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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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