No safe haven for artful tax dodgers

By Alexander Smith
March 18, 2009

Alex Smith-GreatDebate– Alexander Smith is a Reuters columnist. The opinions expressed are his own –

Big countries have got the world’s tax havens running scared. They must now press home their advantage to stop such countries providing oases for tax dodgers and money launderers.

Switzerland, Austria, Luxembourg, Liechtenstein and Andorra have all responded to a global crackdown on tax evasion by offering to relax strict bank secrecy laws. This is an important victory for campaigners to put tax havens on the straight and narrow. Until their recent climbdown, Liechtenstein and Andorra were two-thirds of a trio of hardliners that refused to commit to Organization for Economic Co-operation and Development (OECD) standards on transparency and the exchange of information, earning them a place alongside Monaco on the OECD’s blacklist of uncooperative tax havens.

G20 nations are right to point to the shift as progress, but they must not let it lie there. The concessions are too little, too late. They smack of opportunism, giving G20 leaders a chance to trumpet a crowd-pleasing success at a time when governments are failing to get a concerted grip on the financial crisis.

Some of the targeted countries make no secret of their intention to drag out reforms. Just look at the timeframe that Andorra, a safe-deposit-box-sized Pyrenean principality whose two rulers are a Spanish bishop and the French president, has set itself for complying. It plans to pass a law on relaxing bank secrecy by November. Switzerland’s finance minister has said it could take years for his country to renegotiate 70 separate double taxation agreements and have them approved by parliament or referendums. Monaco, a glamorous Riviera principality that attracts millionaire tax exiles, has so far said nothing about its plans.

With estimates of between $1.7 and $11.5 trillion in assets held in the so-called offshore financial services industry, the OECD is unequivocal in its position: “Tax havens deprive governments of revenues needed for vital infrastructure, and undermine the confidence that citizens have in the fairness of their tax laws. Countries must take firm action to stop this loss of revenue.”

TAX HAVENS NOT TO BLAME

The argument that tax havens are sovereign states whose independence must be respected cannot be used in good faith to protect countries that make a living by tacitly allowing citizens of other states to evade tax, or in the worst cases conceal the proceeds of crime. Tax havens didn’t cause the global financial crisis. But with tax receipts dropping as the recession bites, governments are going to need every penny of revenue they can recover to pay for essential public services and keep already heady borrowing plans in check.

So U.S. senator Carl Levin, a Michigan Democrat and the author of legislation attacking offshore tax havens, is right to say the recent moves by Andorra and Liechtenstein are long overdue and to push ahead with a bill which will target dozens of offshore havens for increased regulatory attention. It’s not surprising U.S. President Barack Obama has his eye on the Cayman Islands, America’s principal offshore center. A U.S. Senate report last year estimated that some $100 billion in taxes could be being evaded by the use of offshore tax abuses.

It is not just the wealthy nations that are losing out as a result of capital and income being sheltered offshore. British charity Oxfam says developing nations lose as much as $124 billion in taxes a year, outstripping the $103 billion they receive in foreign aid. Oxfam’s study found that citizens of developing countries hold more than $6.2 trillion abroad and capital flight is increasing by $200-$300 billion a year.

The tax havens will need the help of the United States, Germany, France and others to help them disentangle themselves from the business which has provided them with their economic backbone for so long. As with Afghan poppy farmers or Colombian coca growers, just blitzing their fields is not the answer. They need alternative crops and sources of income.

Switzerland, the world’s biggest offshore financial center, is big enough and has a sufficiently well established asset management industry to survive in a post-haven world. The country has been under pressure to relax its bank secrecy rules since its biggest bank, UBS, agreed last month to pay a $780 million fine and identify some of its U.S. clients in a legal deal to end U.S. criminal fraud charges.

Singapore and Hong Kong have both made moves toward complying with OECD standards on exchanging information and both can adapt to survive. For others such as Andorra, skiing and tourism may have to take the place of dusting gold bars. But for some of the island paradises which have made discreet money management their hallmark, more comprehensive plans will need to be put in place to ensure that disruption is minimized.

The OECD is the best vehicle to ensure proper rules are put in place globally, and to monitor the performance of individual countries. But the political momentum has to come from across the spectrum. The G-20 has begun this work. Its members owe it to their taxpayers to follow through.

– At the time of publication Alexander Smith did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. –

25 comments

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While I agree that countries should co-operate against dangerous criminals, it is wrong for the big countries to bully the poor countries (and the not so poor). Countries are entitled to compete in taxation, just as manufacturers compete.

Why should legally owned money not be placed in accounts that best suit the OWNERS of the money. The GREEDY governments seem to think that they are entitled to everything. Not so.

Posted by Poorman | Report as abusive

“Switzerland, the world’s biggest offshore financial center”… offshore of where, exactly?

It’s this sort of twaddle that makes it hard to take an opinion piece like this seriously. With the so-called legitimate US financial system hosting some the biggest fraudsters and shysters in the world, sovereign nations like Switzerland are hardly going to be taking advice on banking ethics from US commentators, or US senators for that matter.

I think the Swiss are quite happy playing without the US on this one, regardless of what USB got up to in the US CDO market. In case you didn’t notice, they’re not part of the EU system either, and they’re literally surrounded by it.

Posted by Philip Lamb | Report as abusive

So nice to have a name to go with the picture next to the word “tool” in my paper dictionary.

I must have been out of school the day when they covered the inherent responsibility of us all to give up our work because some men with guns say so. Thank you, Mr. Smith, for clarifying the situation.

Posted by TomV | Report as abusive

A lot of black money by corrupt Indian politicians , govt. officials and businessmen is stashed in Swiss banks.This money can do a lot of good in India if used properly. Having a Swiss bank account should be made a criminal offence.

Posted by manhar | Report as abusive

This is music to the ears of politicians. They must feel all warm and fuzzy knowing that they don’t simply have to rely on guns and jails to convince people to pay for their extravagances; they can count on droids like you to fill in where their self-serving appeals to patriotism leave off.

Posted by Marc Rich | Report as abusive

What kind of commentary piece is this? These are sovereign nations! Why should they EVER be concerned with the taxation policies of governments where the money was earned?

The idiot commentator here poses his claims as though there should be a global enforcement of tax taking legal precedence over the sovereignty of nations. TomV, yes, this man is the ultimate tool.

Posted by DMay | Report as abusive

The funniest thing about all this is that America is the number 1 offshore Tax Haven for the rest of the world. Hello, wake up! You have two forms of LLC’s 1)Domestic (where is you are a US citizen you are required to pay taxes) & 2)Offshore LLC, that if owned by offshore person does not have to file U.S. income tax unless the income was generated in the USA.
Hmmm, so what stops the tax evader (you know that rich Nigerian who made a fortune selling his country to U.S. and European interests for example)in Switzerland from openning an account in the US with a US(offshore LLC).
Wake up people and the press. Just another little trick by the US to get their hands on everyone’s pie. once all the tax havens are shut down all the money will come here, then we simply start a war and ooopppps we confiscate it all the money in the USA that belongs to foreigners.
Lol it poker at its best, problem is i have a hunch that the Swiss are in the game because they can’t possibly be stupid enough to relax secrecy laws and face Switzerland’s total collapse.
Hmmmm somebody i smell a RAT.

Only fools and Horses ;-)

Posted by George Dragonis | Report as abusive

Kudos, sir. And to the rest of you: If you are in a position to be shuttling your money around the world in order to evade taxes at home, you should consider one thing. In some form or another, you have made that money off of the benefits derived from being a member of your respective organized society, and you should pay your dues for that membership.
Also, there are countless international treaties and precedents for nations at the very least respecting the laws of other sovereign bodies. So, being complicit in an obvious evasion of another nation’s tax policies would be untoward at best, criminal (in an international law sense) at worst.

Posted by J. H. | Report as abusive

Fascinating how a financial crisis is bringing out the overt looters’ language everywhere I look. Government is the only entity that can increase its revenue by simply issuing a decree that it wants more money. Individuals and companies on the other hand have to actually work and produce something of value that somebody else wants or needs in order to make money. This idea that the government is “due its rightful share” is merely stealing with a rubber stamp. And, who decides what exactly is an “essential public service”? My purchasing power is directly informed by my earning power. So I have to make sensible decisions about what is truly “essential” in my life. Is the iPhone a necessity or a luxury? Well that depends on how much margin I have left over after feeding, clothing and housing myself. But the government doesn’t have to make such rational decisions about what is “essential” and what isn’t… it just raises taxes, or borrows more, or just prints money out of thin air and then “buys long-term government debt”. I would call that running up a credit card and then printing $20s off your inkjet to pay the bill if anyone else tried to do that, but for the government that is perfectly legitimate. So then, who are the real thieves here? Those who try to protect what they’ve earned, or those who demand their “rightful share” of the benefits of somebody elses’ hard work?

Posted by TimW | Report as abusive

I doubt this guy even exists! The info is sketchy. Pure junk!

Posted by Dan | Report as abusive

I think all the countries both developed and developing countries need to reduce tax rate and raise income slabs. The reason main reason is to ensure tax compliance. The existing global financial system favouring super corrupt and ruling elite, there is too much lacuna in mega funding projects, charity fund, trust fund etc. Super rich hiding their income and wealth in trust. While poor and middle class burdened with various taxes. The best example, when India become democracy and we celebrating 60 years of independence, the loot in our wealth is much more than what colonial British done. Atleast they created better infrastructure. Despite growth story and other things, it is the hard work and huge population the Indian rulers and political class again and again loot India. If you look at the Swiss banks, what we achieved in democracy you can find. Indian wealth in Swiss bank and other tax heavens are much more than what the USA’s whole budget. Still enslaved citizen of India says democracy is great!

Posted by common man | Report as abusive

The reality is that politicians and governments have failed us all and led us into the current crisis. Now they are seeking scapegoats and hoping to bamboozle the public into thinking that the real demons are nasty bankers, tax havens, little green men, any will do… The real fraud is the trillions that are wasted every year by bloated politicians on their bloated grandiose schemes (that patently don’t work). We need a complete rethink of our system of democracy, starting from the first principle that if you work, what you earn is yours.

For all of my adult life I have been put into forced labour by the UK government for about 4 months a year (they call it tax). I have now decided to move to a tax haven where I may, if I am very lucky, be able to save enough for a modest pension. To anyone not from the UK: no, you don’t even get that after a lifetime’s work!

Posted by Matthew | Report as abusive

I think that big countries such as US, France and Germany are ridiculous in saying Switzerland is a tax heaven. People there pay a high level of tax too ! But the only and biggest difference with the others countries is that peoples of Switzerland decide for their laws and not the politicians that are corrupted like the financial sector in the present crisis.

Posted by Kiki | Report as abusive

This argument is both misleading and one sided as a number of commentators have righly pointed out.

A further point to add is that low tax zones are low tax because their expense base is low. They serve as an indicator for efficiency and service prioritisation i.e. a high tax country is a country that neither has spending under control nor does it use its capital efficiently so will more than likely have excessive Government debt, welfare programes and higher unemployment.

These low tax zones should be used as an example of efficiency and nations should strive to be low tax zones and not to seek to do away with them to hide their own inefficiency, or as is happening right now to deflect electorates from the current global financal and recessionary chrises and lack of real solution.

It is also an integral part of an open global economy. A country chosing how high or low its tax level should be. This is exactly what Gordon Brown was bleating on about when stating that he does not want to see the world go down the protectionist route – unless obviously it is with referece to taxation.

Posted by nick | Report as abusive

There are always 2 sides to the coin. If you are a national of a country that by law requires declaration of of global assets and/or income, you need to play by the rules or move out and give up the nationality. So called havens should be criticised if they help hide the same. If however your government permits offshore banking, what’s wrong with using it. People shouldn’t forget that offshore banks will be left high and dry if their onshore parents need government help (rightly so as they’ve paid no taxes toward compensation schemes). As the article points out, the biggest losers are not the US or UK but developing nations (in Latin America for example)who don’t have the clout to arrest the flight of tax-generating capital so necessary for their progress.

Posted by Paul B | Report as abusive

Easy to point the finger. Isn’t London(UK) a tax heaven for foreign investors? Who will dare touch that?

Posted by Renaud | Report as abusive

Everybody points on Switzerland, Liechtenstein, Andorra and other small countries to have tax havens. What about the tax havens of UK? They are all together by far those who have the biggest volume of black and fraud money invested by US and UK people. But UK is a big country and their PM consequently avoids to talk about that and rather blames the small countries. Same for the PM of France who has several big tax havens in front of the country (Monaco, Isle of Man, Guernesey, Jersey) but also does not talk about that.

Posted by Lichtenberger | Report as abusive

It is all very simple: dispense with complex tax returns for companies and individuals worldwide and replace it all with an automatic taxation of all financial transactions at very low levels. Near 100% compliance, no need for tax lawyers and complex accountancy arrangements, more revenue for all governments/peoples, less cost to companies and individuals, no bureaucracy for entrepreneurs. Too good to be true? No. See http://www.apttax.com and http://www.marcoscintra.org

Posted by Gerson | Report as abusive

“We don’t pay taxes. Only the little people pay taxes.” – Leona Helmsley
The likes of her will always find the way to evade taxes. It may have been made just a bit more difficult by lifting the banking secrecy in aforementioned countries. However some shrewd lawyers, accountants, and financial advisors will always find a way to construct some sort of financial vehicle that hide millions and millions in taxable income from being taxed. Of course the costs of setting up such a vehicle are greater than incomes of most of taxpayers, but for select few it pays handsomely in tax fraud – oh, pardon me, I should have used the word “savings” instead.

Posted by Anonymous | Report as abusive

All over the world the gap between rich and poor keeps on increasing.The Taxation is the only way to remedy.To depend on the free market is like playing in hands of rich people.They will never let go their gain.After they have earned sufficient money.they don’t care if the corporation runs down.They will keep on seeing as bystanders,the way it has happened in cases of GM and Big Banks.Why they should worry for employees?Govt.is the only source to control them either with Tax tools or regulations.

Posted by Ashok | Report as abusive

alternative crops or fruits of harvest that could be proffered to such nations could be in the exchange of intelligence gathering for gold bullion.

for certain their would be officials who have had many a sleepless night knowing where their clients have obtained their ill-gotten fortunes’ and in which direction these treasures are being funnelled.

instead of making due-diligence being a point of Law maybe the more pro-active freedom-fighting nations could bring to the negotiating table a more succinct approach ~
for example, if you supply us with quality intelligence we will make this darkness go away; you keep 20% of the
contraband for your outstanding virtues, we donate a negotiated contribution to the wronged peoples’ for reconstruction and social services(housing, health, food, plasma screens, laptops et al) and the balance is reinvested into smart energies, smart intel developments, and sharp outfits for their operatives.

the world would be a nicer place with a great deal of traanqquiilityy.

Posted by fael kincaide(brett kenneth sweeny) | Report as abusive

This indignant hypocrisy based on faulty logic makes my blood boil.

A bank provides a service, for a fee. That service is looking after your money.

When someone gets shot, do you sue Smith and Wesson? No, you try the person did the shooting.

When someone avoids his taxes, do you sue the bank? No, you try the person who was cheating.

Posted by Smirkingman | Report as abusive

service providers should have to prove equity and justice in products they put out there, not just target the big bucks.

free market capitalism has hit the wall as to has state run fiasco’s. it is time we re-evaluated where we are headed as a human race. slow it down and think about the endgame. maybe, just maybe we need a healthy, proliferating natural environment to reach higher levels of bliss consciousness, find ourselves, ensure the survival of our species.

Posted by brett kenneth sweeny. | Report as abusive

Reading newspapers from several developing countries, people there are asking why there is no discussion of ending the tax havens’ helping corrupt politicians from Africa, Latin America and Asia to steal and hide billions. Former dictators from Haiti, for example, “Baby Doc” Duvalier and his wife among them, hid millions in Switzerland. Indeed so much has been looted over the decades from poor countries that this has been the major cause of their underdevelopment and the grinding enervating, poverty of their people.
Yet, to this point only Germany’s leaders have mentioned this ((and only briefly)) as a matter concern. Does this mean that the leaders nearly all the wealthy developed countries of the world do not care about this serious problem? Well this is indubitably, the conclusion that one has to draw.

What I find appalling is not so much the piece itself as the bulk of the comments. The very victims of the high tax thugs are defending their oppressors tooth and claw! Yes, we owe our prosperity to the freedoms we enjoy in the developed world. But those feedoms were bought and paid for before income tax was invented. The thugs that are stealing our money now did nothing to help us earn it. Your tax pounds/dollars/euros are not used for vital infrastructure, they are used to pay interest to the private banks that create the money that your government borrows instead of creating it itself. The issue here is one of the basic human rights that are being jettisoned in order to satisfy the unbridled greed of corrupt politicians and bankers. The OECD is nothing more than a shop front for world totalitarianism. When sovereign nations are threatened by the banksters with total financial destruction unless they change their own laws, and the threat succeeds, we have clearly crossed a line into dangerous territory. If this does not make your hair stand on end, you do not understand what is going on, or what kind of a world we are leaving to our grandchildren.

Posted by Peter | Report as abusive