March 2009 Archives

UBS have forced out a top executive who formerly handled secret offshore bank accounts for wealthy Americans. The news comes as US authorities and the Swiss bank continue to lock horns in a tax fraud investigation centering on rich US citizens with undeclared offshore bank accounts.

The man in question, Martin Liechti, was put on paid leave according to a UBS spokesman. It is understood that the two parties are negotiating an exit agreement that might be acceptable to both.

Its not the first time Liechti has been in the news. In May of last year he was taken in for questioning by US authorities as part of their investigation into alledged tax evasion by UBS's US clients.The banker was detained for several months before being released and returning to his native Switzerland, a move which shocked many in the world of swiss offshore banking and beyond. Some Swiss private banks are now barring foreign travel for their top executives fearing similar arrests.

His removal will invite speculation as to how much information he gave the US authorities during his detention, and how much UBS are willing to give, as US pressure to break the legal stalement increases.

Liechti is not the only member of UBS top brass to leave the bank recently. The CEO,  chairman and several private bankers have all resigned or been forced out in the past few months.

With a Stanfordian echo, news has arrived of yet another scandal involving falsified certificates of deposit. US regulators have put a halt to a suspected $68 million Ponzi scheme at Millenium Bank, based in St Vincent and the Grenadines.

There have been rumours for some time that Millenium bank was offering CD's at implausibly high rates, but this is the first time the alledged scam has been made public.

Millenium bank has apparently been marketing its financial products to wealthy US citizens since 2004, and described itself as subsidiary of a Swiss bank, United Trust of Switzerland SA. The investors, lured by the prospect of high investment returns offered by banking offshore, happily snapped them up.

"The defendants disguised their Ponzi scheme as a legitimate offshore investment and made promises about exuberant returns that were just too good to be true," said the director of SEC's texas office Rose Romero.

"Investors need to be especially cautious when placing money with entities that may be outside the reach of U.S. regulators," Romero added.

"None of the investor funds were used for any investment purpose," the SEC said in a court hearing. Instead the fraudsters made off with the vast majority of the funds, keeping only a small amount to pay off existing investors.

Clients were asked to send checks to the Caribbean, where they were forwarded to California, the SEC said, The money was then deposited in a Las Vegas bank account opened by some of the conspirators.

Only $3million of the collected funds was returned to investors, according to the SEC.

Promised changes in Swiss bank secrecy will still not allow the US access to the information that want, according to tax haven expert Raymond Baker of Global Financial Integrity, a Washington-based think tank.

In an interview with swiss media agency swissinfo he maintains that recent decision to adopt OECD standards will not do enough to catch tax evaders.

 ''This announcement is not a significant step because it does not change Swiss laws on banking secrecy. In fact, what the Swiss government said in essence is that if a foreign government knows what it is looking for, the Swiss authorities will cooperate. But the government has given itself lots of leeway for denying requests for information.''

The Swiss for example have only agreed to hand over information in response to requests with specific evidence on a case by case basis. However Baker would rather they also gave in to so called 'fishing expeditions' even if evidence of illegality is unclear. He proposes that the OECD standards should be amended to allow for this:

''It is important that these standards are expanded, in particular to allow governments to request information from Switzerland and other tax havens, even if foreign governments only have reason to believe that funds are deposited there illegally.''

If the OECD model is changed as Baker suggests, the ramifications could be huge, with people worldwide losing the privilege of bank secrecy at the whim of another country or just because they have an offshore account. Baker also called for Switzerland to change its legal code to allow foreign governments easier access to personal data:

''I want Switzerland to end the distinction between tax fraud and tax evasion. This baffling distinction is becoming increasingly untenable. It is obvious that most of the funds deposited in tax havens violate the law. I would like Switzerland to take the lead.''

It's irresponsible and plain wrong to suggest that most funds in tax havens violate the law. Much may depend on whether citizens and governments worldwide are duped into giving up their rights by this type of rhetoric.

Swiss Offshore Banking is still in a strong position according to the chairman of Swiss Bank Julius Baer, Raymond Baer. His statement comes as international investors fear for the privacy of their Swiss bank accounts following Switzerland's decision to adopt OECD regulations regarding information exchange.

"International clients will continue to appreciate the financial privacy traditionally anchored in Switzerland," he said, indicating that Switzerland's reputation may keep it afloat.

"Decisive is that the core of banking secrecy, the protection of privacy, is kept and that it doesn't come to an automatic exchange of information," he added.

These comments are likely to unnerve global leaders and charities looking for blanket adoption of the OECD rules by tax havens like Switzerland. Without automatic exchange of information it could take years for 'stolen' money from tax evasion cases to be repatriated.

Switzerland, Austria and Luxembourg said today that they would abide by OECD rules and cooperate on sharing information about customers with other countries on a case-by-case basis, but not automatically, as many countries want.

"The decision will permit the exchange of information with other countries in individual cases where a specific and justified request has been made," the Swiss government said.

Switzerland will now cooperate in cases of suspected tax evasion, at least once double taxation agreements are renegotiated with other countries, which could take time. It also said it could seek an amnesty for existing clients.

Andorra and Liechtenstein on Thursday and now the big three in Europe, all were on a list presented to the G20 this week by the Organization for Economic Cooperation and Development (OECD) of financial centers where it deems bank secrecy rules to be too favorable for tax evasion.

Liechtenstein and Andorra have agreed to relax their bank secrecy rules in response to global pressure against tax havens.

The two countries are both on a blacklist of uncooperative offshore financial centres drawn up by the OECD, which also includes Monaco.

Liechtenstein is under particular pressure from Germany and the US, who say the tax haven is aiding their citizens to evade taxes under the current bank secrecy laws. The principality agreed today to comply with international OECD standards for tax transparency, in the hope that this will avert some of the pressure facing them. The principality expects that they will not be the only one to cooperate:
 
"I'm quite sure Switzerland will take similar steps in the near future," Crown Prince Alois von und zu Liechtenstein said.

They must be riding on this assumption because if Switerland stands firm they will leave Liechtenstein out in the cold.

Luckily for the Prince Andorra also 'came out' today, promising to pass a law by November that will improve its transparency and get it removed from the OECD blacklist.

A G20 meeting scheduled for April is likely to result in a new blacklist which may or may not include Switzerland. Until now it has resisted international pressure to be more transparent, while smaller tax havens have not been lucky. Switzerland, Austria and Luxembourg are said to be collaborating in finding ways to keep their bank secrecy intact.

The Swiss finance Minister has said that she will comment on Liechtenstein's recent declaration 'shortly'.

It's common knowledge that almost all big companies and the wealthiest people in the world use offshore banking to supplement their expanding waistlines. No one wants to see their hard earned money being swindled away by an inept government but the problem comes when governments themselves reward these fat cats for failure.

The CEO's and chairmen of huge corporate banks have knowingly used offshore subsidiaries to restructure their organizations to be more 'tax efficient'. Then afterwards the majority had a second go at the cream by dripping tax free bonuses into various offshore bank accounts worldwide. Now that these banks have failed, taxpayers are being forced to pay even more to prop up 'investment banks' and banker's bonuses which they never asked for in the first place.

Government crackdowns can come and go, jurisdictions will go in and out of favour, but one thing about offshore banking that is abundantly clear is that it's not going away any time soon. The OECD may put pressure on Switzerland or the Cayman Islands, but this does not mean that they have shut down other emerging jurisdictions that are rising to take their place, or even those which no has heard of...yet.

Its time for the little guy to get his own back. Why fight a losing battle against big corporations with lower overheads and a tax-engineered offshore base that pays a fraction of the rate you pay? The fat cats don't want you banking offshore because they don't want an 'exclusive' privilege shared out among the ''hoi polloi''.

The truth is, moving offshore is one of the things that can really 'make or break' a business, and its not limited to the old boys club. Many businesses, especially those catering to an online or international market, have legitimate and pressing reasons for banking offshore:

- The ability to send and receive large payments without getting bound up in red tape.

- The segregation of risk between different parts of a business or between business partners.

- Low or zero tax on employee salaries and purchases of new equipment or real estate.

- A business (e.g. online gambling) which is not legal in one country may be legally operated from another.

These advantages can often make the difference between a merely average business and an extremely profitable one. Are you ready to take this make or break step and catapult your enterprise into the big time?

Britain's crown dependencies and overseas territories are scrambling to defend themselves against the latest rhetoric issued by high-tax countries.

Supposedly 'leading' offshore centres are pleading for a more discriminate approach to distinguish themselves from the 'dirtier' unregulated tax havens.

Geoff Cook of Jersey Finance, which represents the island's financial industry, says: "The thing we worry about is we are being tarred with the same brush as everyone else."

Of international leaders: "They are desperate to find any way they can of increasing their tax collection and they are desperate to deflect attention away from the domestic situation."

The Cayman Islands took a similar stance:"We fear a very indiscriminate position will be
taken which owes more to protectionism and prejudice than judgement and intellectual application,"  said Deborah Drummond, deputy financial secretary of the Islands.

Last week the US administration offered encouragement for new anti-tax haven legislation that builds on the 'stop tax haven abuse act' introduced by then Senator Obama. If passed, numerous tax havens, among them many British colonies and territories may find themselves on the receiving end of sanctions which force them to be more transparent. The UK, Germany and France have also called for a crackdown on tax havens, hoping to make it a top issue at April's G20 summit.

Tax evasion scandals linked to swiss offshore banking and Liechtenstein have increased pressure, as has the banking crisis, when it was revealed that banks were some of the heaviest users of offshore jurisdictions.

Although it is widely opined by experts that offshore banking is not a major factor in the global financial crisis, many governments may find it easy to target offshore tax havens, leveraging on their close links to the banking sector.

The Genoese built a fortress on the site of present-day Monaco in 1215. The current ruling Grimaldi family secured control in the late 13th century, and a principality was established in 1338. Economic development was spurred in the late 19th century with a railroad linkup to France and the opening of a casino. Since then, the principality's mild climate, splendid scenery, and gambling facilities have made Monaco world famous as a tourist and recreation center.

Today, Prince Albert II exercises his sovereign authority over Monaco in accordance with the Constitution and laws of 1962. He represents the Principality in all foreign relations.

Monaco is not a member of the European Union but is very closely linked to it via a customs union with France, and as such its currency is the same as that of France: the euro. Before 2002, Monaco minted its own franc coins, the Monegasque franc. Monaco has acquired the right to mint euro coins with their own insignias on their national side.

Monaco levies no income tax on individuals. The absence of a personal income tax in the principality has attracted to it a considerable number of wealthy "tax refugee" residents from European countries who derive the majority of their income from activity outside Monaco; celebrities such as Formula One drivers attract most of the attention, but the vast majority of them are less well-known business people.

Currently around seventy banks operate in Monaco providing 300,000 bank accounts. Banks of Monaco provide bank account mostly to Monaco non-residents: around 85% of customers are non-residents and only 15% residents (50,000 local customers versus 250,000 foreigners). Total turnover of banking sector is above $1.5 billion. Despite the fact that large part of Monaco banking customers are physical persons, number of corporate clients also rises steadily.

for Investors and Traders - March 28, 29, 30

Cara Trading Advisors (Bahamas) [CTAB] is currently earning clients excellent returns while applying proven risk management techniques to protect their assets, held in their own online accounts.

I invite you to attend this tax-deductible international conference, held at the British Colonial Hilton, Nassau, and discover how we do it. We'll even teach you how to do it yourself.

On Day 1, learn about the wealth management model of the future, in which you always know where your money is, featuring total transparency with no conflicts of interest. Learn how Cara Trading Advisors (Bahamas) Ltd. [CTAB] is currently achieving excellent returns by trading effectively and properly managing risk. With a CTAB account your assets always remain in your name, in your own online account at Interactive Brokers. CTAB has the authority only to trade securities on your behalf, in accordance with your detailed risk/return profile, but can do nothing else with your money. You can monitor your account online, and can cancel the authority to trade with 24 hours notice. Unlike traditional wealth management models, fees are charged only for success.

The IRS is working out revised rules for its Qualified Intermediary program, which allows the U.S government to keep track of American money abroad.

As Senior IRS lawyer said the US was working in tandem with other high-tax Governments to round up tax evaders with accounts in offshore tax havens.

"We are concerned about U.S. people hiding their assets and not reporting their correct worldwide income," said Steven Musher, IRS associate chief counsel for international issues.

A date was not given for the release of the revised QI rules, but Musher suggested they may not be overly oppressive in order to allow banks some legroom, "We are trying to achieve the balance between increasing the reliability and quality of documentation to serve these various competing purposes," he said.

The IRS is keeping quiet on its latest action against UBS, with senior UBS officer Mark Branson to face a  U.S. Senate Permanent Subcommittee today.

Swiss offshore banking could the one to face the brunt of the tax haven crackdown with politicians unlikely to remain aloof from the media and public opinion.

A US Senate bill proposing intensified action against offshore centers is to be introduced within the next week, according to Senate aides.

Demands for further crackdowns against tax havens and tax avoidance schemes are expected in the bill, led by Senator Carl Levin, which builds on legislation introduced last year along with Barack Obama. The House of Representatives is to follow suit with similar measures.

Proposed action to be taken will include:

- Expanding tax reporting requirements for 'passive' foreign investment vehicles.
- The closing of a loophole that allows US citizens to avoid taxes on US stock dividends offshore
- The classification of US-controlled offshore corporations as domestic for tax purposes.
- Giving Federal prosecutors an easier ride by shifting the burden of proof over legality on to the owners or controllers of offshore structures.

"Offshore tax haven and tax shelter abuses are undermining the integrity of our tax system," said Levin in a statement (reuters). "We cannot tolerate $100 billion in offshore tax abuses burning a hole through our budget each year.

"We can fight back against secrecy jurisdictions and shut down offshore tax abuses if we have the political will."

Switzerland and the Cayman Islands are thought to be the ones on the receiving end of this latest assault. However the legislation is not likely to see a smooth passage through both houses, with many legislators in receipt of campaign funds from corporations with a vested interest in keeping loopholes open.

Switzerland's finance minister has raised the possibility of bargaining in certain cases over Swiss bank secrecy.

"Certain matters of fact must be up for debate," said Hans-Rudolf Merz, who also holds the country's presidency.
"We will perhaps have to make concessions in some cases or others.'

Merz also suggested that Switzerland may have to make these concessions in order to avoid the threat of inclusion on an OECD or G20 blacklist that would see Switzerland branded as an un-cooperative tax haven.

French President Nicolas Sarkozy has already hinted that Switzerland would be blacklisted if the current situation continued.

Being put on a blacklist could mean economic sanctions against Switzerland or directives ordering banks in OECD/G20 countries to either not bank with Switzerland or apply much stricter regulations on funds of Swiss origin.

There is speculation over whether such 'concessions' would mean fundamental changes in Swiss offshore banking and bank secrecy, or merely the release of more UBS clients currently under investigation.

Calls for changes to the secrecy law have met with almost universal dissaproval domestically, with many Swiss unwilling to change centuries of tradition or risk harming the 'golden goose' that funds a huge banking sector.