July 2, 2008
Do not tweak the tail of the Internal Revenue Service
Defy the FSA, the SEC, the CFTC or Iosco if you dare. But do not under any circumstances annoy the IRS.
This seems to be the lesson that UBS, the Swiss bank, is now learning as it lurches from the sub-prime credit crisis into another over how it allegedly helped US citizens to evade taxes.
The sub-prime crisis has cost UBS dearly. It has made $38bn in asset write-downs and its former chairman and chief executive have both departed.
But those in Switzerland could at least comfort themselves that UBS’s greatest asset – its wealth management, or private banking, arm – remained unscathed.
That comfort has now been removed, with juicy tales in the Wall Street Journal of one Swiss private banker allegedly smuggling diamonds into the US in a toothpaste tube on behalf of a rich client.
I used to write about private banking and was constantly assured by Swiss banks that they had shed their former role in helping Europeans to avoid tax and were instead favoured for their expertise in fund management.
Well, tell that to the Internal Revenue Service and the Department of Justice, which are now hot on the trail of Americans who evaded taxes with the help of UBS.
The big problem with this is that it undermines UBS’s core competency – wealth management. If that part of the bank gets tarnished, then who knows how much damage the scandal could cause UBS?
The IRS is known not for respecting national borders. US citizens and residents are taxed on their worldwide income and assets, no excuses. That is one reason why “non-doms” have found London a happier place to be.
To anyone who has had dealings with the IRS, the idea that it is going to defer to Swiss traditions and refrain from wringing UBS dry is laughable.
In fact, UBS is a perfect target for the IRS and the DoJ. It is foreign, it is large and it has allegedly been aiding US tax evasion. Oh dear.
Sir , aiding tax evasion is the term used by a prosecutor . Financial industry in Switzerland is governed by the rule of law and not anarchy. Let the rule of law do its work even in the US and comply with international norms without finding guilty UBS or any other institute beforehand.
Posted by: ariosto | July 3rd, 2008 at 9:01 am | Report this commentIf the law of the land has neen breached, the Authorities are fully justified in handing out the consequences. It is very disappointing to read that both IRS and the DoJ have over-riding prejudices governing their functions. I sincerely hope, that is not how they work.
Posted by: Sova Bhandary | July 3rd, 2008 at 11:22 am | Report this commentThe commonality between UBS’s massive asset write-down, and UBS’ problems with IRS/DoJ is high-flyer Marcel Rohner, UBS CEO since 1 year.
Posted by: Jon Rex | July 3rd, 2008 at 3:48 pm | Report this commentAs CEO of UBS’s Wealth Management & Business Banking unit in the period 2002-2007 (and as COO for 1 year before that), Rohner has to take responsibility for the alleged mispractices of the WM&BB business unit.
As for the asset write-downs in the Investment Banking business unit, Rohner must again take co-responsibility. As Member of the UBS Group Executive Board (GEB) from 2002, and as the GEB Member most qualified in matters of risk (Rohner was Group CRO in the period 1999-2001), Rohner is as responsible for the UBS write-downs as anyone.
The career of Marcel Rohner is a lesson to all high-flyers with good connections, and luck; eventually they crash. Marcel Rohner is the first banking CEO with a quantitative finance background, and he has put that quantitative background to shame. Rohner’s story will be remembered for years.