Justice Department's request last week for the names of 52,000 account-holders at Swiss banking giant UBS

Swiss Bank Miss. WSJ Editorial
Look who's bullying America's friends in Old Europe now.
The Wall Street Journal, Feb 25, 2009

Even in normal times, Swiss bankers are hard to love -- with their image of numbered accounts, high-security safe deposit boxes, and allegations of tax evasion.

So there's been very little sympathy for the Swiss in the wake of the Justice Department's request last week for the names of 52,000 account-holders at Swiss banking giant UBS. John A. DiCicco, the acting assistant attorney general of Justice's Tax Division, crowed that the "veil of secrecy has been pulled aside" from Swiss banking, while other officials emphasized the injustice of evading one's tax obligations while others pay their fair share -- presumably, cabinet nominees included.

All of this may make for good press, but that doesn't mean it's good law enforcement. Tax evasion is wrong and tax evaders should be pursued within the limits of the law. Justice's recent request for 52,000 names and accounts, however, looks like prosecutorial overreach.

It's also turning out to be lousy -- dare we say, unilateral -- foreign policy. The Swiss government withdrew its representative from a Senate hearing chaired by Michigan Democrat Carl Levin in protest over the Justice Department demands. Originally scheduled for yesterday, the hearing has been postponed. Switzerland says the subpoena violates a decades-old treaty on legal assistance between the two countries, and it has a case. Under that treaty, the Swiss agreed to cooperate on specific requests on a case-by-case basis, provided that there was evidence of a crime and that the client had an opportunity to present his side to Swiss authorities.

The Justice Department has been frustrated with the slow pace of that process on the Swiss side. But then again, the number of accounts involved is unprecedented, and frustration with previously agreed rules of due process isn't an excuse for abrogating a bilateral treaty of long standing. When they were in the minority, we seem to recall both Senator Levin and President Obama opining that the U.S. must show respect for its allies, the rule of law, and so on.

This is not to exonerate UBS, which admitted to misdeeds in its deferred prosecution agreement and is paying a $780 million fine. It has also turned over the account information of some 250 UBS account holders as part of the settlement.

But bank secrecy isn't merely a quaint Swiss tradition. It's the law of the land there. And if UBS acceded to the Justice Department's demands without adhering to Switzerland's standards of due process, the bank could find itself on the wrong side of Swiss law. Last Friday, a Swiss court ordered the Swiss banking regulator not to turn over some of the information requested by Justice.

It was in part to avoid this sort of dilemma that the two countries came to a mutual understanding about how to handle tax cases some 30 years ago. But in its zealous pursuit of suspected tax evaders, the Obama Administration is trampling that treaty and undermining its relationship with a country that has long represented our interests in places like Cuba and Iran. The Swiss are aghast that an Administration that has promised to be punctilious about the rule of law for terrorists has no time for a friend when it comes to tax-evasion suspects.

If Carl Levin wants to do something about evasion, he'd do better to examine the perverse incentives in the U.S. tax code for people to take their money overseas -- such as the extraordinary requirement that Americans, almost alone in the world, pay taxes on their world-wide income no matter where they live. Those and other punitive provisions of our tax code don't excuse evasion. But when they create incentives for more of it, they're also driving capital and tax revenue away from our shores.

Speaking of capital, Switzerland is the fourth-largest foreign investor in the United States. Threatening its sovereignty and ignoring the treaties we have with the mountain republic seems like a bad way to keep that money flowing our way at a time when we need it.