Robert Scheer is the editor of Truthdig, where this article originally appeared. His latest book is The Pornography of Power: How Defense Hawks Hijacked 9/11 and Weakened America (Twelve).
In recent days yet another wealthy private customer of the Swiss-based banking conglomerate UBS admitted to criminal fraud in a growing parade of perp walks that could extend into the thousands. It is a case that threatens to ensnare former Sen. Phil Gramm, the Texas Republican who is vice chairman of UBS’ investment banking business. Given the widespread involvement of UBS in what the Justice Department alleges were systematic efforts to violate US tax laws, it must be asked: Did Gramm as a top executive have no inkling about what was going on?
Perhaps, but for Gramm this has to be a moment that at the very least tests his ideological commitment to the radical deregulation of banking that he championed during his twenty-four years in Congress. He joined UBS soon after the bank acquired Enron, a company that had gone bankrupt after jumping through the “Enron loophole” in the Commodity Futures Modernization Act, which Gramm had pushed though Congress. Gramm’s wife, Wendy, had been an Enron board member and head of its audit committee but failed to sound the alarm before the Houston-based company collapsed. Then UBS itself ran into big trouble because of $37 billion in bad mortgage debt made possible by derivatives market deregulation engineered by then-Sen. Gramm. US taxpayers have had to pony up money to heal UBS’ self-inflicted wound. But the bank’s involvement with tens of thousands of secret accounts tied to allegations of tax evasion raises starker issues–of possible criminal fraud through practices that Gramm as a senator helped keep opaque.
In his last years in the Senate, Gramm succeeded in blocking legislation that, as The New York Times editorialized, would have made it easier “to crack down on offshore tax havens” and “would have expanded rules that require banks to find out more about individuals and foreign jurisdictions they are dealing with.” The Times noted, “The legislation won bipartisan support but was blocked by Senator Gramm of Texas, a foe of government regulation….”
Following that victory, Gramm stepped into a top position at UBS, stating: “It will provide me with an opportunity to practice what I’ve always preached….I have a strange combination of experiences that a lot of people don’t have…knowledge of economics, a knowledge of government policy.” Given that knowledge, it is legitimate to ask just how Gramm could have been unaware of the extensive efforts of his new employer, UBS, to thwart the IRS. In court cases involving UBS over the past year, witnesses have provided extensive details of the bank’s alleged practices in abetting tax avoidance.
As The Wall Street Journal said of the federal government’s campaign against UBS clients evading US tax laws, “plea agreements…are providing a clearer picture of UBS’s sophisticated efforts to help Americans hide income or the existence of foreign bank accounts.”
In agreeing in a US district court last week to plead guilty, Los Angeles businessman John McCarthy disclosed how UBS facilitated his defrauding of the US government through secret offshore accounts set up by the bank. “While banking with UBS Cayman Islands, the defendant was advised by UBS representatives that a lot of United States’ clients don’t report their income and just take it off the top,” according to the court filing. Now that the Swiss-based bank has agreed to turn over the names of upward of 10,000 secret account holders, the arraignment of those charged with breaking US tax laws could extend very high into the ranks of the affluent.
As The Wall Street Journal reported, “The US 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.”
Was Gramm truly unaware of the widespread efforts at UBS to defraud the US Treasury? Did extreme ideologically driven naivete lead him to believe that the bank would never engage in such chicanery? In the past he was the first to deny any hint of business naivete and indeed defended his being hired by a bank that benefited from his legislation. Deflecting any suggestion of a conflict of interests, Gramm told a reporter: “You know, there is something to be said for not hiring people who just came in off a turnip truck. I have always believed that when I left the Senate that I would go into financial services as something that I know something about.”
Well, what exactly did he know about those offshore tax shelters that caused a revenue shortfall of at least $100 billion that honest taxpayers have to make up?