Thursday, March 5, 2009

For Wealthy Tax Cheats, The Day of Reckoning is Here

I posted this blog on yesterday. It has created a firestorm of controversy. A friend said that people in Palm Beach are going to be upset. I said that only the tax cheats will be upset.

In some of the great houses in Palm Beach and the penthouses of Manhattan's East Side, wealthy Americans are sleeping fitfully, their nights haunted by fear of exposure. In the Bush years, the IRS became so lax in its enforcement that cheating became routine and hidden Swiss bank accounts almost as much a status symbol as private jets.

Why not do it? Everyone else was doing it. You knew you would never be caught, and you were protected by accountants and lawyers to hide your tracks. Your deceit and betrayal of American laws was shrewd strategy. It's grossly unfair that after all these years you might have to take the perp walk. And doing it, you're not going to look as nonplussed as Bernie Madoff did either.

It was so simple. Say you had a women's clothing company importing dresses from China and you were purchasing $1 million in dresses. You had the Chinese manufacturer send you a bill for $2 million. You wired him the money and he immediately wired half into your Swiss account. And say you've got a half billion dollar company and you keep doing this for ten years. Figure it out. Nobody could ever catch you as long as the Swiss kept their accounts secret.

This is big business. A person I know decided to check out her account in Switzerland. She walked into a tiny bank that looked like a 19th century cuckoo clock and took the old elevator upstairs. It opened up to a modern trading floor as big as a city block.

And now in the early days of the Obama administration, the gig may be up and there is stark terror among the knowledgeable. The sheer amounts of money waiting to be discovered are staggering, billions upon billions of dollars. There is so much money out there that once the taxes and penalties are paid, it could have a significant impact on the budget. And it couldn't be happening to a greedier, more selfish lot, most of them faux patriots to the core.

The first moment of truth arrives Monday when Attorney General Eric Holder meets with Eveline Widmer-Schlumpf, Swiss councilor in charge of police and justice. In the wake of the UBS debacle, the American government is seeking information on 52,000 American customers. The Swiss are willing to give up 250 customers whose tax fraud is most obvious, but not the others.

The Swiss have a special gift in masking their hypocrisy and narrow self-interest in a veneer of morality and principle. The bankers of Zurich are not happy at this seeming attempt to abrogate treaties that allow thieves to hide their funds with impunity.

Faith Whittlesey, a former ambassador to Switzerland, is a brilliant woman and a dear friend of mine from whom I learn even when I disagree. And I've rarely disagreed more with her than I do on this one. I find her stern warnings in The Financial Times Monday hardly enough reason for the American government to back off. She writes that "one of the largest Swiss political parties is agitating for retaliation that would include discontinuing Swiss representation of US interests in countries such as Cuba and Iran, where the US does not have embassies" and warns of "more virulent anti-Americanism."

I don't know about you, but I'm not sitting here quaking. If it comes to it, I'm willing to give up Swiss chocolate. But as an American who pays his taxes, I want these wealthy tax cheats to be found and punished severely including serious prison time for the worst of them.


theduchessofH said...

I am just reading your book, and enjoying it immensely.

I think this blog entry is very brave,and I also hope the tax evaders are revealed.

I am so proud of my husband who has always paid his taxes, which in Canada are substantial.

The only thing Swiss that we have is a plane.


Doug said...

I just finished "Madness" and enjoyed it very much. Thank you for pulling the curtain back on this world so foreign to most of us. The people in this community are no better or worse than the rest of us but the sense of privilege and immunity from standards the rest of the country follow needs to be clipped. I am sure you'll take plenty of heat for articles like this (as you have for the book) but I hope you keep them coming.

D. said...


I'm wondering how confident are you that you got it right -- that what you present in your book is in fact the truth.


P.S. I'm about a third of the way in and I get the impression that there is a lot of inference going on... I would have liked to see a lot more in terms of how you reached your conclusions. D.

Paramendra Bhagat said...

Thanks for the article on Rajeev in the Huff Post.