GENEVA, SWITZERLAND – This is an appeal to intelligent readers, and I know there are many out there, to at least reflect on the other side of the story if you’ve read the New York Times editorial published Friday 10 February on US pressure on Swiss banks.
It’s a remarkably trite piece of writing, with generalized and inaccurate remarks like “the Swiss banking industry refuses to exit the business of tax evasion” which are an embarrassment to more honest journalists who spend time researching, interviewing and pulling the threads that make for balanced reporting.
Our goal is to inform the public so public opinion can help drive negotiations to be based on understanding and fairness rather than acrimony; the NY Times appears to have another agenda.
For a start, look at the Reuters story today on Swiss banking and business industry suggestions, run by the Chicago Tribune, although I would have liked to see a suggestion that US banks in Florida ask for proof of tax payments from Latin American clients, just to put the comments about proof of payment difficulties in perspective.
The Economist can’t be accused of coming down soft on the Swiss, but its story this week provides better balanced reporting than that from NewYork.
Ironically, one of the people quoted there seems to admire the NY Times editorial but in the way you love a football team whose weaknesses you’re willing to overlook. You just want them to win.
The NY Times editorial has at least six factual errors (I got tired of counting after that), mostly just slight exaggerations, but they undermine any credibility the writer had at the outset. One of the errors is this: “The United States would like details of all secret Swiss bank accounts used by Americans to evade taxes”, as if every American who has a Swiss bank account is hiding money and evading taxes.
No, either the writer should say that within the scope of these negotiations the US is asking for help with data from 11 banks out of the 325 that provide wealth management or he or she should say bluntly that the US is asking for details of all Swiss bank accounts held by all Americans. Both of those statements are accurate. Most of the US accounts are not Jame Bond-style numbered accounts and they are not “secret” in the sense that Americans who live in Switzerland routinely file reports from their banks when they file Swiss taxes.
Americans at town hall meetings in Switzerland in the past two years, and more recently in Canada, have been objecting to the new Fatca rules because they object to the underlying principle the US follows, the only major country in the world to tax on the basis of citizenship rather than residence. Participants have said it forces them to bear a heavier burden than Americans who live in the US. Others object to the unfair treatment of double taxation, the case for Americans who are retired in another country, for example. And yet others object to the high cost of filing US taxes they don’t owe.
Fatca, the tool for obtaining this information, is part of the current US-Swiss negotiations, for a good reason. It will place a huge financial burden on Swiss banks, as well as banks elsewhere, with its extra-territorial legislation, and the ramifications of this go beyond the current situation where Swiss banks are refusing American clients, to the dismay of Americans who live in Switzerland.
The NY Times would have us believe, taking the American bully approach of bluffing, that it’s just a question of the Swiss government dragging its heels: “There is no need for the United States to accept this sort of arrangement. If Switzerland stonewalls, the Justice Department can indict banks that benefit from tax evasion and seize their assets in the United States, moves that could put them out of business. At some point, the Swiss government will find that result a lot more costly than handing over information on American tax cheats.”
The negotiators for both countries are perhaps wiser, well aware that Swiss banks, and those elsewhere, could also recommend to clients that they pull out of US securities investments, a move that would be dire for the US economy. Switzerland has a far larger chunk of offshore private banking than the US, a business American banks would love to get their hands on, particularly in Florida. And Americans are just a small part of that Swiss wealth management business, so losing that group won’t put Swiss banks out of business.
These distinctions are important for an intelligent debate to take place and for negotiators’ efforts on both sides to be understood at home. The Swiss, contrary to the image US media perpetuate, don’t love crooks. The income tax non-compliance rate in Switzerland, which uses the carrot more than the stick to get its citizens to pay, is estimated to vary from 12 to 35 percent a year. It hit the peak abruptly in 1990 as non-compliance in the cities of Basel and Geneva soared, then rapidly dropped again by 1995 to 21 percent, according to a study in 2007 by Lars Feld and Bruno Frey.
The IRS said in a 2006 report that non-compliance in the US was “low”, at an estimated 26 percent.
To balance out the debate a bit, here is what the Swiss government says in a report published Friday 10 February, “Report on international financial and tax matters 2012″:
“Switzerland has been holding talks with the United States on unresolved tax issues for more than a year. These talks relate to the US investigations into alleged infringements of US tax legislation by Swiss banks and the potential handover of client data. Under Swiss law, client data may be handed over as part of an administrative assistance
procedure at federal level, but not directly by a bank. The objective of the negotiations with the US authorities is to find a solution that is compatible with Switzerland’s current legal framework.
“The cases of the directly affected banks are to be dealt with through requests for administrative assistance: in the case of tax fraud in accordance with the existing double taxation agreement (DTA) of 1996, and in the case of both tax fraud and tax evasion in accordance with the new – but not yet ratified – DTA of 2009. Under the existing DTA, requests for assistance are possible even without the provision of specific names or personal details, as long as an alternative form of identification is supplied. Applications on the basis of specific patterns of behaviour should also be possible under the new DTA without the provision of specific names or personal details. However a decision has yet to be made by Swiss parliament in this respect.
“At the same time, a global solution is being sought that will apply to the entire Swiss financial centre and thereby put the past to rest. Another development geared to the future is the US “Foreign Account Tax Compliance Act” (FATCA), which was passed by Congress in March 2010. This legislation is designed to ensure comprehensive worldwide reporting on US taxpayers who hold bank accounts and assets with financial services providers outside the United States. The US authorities have set out a staggered timeframe for the implementation of this Act (expected to apply from 1 January 2014 onward).
“Given its significant international activity, particularly with the United States, Switzerland will be greatly affected by this legislation. FATCA envisages the imposition of a withholding tax of 30% on all payments of dividends, interest, sales proceeds, etc. from the United States to a foreign financial institution, irrespective of whether the financial institution in question is accepting payment on behalf of a US taxpayer, another client or indeed itself. To avoid payment of this withholding tax, a financial institution must sign an agreement with the US tax authority (the IRS) in which it accepts comprehensive reporting obligations with respect to all clients who are liable to pay US taxes. This will involve a substantial amount of administrative work. After the Federal Council instructed the FDF to initiate discussions, SIF made it clear to the US authorities during a number of different meetings that the implementation of FATCA had to take account of the concerns of the financial institutions that would be affected. Modalities for a simplified implementation of FATCA will be sounded out within the scope of talks on general financial issues.”
The Financial Times is more aggressively bumping out those of us who don’t subscribe, so we don’t get more than a fleeting glimpse of articles after the magic free number. So I’m not sure but I think the first line of the article said each Twitter character (not word?) is worth more than $7, based on what a nameless person who is, of course, close to the story, says new investors are willing to pay for it. The more words the better, and it’s irrelevant if they actually communicate anything. I wonder if Twitter has invited Qadaffi to tweet, a great way to multiply empty words quickly.
So googling “FT Twitter” to see what I missed, I trip over this intriguing bit of media data: Malcolm Coles in the UK putting together a table of how many followers various British media companies have on Twitter. Guardian Tech is way out in front, over 800,000, while Guardian News fares better than the FT, some 26,000 compared to roughly 20,000. This maybe tells us more about techies, who hug Twitter, than newsbies, who don’t quite get it, and more about tech writers than news writers. Whether it tells us much about the true value of Twitter is dubious.
But then again, I couldn’t read the FT article correctly. Their loss or mine?
I turned to the NY Times, which carries an article that so far you and I can read for free. It tells me Twitter is completing a “round of financing of around $100 million that values the three-and-a-half-year-old start-up at $1 billion.” It points out that the company “managed to raise money and score an impressive valuation without ever actually bringing in any significant revenue on its own.”
Sorry, I’m old school and I look for black socks, x number sold = x dollars, so I had to turn to Robert Scoble to make a bit more sense of what’s going on, and it worked, more or less. I found something useful down towards the bottom of this post. I looked at what he had to say on Twitter. Got totally sidetracked by something called the SUL, which sounds like it’s for me. A list of where to go on Twitter if you can’t make heads or tails of it.
Duh, weren’t we talking about Twitter’s new investors? I probably wouldn’t have bothered to read except that I know Robert Scoble is a live person, who comes to Geneva for the Lift conferences, and is in fact pretty congenial. I went to a cocktail where he was more or less the guest of honor but not having done my homework I didn’t know that and marched up to the guy alone in the corner, wine in hand and said, “Hi! So who are you?” thinking I would make him feel at home. “I’m Microsoft’s blogger,” he said. Right. He’s since moved on.
Keep talking. Somebody thinks our words have value. Nananananah (wow: 77 bucks right there!)
The next two weeks will be tense ones for the Swiss government and UBS, with difficult negotiations underway with the US Justice Department over the Swiss bank providing information to IRS tax officials on 52,000 bank clients. The problem dates back to July 2008, and in the early months there appeared to be little US media understanding of, or support for, the Swiss position, but the tide may be turning. The New York Times ran a more balanced editorial last week on the issue after several earlier articles that seemed to show UBS and Switzerland in general as evil-doers. This week the Wall Street Journal and today Time magazine carry articles on the standoff, and show a better understanding of the Swiss argument that the US is playing bully, expecting to ride roughshod over an existing tax treaty.
Nevertheless, the clichés don’t die hard and as is too often the case Time starts out by mentioning chocolate, watches and neutrality, for American readers who would otherwise possibly mix us up with Sweden, that other cold Sw- country. The clock might be ticking for the negotiators but at least Time left out the enduring (Austrian) cuckoo clock myth.
The answer is yes, just as the US tax authority, the IRS, is after every other bank that might have taken money from American tax evaders, and the list is undoubtedly very long. Le Temps today carries a story suggesting that the IRS is about to pounce on Credit Suisse and HSBC, among others, but if you read closely, the main source is the not very reliable New York Times. I say not reliable because although the Grande Dame of US journalism is one of the best newspapers around, its reporting on UBS and Swiss banks in general has tended to be lopsided to the point where I remain suspicious about its editorial motives.
The New York Times in this case carried the same story several US publications ran at the end of April following a 27 April presentation in Miami Beach, Florida by Daniel Reeves at the Financial Due Diligence Conference organized by “Offshore Alert,” a financial newsletter.
Reeves has gained celebrity status as the IRS agent whose lengthy document, presented to a US Senate committee, led to the US Treasury Department demanding names of clients of Swiss bank UBS. Reeves in his presentation did not provide the names of any banks the IRS will be going after, but he was reported by Reuters 28 April to have said that the IRS is organizing more John Doe summonses – what some, including the Swiss government, refer to as “fishing expeditions” because the IRS is looking for lawbreakers whose names it does not have.
One of the reporters presumably at the conference is a freelance self-described investigative journalist, Lucy Komisar, who wrote of Reeve’s speech that “He declined to name the new targets, but one might imagine that UBS’s giant Swiss competitor, Credit Suisse, is among them. Swiss banks will provide information about drug traffickers and other criminals, but not tax evaders, because the Swiss don’t consider tax evasion a crime.”
The Miami Herald was also at the conference and it quotes Reeves the same way, calling his comment an “extraordinary disclosure” but also noting that he declined to name any banks. No countries appear to have been mentioned by Reeves, either.
The New York Times story is not their own, but the Reuters story, picked up from the wire service. Yahoo picked up a longer version of the Reuters story, where there is no mention of Credit Suisse or any other banks by name.
Komisar’s story is carried by IPS, Inter Press Service, a news agency. Komisar writes from the US, so might be forgiven for not realizing that tax evasion is indeeed a crime in Switzerland, but punishable by a fine, rather than the prison term that goes with tax fraud. The difference is somewhat like that between a venial or a mortal sin in the Catholic church, and a misdemeanor or a felony in the US, although the crime of tax evasion in Switzerland probably sits somewhere between the latter two.
Meanwhile, her story, spinning out across the Internet, is being picked up by a small number of other publications.
And in translation, from English to French in Switzerland, Credit Suisse has become a clear suspect, although there does not appear to be any foundation for this. In the nature of journalism, foreign journalists could well translate it back into English as an article run in the generally reliable newspaper Le Temps. Let’s see if that happens next.
Kids call this game Telephone or Post Office.
Bad news again from the New York Times company, widely considered one of the world’s top newspapers. The New York Observer reported 20 November that after posting a loss-making third quarter the dividends paid out to NY Times shareholders, including the Sulzberger-Ochs family which owns a large chunk of the company, are being cut by about 75%. Shares have declined nearly 70% in one year, Ad Age, the advertising industry bible, reported the next day, with advertising sales falling more than 16% in October, compared to October 2007.
The news doesn’t bode well for the newspaper industry in the US. National Newspaper Association overall figures for 2008 to date show that even online advertising, the only silver lining in the gloomy newspaper ad cloud, fell in the second quarter of 2008, for the first time in several years – and this in an election year, and before the economic news worsened considerably over the summer.
Maybe bigger owning smaller, the case of the New York Times Company and the standard model for journalism in much of the world, is not the path for media in the future. Reflect on this: the BBC Trust at the end of last week refused to let the BBC go ahead with plans to spend £68m for a network of local news websites with video content. Let local newspapers do it, was the message.