewarding relationship — though strictly in a selfish commercial sense.

With the aid of a whistleblower from Swiss banking giant UBS AG, federal watchdogs identified as many as 52,000 U.S. customers who were suspected of cheating the Internal Revenue Service by moving billions of dollars into Switzerland. UBS already has settled a criminal case, paying the U.S. government $780 million under a 2009 deferred prosecution agreement.

Earlier this month, presumably in time to meet an August deadline, Swiss lawmakers grudgingly cleared the way for UBS to hand over details on 4,450 previously secret accounts. Fear of prosecution has prodded many more overseas banking clients to come forward voluntarily, providing additional evidence about dubious activity in offshore tax havens across the globe.

Other countries have gotten into the act: Earlier this month, German authorities purchased stolen data on 20,000 accounts from an unidentified seller, probably a Swiss bank employee. A German finance ministry official expects the information to yield "double-digit millions" in recovered tax revenue once the accounts are subjected to audits.

Paying for stolen data doesn't sound right. Lowering Western Europe's high tax rates would produce even better compliance with tax laws. But considering the rise in voluntary declarations aimed at heading off tax-evasion charges and penalties, there's no doubt that the threat of exposure has helped unearth scofflaws stashing their riches abroad.

In Switzerland, the UBS case strikes at the heart of a long-standing business franchise and perverse source of national pride. The stereotype of Swiss bank accounts kept strictly confidential by the legendary "Gnomes of Zurich" propelled a lucrative industry in the small, landlocked country. Many Swiss believe strongly in the right to financial privacy, and that nation's lawmakers approved the tax treaty allowing UBS to identify its U.S. clients only after considerable wrangling.

Fret not, the Swiss won't need to survive on cuckoo clocks and cheese alone.

The European financial crisis, fanned by widespread domestic tax evasion in weaker countries such as Greece, stands to work in favor of the Swiss. As the Euro comes under pressure, the Swiss franc looks better and better. Assets are flowing in, fully declared, as investors from the Euro-zone seek a legitimate safe haven.

Switzerland doesn't need dirty money after all.
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