UBS Settlement Only a Partial Victory for the Feds

Washington, D.C.,
August 19, 2009—The following is the statement of John Berlau, Director of the
Center for Investors and Entrepreneurs at the Competitive Enterprise Institute,
in reaction to the recent legal settlement between Swiss bank UBS AG and agents
of the U.S.

after a long and protracted battle between the U.S.
and Swiss governments, Swiss bank UBS AG agreed to turn over at least 4,450
names of U.S. holders of
accounts in Switzerland who
may have violated U.S.
tax laws.

While the
Obama administration may paint this as a victory, this number is less than 10
percent of the 52,000 names it had originally asked for. It is even lower than
the estimate of 5,000 to 10,000 names that news reports speculated UBS would
turn over once the agreement was announced. In short, the U.S. government was forced to back away from even
more outrageous demands that would have set a precedent endangering U.S.
competitiveness as well as civil liberties throughout the world. 

The case
began earlier this year after UBS – with the Swiss government’s full cooperation
– turned over the names of 250 customers suspected of violating U.S. tax laws.
But the U.S.
government then turned around and asked for a whopping 52,000 additional names.
The Swiss government 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 would have gone against the
spirit of the Fourth Amendment of the U.S. Constitution, which protects
Americans from “unreasonable searches.” A study commissioned by UBS found that
many international students, diplomats, and Americans who work in Switzerland
could have been swept up in this dragnet.

The Swiss
government maintains that the surrendering of these names, in contrast to the
Obama administration’s previous demand, does not violate Swiss privacy laws
because there was “reasonable suspicion” of tax breaches covered under
the U.S.-Swiss treaty.

Regardless, American
civil liberties advocates of all political stripes should be alarmed by the U.S.
government’s sweeping disregard of privacy interests in its original demands to
the Swiss government, and should encourage their government 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