Remember how peculiar it was that presidential candidate Mitt Romney refused to release his tax returns? That was predictably a non-starter. Most voters probably assume the reason he resisted was to avoid the controversy over his strikingly low tax rate.

Another factor appears to have played into this decision. The release of the tax returns shows Romney neglected to disclose some required financial information in his personal disclosure form filed with the Office of Government Ethics last year. His team apparently timed the release of his tax records with the hope that State of the Union hooplah would dominate news coverage and result in his finances getting less attention than they might otherwise. And that appears to been correct. His failure to divulge information about 23 investments, and more important his use of secret Swiss bank accounts, has been given a free pass. As Citizens for Responsibility and Ethics in Washington director Melanie Sloan observed, “Mr. Romney says the errors are minor, but then again he also claims earning $374,000 in speaking fees isn’t much money.”

This anodyne coverage in a Los Angeles Times article from last week is typical:

Some investments listed in Mitt and Ann Romney’s 2010 tax returns — including a now-closed Swiss bank account and other funds located overseas — were not explicitly disclosed in the personal financial statement the Republican presidential hopeful filed in August as part of his White House bid. The Romney campaign described the discrepancies as “trivial” but acknowledged Thursday that it was reviewing how the investments were reported and would make “some minor technical amendments” to Romney’s financial disclosure that would not alter the overall picture…. The campaign has emphasized that Romney has paid all required U.S. taxes on his foreign funds…. Among the assets omitted is a Swiss bank account in Ann Romney’s blind trust that held $3 million until it closed in 2010. The account was listed on a financial disclosure Romney filed in 2007, but it was mistakenly named as an asset held by the couple, not as part of Ann Romney’s trust. A campaign spokeswoman said Thursday that Romney will file amendments to both his 2007 and 2011 financial disclosures to correctly identify the bank account.

That account was at UBS. Pretty much anyone who follows the financial press known of the pitched battle between the US government and first UBS, then Swiss banking regulators, over Swiss bank secrecy. The US engaged in a series of prosecutions that led one UBS unit that catered to wealthy individuals to be shuttered as part of a deal in which UBS also turned over the names of several thousand US customers that the US suspected of engaging in tax evasion. This case effectively ended Swiss bank secrecy; the efforts of the Swiss to avoid divulging the names of its customers was front page news in the Financial Times for the better part of two years. This is the summary in Wikipedia:

UBS agreed on February 18, 2009 to pay a fine of $780 million to the U.S. government and entered into a deferred prosecution agreement on charges of conspiring to defraud the United States by impeding the Internal Revenue Service. Of the $780 million that UBS will pay, $380 million represents disgorgement of profits from its cross-border business; the balance represents United States taxes that UBS failed to withhold on the accounts. As part of the deal, UBS also settled Securities and Exchange Commission charges of having acted as an unregistered broker-dealer and investment adviser for Americans. The day after settling its criminal case on February 19, 2009, the U.S. government filed a civil suit against UBS to reveal the names of all 52,000 American customers, alleging that the bank and these customers conspired to defraud the IRS and federal government of legitimately owed tax revenue. The Swiss Financial Market Supervisory Authority (FINMA) had given the United States government the identities of, and account information for, certain United States customers of UBS’s cross-border business as part of its criminal investigation in 2009. On August 12, 2009, UBS announced a settlement deal that ended its litigation with the IRS. However, this settlement set up a showdown between the U.S. and Swiss governments over the secrecy of Swiss bank accounts. It was not until June 2010 that Swiss lawmakers approved a deal to reveal client data and account details of U.S. clients who were suspected of tax evasion.

Let us stress: the US prosecutors were firmly of the view that the main purpose of these accounts was tax evasion. As the Financial Times noted:

Bradley Birkenfeld, Mario Staggl and “others known and unknown” were accused in the indictment, unsealed yesterday, of conspiring to defraud the US from at least 2001 by engaging in a scheme that included falsifying documents, helping to set up shell companies and destroying banking records… The indictment said while marketing their services to wealthy US clients, Mr Birkenfeld and Mr Staggl claimed that “Swiss and Liechtenstein bank secrecy was impenetrable”.

That indictment was followed by the indictment of the head of the UBS’s global wealth management business.

The Financial Times provided some details on how customers who had accounts with that unit fared:

The criminal case alleged UBS had failed to prevent a handful of private bankers from helping US clients to evade tax. The evidence showed UBS had 20,000 offshore US clients holding $20bn in assets in an operation that generated revenues of $200m a year. The disclosures included tantalising details about specially encrypted computers and training in counter-surveillance techniques for bankers before they travelled to the US. Bradley Birkenfeld, a former UBS private banker turned whistleblower, even admitted to having squeezed diamonds into a tube of toothpaste for a billionaire client determined to export assets without detection. The UBS unit concerned, which employed 60-70 bankers, has been wound down. Clients are receiving letters informing them their accounts are being closed. While those whose holdings were declared to the IRS have nothing to fear, the rest face a bleak choice. Clients who transfer their money risk leaving a paper trail that could lead to scrutiny. Even those who sit on their funds may fear questioning. The letters advise clients to seek professional advice and consider coming forward voluntarily.

The unit was shut down in early 2009, but UBS did not settle the tax-related charges until later in the year, which then set off a battle royale between the Swiss banking regulator and the US over the secrecy of customer identities. The US sought the release of 52,000 names but settled for several thousand. An adverse court ruling in Switzerland led to further machinations, and the deal was effective in July 2010.

It appears that the Romneys kept this $3 million offshore until it was clear the secrecy gig was up (note it is not clear that their account was with the unit that was targeted in the probe). Even though it is pretty unlikely that they were among the customers whose names were turned over to the US ($3 million is chump change in private banking), Swiss accounts were no longer assured of safety.

The answers given by the Romney’s financial advisor about this account aren’t entirely satisfactory. From Reuters:

Brad Malt, who oversees the Romney blind trusts, said on the conference call that Romney’s wife’s trust had a $3 million bank account at UBS AG, the Swiss banking giant. Malt told Reuters he closed the UBS account in late 2010. “I am aware that there have been some allegations recently that some Swiss bank accounts have been used to evade taxes – I would like to emphasize that this account is not … one of those,” Malt said. “I decided to remove any possible source of embarrassment,” he said, adding that “taxes were all fully paid” on the UBS account and that he closed it because “it just wasn’t worth it.” The closing of the account came amid a crackdown by the U.S. Justice Department and the U.S. Internal Revenue Service on Swiss and Swiss-style banks suspected of selling offshore tax evasion services to wealthy Americans. The Romney campaign said on Tuesday in an emailed response to a reporter’s queries that the UBS account held by Ann Romney’s blind trust “was set up for diversification.” The email described the account as “a passive bank account that simply earned interest. It did not make any other investments. It did not pay any bills.” The email went on to say that the account was “fully compliant with all tax laws.”

The problem is that the story does not add up. Diversification? Huh? You don’t diversify by putting money in a no-yielding cash account in Switzerland; you can hold cash as an asset class far more simply and at better returns pretty much any other way. The account earned a grand total $1.718, or .06%, in 2010; low returns were the usual tradeoff for vaunted Swiss secrecy. It might be that this $3 million was excess cash targeted for opportunistic investments and was never deployed.

So you have to assume that the Romneys did want the secrecy. After all, they were paying for it with terrible returns on their money. And if not for tax reasons, then why?

Moreover, one has to wonder whether the income from this account was reported on a current basis. The Romneys no doubt NOW paid the taxes due, query whether they paid them prior to the loss of certainty of account secrecy. The IRS launched a voluntary disclosure program in the wake of the UBS settlement, so it is possible that the relevant taxes were paid as part of that initiative, rather than on a current basis. Notice also that Romney delayed the release of his tax returns till January, and got his filings done early so he could report tax years 2011 and 2010 (I’m really impressed that someone with a tax situation as complex as his can file so early). What would his 2009 tax returns have shown? Was the Swiss account on them? (He could have amended them if they had been “missed”, but returns are seldom amended for small amounts).

Whether or not Romney has something to hide, the failure to include the Swiss account in his Federal ethics filing has him acting as if he has something to hide. Even if there was nothing technically amiss with what Romney did, having a large stash in a secrecy jurisdiction does not pass the smell test. It speaks of an intent to skirt the law even if that never actually took place.