How the Internal Revenue Services Policy of Eliminating Secrecy of Swiss Banks and Other Offshore Tax Havens Will Lead to an Unwarranted Invasion of Financial Privacy



How the Internal Revenue Services Policy of Eliminating Secrecy of Swiss Banks and Other Offshore Tax Havens Will Lead to an Unwarranted Invasion of Financial Privacy

1-Introduction

Switzerland is a peaceful, prosperous, and stable modern market economy with low unemployment, a highly skilled labor force, and a per capita GDP larger than that of the big Western European economies. The Swiss in recent years have brought their economic practices largely into conformity with the EU's to enhance their international competitiveness. Switzerland remains a safe haven for investors, because it has maintained a degree of bank secrecy and has kept up the franc's long-term external value. For information about different types of Swiss account click here. Azzara (2006) mentions Swiss bank secrecy protects private banking information; the protections afforded under Swiss law are similar to confidentiality protections between doctors and patients or lawyers and their clients. The Swiss government views the right to privacy as a fundamental principle that should be protected by all democratic countries. While secrecy is protected, in practice all bank accounts are linked to an identified individual, and a prosecutor or judge may issue a "lifting order" in order to grant law enforcement access to information relevant to a criminal investigation (Azzara, 2006). This paper discusses how the internal revenue services policy of eliminating secrecy of Swiss banks and other offshore tax havens will lead to an unwarranted invasion of financial privacy in a concise and comprehensive way.

a.The Justice Department recently filed papers seeking an order from a federal court in Miami, Florida. authorizing the Internal Revenue Service to request information from Zurich, Switzerland-based UBS AG about U.S. taxpayers who may be using Swiss bank accounts to evade federal income taxes. The Justice Department seeks permission to allow the IRS to serve what is known as a "John Doe" summons on the bank. The IRS uses a John Doe summons to obtain information about possible tax fraud by people whose identities are unknown. On June 19, 2008, former UBS banker Bradley Birkenfeld pleaded guilty to conspiring to defraud the IRS by assisting UBS clients in avoiding U.S. reporting requirements on income in Swiss bank accounts. According to Birkenfeld's court statement, UBS employees assisted wealthy U.S. clients in concealing their ownership of assets held offshore by creating sham entities and then filing IRS forms falsely claiming that the entities were the owners of the accounts.

The John Doe summons, if approved, will direct UBS to produce records identifying U.S. taxpayers with accounts at UBS in Switzerland who elected to have their accounts remain hidden from the IRS. In his court statement, Birkenfeld claims UBS had approximately $20 billion of assets under management in "undeclared" accounts for U.S. taxpayers.

The law requires a U.S. taxpayer to report all financial accounts in a foreign country if the total value of the accounts exceeds $10,000 at any time during the ...