Threat of IRS crackdown too big a risk, says official at Swiss financial regulatory agency
A senior Swiss regulator said Tuesday that banks were right to close thousands of American-held accounts, and even encouraged Swiss financial institutions to avoid U.S. clients because of unclear Internal Revenue Service rules.
Many of these Americans have "no tax issues," said Urs Zulauf, deputy chief of the Swiss Financial Market Supervisory Authority, or FINMA. But even if they aren't dodging U.S. tax authorities, he said they are still too risky in light of the U.S. crackdown on Swiss banking giant UBS AG and proposed U.S. regulations on offshore banking.
Americans, at home and abroad, are increasingly struggling to invest with foreign banks, according to U.S. citizens' groups overseas.
UBS transferred many accounts to a U.S.-based subsidiary, while private bank Wegelin announced its withdrawal from cross-border services last year with a "Goodbye to America" letter that cited increased regulatory requirements for foreign banks and planned changes to the estate tax.
In Switzerland, where banking secrecy rules long shielded both tax evaders and legitimate investors, the recent clampdown has been startling, as banks sought to protect themselves from growing American government demands for information and less Swiss resistance to cooperation.
FINMA last year ordered financial data on 150 Americans suspected of tax fraud handed over to U.S. authorities, in a historic break from past practice. The two countries later agreed to an exchange of 4,450 further UBS client names, but that deal must still be ratified by Swiss parliament.
"Various banks have responded to the pressure exerted by the U.S. authorities by terminating their business relationships with thousands of U.S. clients," Zulauf said. "FINMA must tolerate and even encourage the policy of these banks, which is justified by risk considerations."
The uncertainty regarding future U.S. rules, and the IRS' intentions, means dealing with U.S. clients could "further damage the Swiss financial center," he said.
Andy Sundberg, an American in Geneva who campaigns for fairer treatment of U.S. citizens abroad, said he wasn't surprised.
"It's as if the U.S. clients are bunker-busters now," he said. "Once a bank takes a single American client, it then has to open all its books to the IRS. I can understand their reluctance."
