In September 2009, the US amended the 1996 US-Swiss tax treaty to make it obligatory for the Swiss to release essential information on US taxpayers with Swiss bank accounts hidden from the IRS. This development has broken the hitherto sacrosanct Swiss secrecy laws on banking and came about because the Swiss bank UBS admitted to abetting its US customers in hiding taxable assets in accounts with the bank. After UBS, the US dragnet also involved investigations into alleged tax evasion involving other Swiss and offshore banks, namely Credit Suisse AG, Wegelin & Co and HSBC Holdings.
Senator Paul insisted the changes made were too ‘sweeping’ and said he is exercising his privilege to delay a Senate vote. He said, “We’re concerned about the due process of whether or not people have any kind of process before their records are looked at, the privacy of your banking records. There needs to be some constitutional protections to your banking records.”
Back in January last year, President Obama sent the changess protocol to the Senate and the Senate Foreign Relations Committee approved it in July 2011. Senator Paul’s action would effectively compel Democrats in the Senate to spend a week of floor time before voting to ratify the protocol. To be ratified the changes require support from two-thirds of the Senate.
The current tax treaty states that the Swiss can hand over data on a US taxpayer suspected of “tax fraud and the like.” The definition of “tax fraud and the like” is acts such as using false documents or third parties to disguise account ownership. The Swiss do not have to deliver data if taxpayers are suspected of evasion.
But under the changes to the treaty, the Swiss cannot deny any request for information because it would violate domestic bank-secrecy laws. And the US can request account data without specifying taxpayers by name. This entails the Swiss giving administrative assistance, including for group requests, in cases where the IRS produces clear evidence of a suspected offense by a Swiss bank and can furnish a “pattern of behavior”.
Another Senator, John Kerry (D – Massachusetts), the chairman of the Foreign Relations Committee, said if the Senate does not ratify the protocol it would be detrimental to the US overseas. He said, “The consequences are that we are losing credibility globally, in terms of our accountability.”
But not everyone opposes what Senator Paul is doing. Former assistant Attorney General who also oversaw the Justice Department’s tax division, Nathan Hochman, said he “applauds” Senator Paul’s concern for taxpayers’ privacy. Hochman went on to say the present treaty and tax information exchange agreements “provide the government with more than enough horsepower to obtain the records they are seeking”.