Swiss bank Julius Baer told hundreds of Americans how to evade U.S. taxes on a total $600 million in wealth, according to a court ruling published Wednesday in Switzerland.
The bank, one of 12 in the country being prosecuted by U.S. authorities for abetting tax evasion by Americans, told 400 American clients to use codenames and “sham corporate entities” to hide their money from their government, the ruling says. Julius Baer allegedly assuaged client concerns, Reuters notes, by telling them that the bank had no office on U.S. soil and therefore could not be subjected to the same level of legal scrutiny as larger firms like UBS.
UBS, Switzerland’s largest bank, agreed in 2009 to give the Internal Revenue Service (IRS) a huge pile of records related to its tax dodging work for Americans in order to avoid criminal prosecution by the Justice Department (DOJ). That bank’s cooperation, combined with the collapse and closure of Switzerland’s oldest bank following a similar investigation by U.S. authorities, has helped stop many Swiss banking firms from dodging IRS and DOJ investigators. Thanks to such increased cooperation and changes to Switzerland’s notoriously strict bank secrecy laws, the coming years should provide an unprecedented look into the wealthiest Americans’ tax avoidance strategies — a peek that could lead to more criminal charges.
The broader problem of tax evasion and avoidance is much more serious than the $600 million Julius Baer helped hide from U.S. taxes. The money involved in this case is less than one tenth of one percent of the annual federal budget, but taxpayers get cheated out of $300 billion each year through similar schemes, both legal and illegal. The revenue the IRS loses from law-breaking individuals like the Baer clients and revenue-stashing corporations like Apple amounts to almost 9 percent of the federal budget.
Outside of Swiss bankers with codenames and Cayman Islands bankers, much of the money that gets siphoned away from the public is routed through carefully designed corporate accounting schemes that take advantage of a long-standing international race to the bottom on tax law. The problem of legal tax avoidance is much thornier than the individual tax evasion that Julius Baer allegedly facilitated.
It looks to be a big year for combating individual tax ducking. In 2014, as many agreements made under the Foreign Account Tax Compliance Act between the IRS and the governments of various tax haven countries, come into effect, revelations like those in the Julius Baer case could become commonplace.