Paul L. Caron

Tuesday, February 2, 2010

Germany to Buy Stolen Swiss Bank Data to Catch Tax Scofflaws

German Chancellor Angela Merkel plans to purchase a list of 1,500 German tax avoiders hiding money in secret bank accounts in Switzerland from an IT specialist who once worked at HSBC in Geneva (who allegdely is seeking $3.5m (£2.1m) for the list of names. The German government may net over $100m from the tax scofflaws.

(Hat Tip: Ann Murphy.)

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There is precedent for Germany's action. In 2008, a bank employee from LGT bank in Liechtenstein sold banking information to the German intelligence service. That led to many prosecutions against Germans for tax fraud. The German government also shared the banking data with other Western governments.

It is worthwhile to note that offshore banking secrecy faces multiple challenges: in addition to the institutional level (i.e., banks like UBS providing account information to foreign tax authorities like the IRS), and the governmental level (i.e., the relaxation of banking secrecy laws and increased transparency of former tax havens like Switzerland, Liechtenstein, Monaco, etc.), we have the individual level: renegade bank employees looking to sell confidential bank data for a price.

Of course, this third challenge is not new. In 1999, the head of a Cayman bank provided banking data to the US government in return for leniency in his criminal prosecution. In 2008, we saw the LGT bank info sold to Germany. In 2009, an HSBC employee provided banking data to France.

If the bank accounts are tax compliant (whether because the account owners have declared them all along, or brought the accounts into compliance via voluntary disclosure), then the challenges to banking secrecy are less of a concern.

Posted by: Asher Rubinstein | Feb 3, 2010 6:00:33 AM