Liechtenstein Agreement: Too Little Bite?

In an earlier posting, I noted mainstream media's reporting of an upcoming agreement between the U.S. and Liechtenstein that would remove the secrecy surrounding Americans' hidden accounts in the country.  See KPMG and Liechtenstein.

Now, however, it appears that the agreement is much less useful than  touted.  See Browning, Liechtenstein to Share Some Secrets, NY Times, Dec. 4, 2008.  In fact, it appears that the agreement will do nothing more than permit the U.S. authorities to acquire specific evidence on taxpayers that are already under investigation.  This isn't an end to bank secrecy, or even to the potential to use Liechtenstein as a place to hide assets from U.S. tax authorities.  Why is Treasury coming out so poorly in these negotiations--is it that it doesn't really want to catch any new wealthy tax cheats?

Liechtenstein, a tiny Alpine country, will now in limited circumstances turn over to United States investigators the bank records of American clients suspected of tax evasion. The agreement also covers questionable uses of a tactic, known as transfer pricing, that is widely employed by multinational American corporations to lower their tax bills.

But there is a catch: the agreement covers only clients who are already being investigated or prosecuted for tax evasion in the United States. That hurdle makes it unlikely that Liechtenstein will open the flood gates to foreign tax authorities, who are laboring to uncover the identities of suspected tax cheats. 

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A spokesman for the embassy of Liechtenstein in Washington, Matthew J. Keller, said Thursday that the agreement did not affect its commitment to preserving Swiss-style banking secrecy. “Privacy will continue to be protected under this agreement,” he said. “There’s a lot of criteria that the U.S. side has to meet before the information is shared.” He added that one requirement would be for United States investigators to prove they have already obtained significant information, including names and allegations, of those suspected of tax evasion. Id. (emphasis added).