Phil Gramm, former U.S. Senator and now senior executive with Swiss banking giant UBS, should be nervous. U.S. Justice Department investigators are walking back an evidence trail which found the bank has been systematically engaged in advising large numbers of its wealthiest clients on ways they could avoid paying domestic income taxes on their holdings by hiding them in Switzerland or in offshore accounts created with bank assistance.
The scandal broke when a UBS employee, Bradley Birkenfeld, the former director of UBS private banking, was caught smuggling uncut diamonds inside tubes of toothpaste on behalf of one of his clients as a means of getting the client’s wealth into the States without declaring it. Once caught, he began talking with authorities. Birkenfeld has managed to win a reduced prison sentence for his cooperation.
Since then, after lengthy negotiations with Swiss authorities and the bank, U.S. investigators won agreement that UBS will turn over information on over 10,000 of its account holders who may have also used bank services to achieve the same ends.
The Swiss government had fought desperately to halt such probes, claiming it would threaten the country’s global reputation for maintaining absolute secrecy of its bank accounts. As this unfolds, the liklihood that more individuals will begin talking in an effort to avoid jail and/or reduce potential penalties, will begin to spread and could well ensare still others. For Gramm, the spreading disaster spells real danger. Columnist Robert Scheer writes:
As The Wall Street Journal reported, "The U.S. crackdown on clients of UBS AG is widening into a global hunt, with the government detailing in court documents how the Swiss bank and outside advisers helped Americans hide money using enterprises set up in Hong Kong.
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Scheer also recounts that LA businessman John McCarthy, who availed himself of UBS help in setting up offshore accounts in the Cayman Islands, told investigators that the bank advised him that lots of their clients don’t report their income.
The most obvious question is whether Gramm, vice chairman of UBS investment banking division, will be able to escape by claiming he had no knowledge of the bank’s activities. The former Texas senator made his reputation as a fervent proponent of de-regulation of any and all forms of financial activities, and was instrumental in writing language, while in the Senate, which allowed some of the worst excesses of modern American financial misdealing to take place….everything from the Enron collapse (where wife Wendy was on the board of Directors) to the recent meltdown of global markets. In numerous cases, his carefully crafted language was inserted into bills at the last minute with virtually no oversight by most of his colleagues.
Given his reputation as one of the most knowledgeable individuals in the world in matters of international finance and regulatory legislation, it seems incredibly hard to believe that he could have worked on behalf of UBS and not known what the bank was doing. In fact, reports Scheer, Gramm was instrumental in blocking Congressional efforts to crack down on offshore bank havens./
As Daniel Gross reported in Slate in July, if Gramm doesn’t get indicted, it is hard to see why the bank would want to keep in its employ a guy whose personal intervention produced yet another fiscal disaster and this one of gargantuan proportions.
In the case of UBS…the result was a capital loss approaching $40 billion. Either way, it would be fitting justice to a man whose maneuverings in the halls of power have brought incredible pain and suffering to millions of Americans and indeed much of the world.