When everything was going down with UBS, a different Swiss banking firm came out with a very strongly worded letter bashing the United States. I have no idea how this possibly got past my radar, but it did.
The Swiss Banking firm, which claims to be the oldest in the country, founded in 1741, is known as Wegelin & Co. In terms of assets under management it actually seems pretty small, but a quick google search indicates that it is a leader in the banking industry in terms of IT and operation.
Wegelin & Co.’s Letter
In Investment Commentary Number 265, appropriately titled, “Farewell America” Wegelin had some pretty harsh words for the United States. The full Wegelin Letter is 8 pages or so, but I wanted to quote the part that I read…the part that at first got my blood boiling.
The agreement between the USA and Switzerland under which Switzerland is to provide administrative assistance with regard to 4,450 UBS clients suspected of tax fraud is, in our view, remarkable in three ways. Firstly, we note the way both parties are dressing it up in the aftermath of the battle. Everyone is talking of a “success”. The IRS, the American tax authority, surely rightly, for it has got what it wanted, namely access to a large number of specific client names, combined with persisting uncertainty on the part of all the others as to whether they are among those names. The UBS is happy not to have to pay another fine, and to be rid of the heavy burden of legal proceedings. And the Swiss government regards it as a success inasmuch as from their perspective the agreement preserves the rule of law and offers the clients affected the possibility of legal recourse to the federal administrative court.
But there are also losers, of course. These are the people affected, who must now expect legal proceedings against them as suspected tax cheats, and who had, until relatively recently, been promised that precisely this would not happen. Promised by whom? By the bank concerned (among others), which had generously interpreted and intensively exploited an explicit gap in the 2001 “Qualified Intermediary” (QI) agreement; by the supervisory authorities, which were fully cognizant of all this activity, but never questioned it; by the Swiss government, which only a few months ago had spoken of the “brick wall” that foreign authorities would encounter, were they to attack Swiss banking secrecy – for example through fishing expeditions, such as an application for administrative assistance against several thousand clients. Promises, connivance, a pretence of resolute behaviour – and now collapse. The appearance of success conceals the reality of a breach of trust.
Trust: is this the right word at all for something so disgraceful as tax evasion, or even tax fraud? Serves them right, these bloated capitalists, if they land in the dock! This is the position of the moralizers, as frequently stated in the Swiss media, among others. It is astounding, and this is the second interesting observation, how completely naturally those who claim the moral high-ground rush to join forces with the authorities and their financial requirements. At the risk of once again winding up certain specialists in business ethics, let us briefly recall the sort of tax authorities we are dealing with, and the sort of state they serve: a country that, over the last 60 years, has unquestionably been one of the most aggressive nations in the world. The USA has fought by far the largest number of wars, sometimes with, but mostly without a UN mandate. It has broken the international laws of war, maintained secret prisons, and fought an absurd war against drugs, with serious consequences both abroad (Columbia, Afghanistan) and at home (according to reliable sources, the tentacles of the narcotics mafia now reach well into political circles). With breathtaking moral duplicity, the USA maintains enormous
offshore havens in Florida, Delaware and others of its states. The moralizers have joined sides with a nation that still makes extensive use of the death penalty, and that has a legal system under which lawyers can get rich on the misfortunes of
their clients. Liability cases often end in verdicts with exorbitant damages, which makes business activity extremely risky, for medium-sized enterprises in particular. The moralizers provide intellectual support for a country that allows its infrastructure to collapse, and then stuffs convicts into hopelessly overfilled jails, after what are not infrequently
dubious proceedings. They fund a nation that tolerates – or rather, causes – regular crises in the global financial system that it manages. A country whose underclass enjoys neither the benefits of an adequate education, nor a halfway
functional healthcare system; a country whose economic system is increasingly inclined to overconsumption, and in which saving and investing have increasingly become alien concepts, a situation that has undoubtedly been one of the driving forces behind the current recession, with all its catastrophic consequences for the whole world.
Those who wish to wield the sword of morality against tax evaders cannot avoid facing some critical questions with regard to the morality of resource allocation. Were such questions to be excluded, we would be left with nothing but the issue of just taxation, which also arises, as we well know, when, in Sicily, one baker must make a contribution to the honourable society, and another not … It is more productive, particularly in matters of taxation, to leave morality aside, and to take a non-judgmental view of tax liability, the meeting of obligations, and, if need be, the various forms of evasion, as givens resulting from the prevailing legislation and its enforceability. Which brings us to the third thing that seems remarkable. What exactly was the “prevailing legislation”? And what about its enforceability?
In 1996, the USA concluded a new double taxation agreement with Switzerland, which, among other things, regulated the conditions for administrative assistance in matters of taxation. Switzerland agreed to provide assistance with regard to
“tax fraud and the like”. In other words, the extension of the concept of “tax fraud” had long been pre-programmed; the USA had to wait for its enforcement only until Switzerland had apparently, and perhaps in reality, been driven into a corner by the activities of the accident-prone UBS. In fact, truth to tell, we should have known: Swiss banking secrecy with regard to the USA was well and truly relativized not in 2009, but already in 1996.
What we need to do now, sine ira et studio, (and putting aside all politically motivated windowdressing, all genuine, or merely nominal, moral issues) is to analyze the situation, draw conclusions and, where necessary, act upon them. This is exactly what we intend to do in what follows, by taking a closer look at two important components of American tax law. And, surprise, surprise; the next round of fiscal enforcement staged by the Americans will be devoted not to the American
super-rich, but to non-Americans who never in their lives had any intention of evading taxes.
Lengthy, and heated huh? That is only a page and a half of the 8 page letter.
Reaction to the Wegelin Farewell Letter
I truly believe that most Americans have a jingoistic streak in them, almost by nature. It is the sort of feeling inside me that says, I will devote posts upon posts ripping my Country…but heaven help you if you do it!
Then I took a step back after reading it, and thought Good for Wegelin! We (however you want to define it, Us/Obama/Bush/IRS/etc) are coming into a Country and forcing them to change or disobey their Country’s Constitution (Yeah! Swiss’ banking secrecy laws are built into their Constitution). Imagine, another sovereign nation coming over here and telling our Press to keep their mouth’s shut.
I go back and forth on it, UBS has offices here so it should comply with our laws, but to what extent?
The UBS situation is old news, but what are your feelings on Wegelin’s letter? Does it make you mad? Did you go through the range of emotions like I did?