Last year the U.S. Department of Justice set up a program that would allow Swiss banks to share information about U.S. citizen account holders (and to pay fines where appropriate). A hundred out of Switzerland’s roughly 300 banks signed up for the program, and the FT reports that those banks are now threatening to freeze the accounts of any U.S. customer who doesn’t provide proof of tax compliance. This is good news. As New York’s legendary DA Robert Morgenthau wrote for TAI (“Tax Evasion Nation“), tax haven abuse is a costly problem for the US:
Efforts at tax evasion have probably always been abundant, but what has changed is that the schemes to evade taxes have become more numerous and complex, the number of offshore jurisdictions with little or no taxes or responsible government supervision has increased, and the amount of taxes now evaded has grown in proportion. About a decade ago studies estimated that the Federal government was losing about $70 billion every year due to offshore tax evasion. That number is undoubtedly much larger now. […]The Cayman Islands boasted that it had over U.S. $1.9 trillion on deposit as of September 2007, an increase of $500 billion over the previous 18 months. Total deposits in the Caymans now amount to four times the total deposits in all the banks in New York City.The Caymans, notorious for its bank secrecy laws and lack of supervision over financial markets, has figured in many major financial scandals. The islands were the nominal home of Long Term Capital, the giant hedge fund that collapsed in 1998. Enron Corporation used 441 Caymans affiliates to hide $2.9 billion in losses. Parmalat Finanziaria—which my office investigated preliminarily before turning over our evidence to Italian authorities—used Caymans subsidiaries to falsely claim $4.9 billion in bank deposits that it did not have. Bear Stearns’s serious troubles began last year when two hedge funds incorporated in the Caymans collapsed following the devaluation of its subprime mortgage-backed investments. The cost to investors was then estimated at $1.6 billion.
Read the whole thing for some background on the New York DA’s efforts to combat the problem—and the need for the Federal government to continue to step up its efforts to rein in tax haven abuse.