Mumbai: Under pressure from federal authorities, Swiss bank UBS is closing the hidden offshore accounts of its well-heeled American clients, potentially allowing their secrets to spill into the open.
In a step that would have once been unthinkable in the rarefied world of Swiss banking, UBS will shut about 19,000 accounts that prosecutors suspect have gone undeclared to the Internal Revenue Service. UBS will transfer the assets to other banks or other divisions within UBS, or will mail checks directly to the account holders, creating paper trails for federal prosecutors who are examining whether UBS clients used such accounts to evade taxes.
The clients now face stark choices: They can cash their checks, and thereby alert the authorities to any potential wrongdoing, or not cash them, effectively losing their money. Or they can transfer the money to new banks, a procedure which, in the case of foreign banks, requires depositors of more than $10,000 to report the new account to the Treasury Department.
UBS, the largest banking institution from Switzerland, has also committed to provide names of the top 250 persons who have kept money in offshore accounts, out of 19,000, to US authorities. UBS has also committed to pay a fine of $780 million to settle claims that it has defrauded US Internal Revenue Service.
The original charges are that the UBS offshore accounts have helped Americans hide $18 billion in 19,000 accounts. But now, the US state department is compelling it to disclose about 52,000 American accounts kept with UBS.
Swiss authorities used to argue that if there is no criminality under Swiss laws (which do not recognise currency violations and tax evasion as offences) the information on offshore accounts could not be divulged.
The same position was taken in Bofors case also. Now that wall has been breached by this US agreement with Swiss authorities.
UBS, the world's largest private bank, also said that it would stop offering to American clients offshore private banking services that are not declared to the IRS.
In all these discussions, one critical aspect is not to be missed -- the wealth hoarded by Indian leaders in commerce/ politics/ military/ arts, etc in the foreign banks for the last five to six decades.
A recent development makes us alert to our own wealth stored abroad.
Liechtenstein is a country as well as a convenient "letter box" for moneyed people all over the world to hide their ill gotten wealth. Its crown prince, Alois von und Zu Liechtenstein, is angry with Germany for launching a massive tax-evasion investigation involving funds hidden away in his countries vaults. Germany's intelligence agency seems to have paid an unnamed informer more than USD 6 million for confidential and secret data about clients of LTG group a bank owned by the Prince's family. The revelations have already led to the resignation of the head of Deutsche Post - the former German mail service -the world's largest logistics company in the world.
The German foreign intelligent agency BND seem to have got more than 700 clients of the LTG bank and the German prosecutors are using this information to target hundreds of suspected tax evaders in the last few days. In the meantime LTG claims that the "stolen data' contain information about 1400 clients and only 600 of them are Germans.
The German government has announced that it would share information on accounts held in the tax haven with any government that wants it, for free.
Intriguingly, Indian government was silent on this issue and did not approach the German government for a long time for a look into that data. Later, it wrote a cursory letter under pressure from Opposition but has not disclosed the response of the German government.
It is common knowledge that trillions of dollars of Indian money is in various tax heavens like Antigua, Switzerland, Bahamas, Liechtenstein, Isle of Man, and St Kitts, etc.
Throughout the Nehruvian socialistic period, under-invoicing of exports and over-invoicing of imports was very common. Along with that, substantial portion of external earnings were siphoned off to these tax heavens. In a socialistic way, all leaders, be they from business, politics, film, sports or bureaucracy, participated in creating what we may call secular wealth cutting across caste and creed. Also, good portion of the defence commissions were settled abroad. Plus some of our bureaucrats and entertainers and artists have also accumulated wealth abroad. This lobby is well-entrenched and one of the main losers in the appreciation of the rupee.
Worst part of the story is the loss of these deposits to Swiss banks themselves up on the death of some of these depositors who have not passed on the relevant account information to their progeny.
The Swiss banks appropriate such sums after some years (seven to ten) after the death of the beneficiary if there are no claimants.
These are operated using codes but most of them require passport and its number as a proof. That is the reason one finds some persons travelling to Switzerland with all expired passports. Zurich is the only European town which has Hindi slogans written on the side of its trams. Of course it is supposedly linked to Bollywood, but the India traffic to Zurich has to be seen to be believed.


