Federal Officials Reach Bank Privacy Agreement with UBS

Washington, D.C.,
August 12, 2009—Statement of John Berlau,
director of the Center for Investor and Entrepreneurs at the Competitive
Enterprise Institute, on a reported deal between the United States government and Swiss
bank UBS AG on the release of account holders’ names: 

Lawyers for the U.S. government and the Swiss bank UBS AG have
announced that they have reached a deal on releasing to the U.S. the names
of UBS account holders. No details of the agreement have been released.

I will be watching for and
examining details that are released. Whatever deal is reached, the Obama
administration’s conduct in the case, disregarding both privacy interests and
the sovereignty of other nations, has been deplorable. It has set a precedent
that could endanger U.S.
competitiveness as well as civil liberties throughout the world.

After UBS – with the Swiss
government’s full cooperation – turned over the names of 250 customers
suspected of violating U.S.
tax laws, the U.S.
government turned around and asked for a whopping 52,000 additional names. The
Swiss government naturally objected to such a fishing expedition as a violation
of the nation’s privacy laws.

Switzerland
rightly argued that such a large volume of names could not be justified by
probable cause or “reasonable suspicion,” a requirement of the tax treaty Switzerland had negotiated with the U.S. In
addition, such a fishing expedition goes against the spirit of the Fourth
Amendment of the U.S. Constitution, which protects Americans from “unreasonable
searches.” A forensic analysis commissioned by UBS from Alix Partners found
that many international students, diplomats, and Americans who work in Switzerland – and banked in Switzerland by
necessity – could have been swept up in this dragnet.

It’s far from clear that if the
shoe were on the other foot, and a foreign country were to demand the names of
52,000 customers of an American bank, the U.S. would have complied. The
United States Model Income Tax Convention of 2006, used as a template by the
U.S. to negotiate tax treaties, states that no country should be required to
honor “a request in which a Contracting State simply asked for information
regarding all bank accounts maintained by residents of that Contracting State
in the other Contracting State, or even all accounts maintained by its
residents with respect to a particular bank.”

Previous reports had indicated that
UBS would surrender 5,000 names, a large amount but still less than a tenth of
what the U.S.
had originally called for. It will be important to scrutinize if there is
indeed “reasonable suspicion” for however large the volume of names that are
released. American civil liberties advocates on whatever side of the political
fence should be alarmed by the U.S.
government’s sweeping disregard of privacy interests in its demands to the
Swiss, and should encourage their home country to never treat privacy and
another country’s sovereignty so cavalierly again. 

For more, read the op-ed by John Berlau and Fred L. Smith,
Jr. from the May 10, 2009 edition of The
Washington Times, “Obama’s
Financial Unilateralism.” 

CEI is a non-profit, non-partisan
public interest group that studies the intersection of regulation, risk, and
markets.