The Monitor's View

Tables turned on US tax cheats

A well-crafted agreement between the US and Switzerland could net far more than the 4,450 suspected American tax dodgers with accounts at banking giant UBS.

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Wealthy tax cheats prize the privacy of the offshore bank that hides their identity – and their money. But in a landmark deal announced this week, the US and Swiss governments are using that same tool of secrecy to flush out suspected American tax dodgers. The irony towers like the Alps.

When both governments explained their agreement on Aug. 19, they withheld enough details to keep US tax evaders guessing: Am I one of the 4,450 account holders at Swiss banking giant UBS whose identities will be turned over to US authorities?

That unknown will hopefully push US tax evaders to voluntarily fess up and pay up before a Sept. 23 deadline in a general leniency program. Such self-reporting may hurt their bottom line, but it will spare them jail time and a lifetime of guilt.

At one point in this case, the US had sought the names of 52,000 UBS clients, indicating a large field of potential cheats. The IRS has spoken only broadly about the criteria for settling on the smaller number of accounts, describing them as ones where the IRS believes people haven't paid their taxes.

Meanwhile, the Swiss government has agreed to review and process American accounts at other Swiss banks that fit the pattern of the UBS suspects. Which banks might those be? The IRS cleverly didn't say, but tax cheats are now on notice that the hole blown in this bastion of international bank secrecy is going to get bigger and may very well swallow them.

Cunningly, the UBS names will not be released all at once, but rolled out over months. That will perpetuate the uncertainty for any cheaters among them. If the IRS prosecutes, the identities of well-known personalities are bound to be disclosed, embarrassing them and serving as a lesson to other cheats.

Kudos to the US government for its dogged pursuit of tax dodgers in a banking system that has heretofore been largely unassailable. And praise to the Swiss government for broadening its definition of fraud and living up to a treaty with the US that allowed this case to be resolved.

But one also has to admire the construction of this agreement and the resulting pressure it will put on tax cheaters to come clean. It uses the same principle that the IRS applies to Joe and Jane taxpayer – keeping them honest by keeping them guessing about an audit.

You never know. And that's the point.

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