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While most Americans, including millionaires, pay their taxes in full, the rising number of cheaters is very costly to everyone else. Last year tax "noncompliance" of all sorts cost the U.S. Treasury $245 billion, of which it recovered some $50 billion. The average taxpayer had to put up about $1,625 to cover that shortfall. And of all the ways to cheat on taxes, one of the fastest growing, according to a recent United Nations report on financial havens, banking secrecy and money laundering, is the transfer of money into foreign accounts and front companies, especially in so-called haven countries like Switzerland and the Cayman Islands, where banking-secrecy laws protect the identity of depositors. While about 140,000 foreign-bank-account reports are filed annually with the IRS, one money-laundering expert estimates that there are as many as 1.5 million anonymous offshore corporations around the world--up from 200,000 in the late 1980s--and that about 40% of those accounts are held by Americans.
Here's another reason you should care: while it's generally illegal for Americans to evade U.S. taxes on accounts and investments they hold abroad, it's often legal for them to use such accounts to protect their assets from claimants who may later sue them. So if you win a court judgment against an ex-spouse, a business associate or a doctor, he might already have used offshore accounts to shelter money that would otherwise be yours.
The spread of private banking presents what some government authorities consider a regulatory nightmare. With assets scattered among 100 countries, Citibank is too big and transnational for any single agency or government to watch. Perhaps that explains why, in the U.S. alone, the Federal Reserve System, three congressional committees, the GAO, the Comptroller of the Currency, the Treasury Department and the U.S. Attorney's office for the Southern District of New York are investigating just how private banking works, how it serves its wealthy clients and what sort of safeguards could be put in place to keep it from facilitating, even inadvertently, the designs of tax cheats and drug lords.
The best way to understand the private-banking craze and the background to the Citibank-Salinas imbroglio is to go to the cradle of the industry in Geneva, Switzerland. Here private banks beckon just across the border from France, and the fine art of serving wealthy clients has been perfected over the past two centuries. These are the sort of Swiss banks you have always heard about. Shrouded by strict secrecy laws, they are the pre-eminent safe havens in a world of political instability, financial chaos and, of course, high taxes. These institutions provide some of the best service in the world, from walking a client's poodle to advising him which Miro he should buy; from picking up a child at boarding school in England to making sure a family member has cash for a shopping spree in Tokyo. Plus, of course, taking care of his fortune.