Links - Dec 30

** Also see our permanent list of past story summaries; and Offshore Watch for more stories. **

A Chill on 'The Guardian'
Jan 2009 edition (NY Review of Books) - The best, and most important, article written about the celebrated Guardian vs. Tesco offshore case, exploring the enormous implications. See here for more UK-related background on Britain's libel laws.

Yes you can change the climate, Mr Obama
Dec 6 (New Scientist) – Implement or increase gasoline taxes. Here's the clever bit that should make this tax popular with most voters: every penny raised from the carbon tax should be divided equally among a country's citizens. This is called the "tax and 100-per-cent dividend" approach, and it is advocated by leading climate scientist James Hansen of NASA. Related to, but not exactly the same as, proposal outlined here.

An accountant’s duty
Dec 29 (Tax Research) - The US AICPA’s ethical guidance require that: “By accepting membership, a certified public accountant assumes an obligation of self-discipline above and beyond the requirements of laws and regulations. The Principles call for an unswerving commitment to honorable behavior, even at the sacrifice of personal advantage.” See this for context: http://taxjustice.blogspot.com/2008/12/tightening-up-on-intermediaries.html

Terrorist-linked bank using Jersey company
Dec (Jersey News) - AN Iranian bank with links to terrorist organisations has been funnelling funds through a Jersey company, in violation of international sanctions, according to allegations made by the US Department of the Treasury.

AIG's Past Could Return To Haunt
Dec 19 (IPS) - The U.S. will gets nearly 80 percent of AIG stock. This puts the U.S. in a unique position to investigate the internal operations of a giant corporation with a reputation for using the offshore system.

Calling accountants to account
Guardian (Dec 22) - No bank has published any figures about its assets, liabilities, profits, or losses specific to the UK or any other defined geographical jurisdiction. the International Accounting Standards Board (IASB), a private organisation financed and dominated by corporate elites. Th

New tax code to stop treaty shopping
Dec 22 (Economic Times of India) The government may introduce provisions in the new direct tax code to prevent misuse of double taxation avoidance agreements India has with other countries.

Wealthy Americans continue to dodge the taxman
Dec 22 (Seattle Times) - Millionaires and corporations continue to convince lawmakers to shield them from the taxman and balance budgets on the backs of everyone else. That's what's going on in revenue-starved states right now: Governors are preparing to slash middle-class programs and are resisting calls to raise taxes on the wealthy.

Paradis fiscaux, Etats voyous

For those who read French:

"Les paradis fiscaux sont des piliers du système capitaliste. Il faudra beaucoup d’abnégation au G20 pour réformer en profondeur les relations des pays développés avec ces « juridictions du secret » qui exploitent leur seul avantage compétitif – le fait de pouvoir voter des lois laxistes – pour attirer les capitaux, d’où qu’ils viennent. Ces lois, qui garantissent le secret bancaire, une fiscalité plancher ou encore la non coopération judiciaire, sont pourtant des agressions directes aux démocraties normalement constituées. En organisant le dumping fiscal à grande échelle, ces « Etats voyous » privent les gouvernements de recettes légitimes, favorisent la corruption et le pillage des ressources du Sud, et ont joué un rôle important dans l’émergence de la crise financière actuelle. La plus grave depuis 1929."

See a web translation here
Read the article in Frenc here

Guest blogger: Letter from a whistleblower

Rudolf Elmer is one of the most well-known recent whistleblowers of the offshore world, and he has paid a heavy personal price. Read more about him here, for example, and look at the Rudolf Elmer collection on the whistleblowers' website Wikileaks.

We are delighted to host him as a guest blogger on the tax justice blog, drawn from his painful personal experiences in Switzerland and elsewhere:

The dilemma of an ethical and moral offshore employee

It goes without saying that many honest and upright offshore employees harbour vague suspicions that something fishy is going on with their client trusts, companies, hedge and private equity funds or even private accounts. Such suspicions arise even if the employees see only a small part of what is actually going on since the full picture is only clear to the top advisers: in particular the lawyers, bankers and accountants who create the structures in the first place.

However, when management instructs staff to review and “clean the organisational data bases” in order to protect the company from any legal claims - because for instance people can be jailed for unnecessary secrecy and for using password/false names and so on – at that stage staff might start to suspect that something is not quite right!

For example, the offshore employees might be instructed by the management to “clean the records” and remove from the data base instructions such as:
• Do not contact the Settlor in America!
• Client is highly sensitive regarding telephone security and always confirm identity of Settlor before disclosing information;
• The secret code is “Rainbow”;
• Use only his mobile number (xx xxx xxx xxx);
• No communication with client on work address or email;
• Change of trust name from “Sugar Spoon” to “Coffee Cup”;
• When making distribution to the Settlor do not say “Distribution” say donation;
• This Trust has a “Dummy Settlor”;
• The trust should be treated for US tax purposes only as owned by another person;
• And many more!

As a reasonable employee this gets you thinking, and I believe it is fair to say that all those remarks point in a direction where an ethical and moral person is in a conflict and has reasonable grounds to believe that the employer is not complying with the law.

However, what would you (and I mean you!) do when you are confronted with such a request from management?

I tell you! And I tell you straight: 99 % of all employees would do as instructed by the management. Why does this happen even though it goes against the employee’s moral and ethical standards?

It is simple: any employee who speaks up faces instant job loss; and when employees go public and become whistleblowers they place their own (and their family’s) future in serious jeopardy.

Offshore banks and tax havens have a huge arsenal of weapons to silence such an employee. This includes private investigators; stalkers; compliant newspapers prepared to engage in witch hunts; highly paid lawyers able to pressurise the employee even to the point of bankruptcy; unprofessional police investigators; manipulated prosecutors; delaying tactics; corrupt media and even politicians up to the Federal Counsel willing to cover up any wrong doing covered by secrecy regulations.

This is all considered to be legal because in my case a vital part of the Swiss industry is at stake. It is the Private Banking industry which attracts a tremendous amount of money using dubious methods such as marketing the protection of tax evasion. However, this money inflow is vital for the country to provide low interest loans to the industry, to keep the standard of living and even to pay ridiculous salaries and bonuses to management. This system must be protected even if other countries and individuals suffer terribly. "This does not matter at all - we, the powerful in Switzerland, act within the laws and therefore we have to protect the laws."

There is not only the Banking Secrecy Law; there is also Tax Secrecy and Professional Secrecy, in order to protect wrongdoing and abuse, and to go after whistleblowers. This is easy because the whistleblower has no legal protection at all in Switzerland and therefore has to become an outlaw to defend the family and himself. He is forced to do this, due to all the pressure that results from his opponent having lost (or never having had a moral backbone!)

In reality the whistleblower becomes a leper within the small, insular cocoon of the offshore financial centre and is forced to leave to find work elsewhere. There are striking examples in Swiss society such as Christoph Meili (Holocaust Funds 1997) and Rudolf Elmer (myself) who challenged the world champion of Secrecy, namely Switzerland, and the Cayman Confidentiality Law. Another example is Professor Dr. Jean Ziegler who was put under severe pressure and stalked after having published a book that was critical of the Swiss banking industry.

Faced with such intimidation, a typical offshore employee will go ahead and “clean the data base” as instructed by management. This is the main explanation for why so few offshore employees become whistleblowers , which makes offshore abuse so much harder to fight. It is all about the atmosphere of intimidation which forces employees to keep their heads down in places like Switzerland and the Cayman Islands.

Finally, the more corrupt elements in the Swiss media will go along with the intimidation process by publishing articles along the lines of “We do not want any whistleblowers in our country and if you step out of line this is what will happen to you” accompanied by text describing how difficult life becomes for the whistleblower and possible some pitiful description of how the whistleblower cries, or is morally down.

I have been through these media witch hunts and know them for what they are: nothing less than propaganda to protect criminal actions perpetrated within an outwardly democratic society!

Links - Dec 18

** Also see our permanent list of past story summaries; and Offshore Watch for more stories. **

Island under threat
Dec 16 (FT) - Bermuda’s status as the industry’s favourite tax haven could be under threat. A powerful group of US insurers led by senior industry figure William Berkley and including WR Berkley Corp, Warren Buffett’s Berkshire Hathaway – are lobbying Washington to limit the tax breaks available to insurers that write business in the US but can lay off risks to subsidiaries in tax-friendly locations. US insurers say the practice gives competitive advantage and want legislation to limit the tax benefit.

A Financial Transparency Tax for the UK
Dec 18 (Tax Research) - A currency transaction tax would be good (see James Tobin's landmark 1978 presidential address here), but that’s not the form we have in mind here. There is another alternative: that’s a financial transaction tax. Brazil tried it: it not only raised substantial taxes, but was a key tool in identifying tax evasion – until vested interests killed it last year.

Gibraltar Awaits Verdict On Corporate Tax System, by Robert Lee, Tax-News.com, London
Dec 18 (Taxnews) - The European Court of First Instance has told Gibraltar it will deliver its judgement in the Gibraltar state aid case on December 18, 2008. The judgement, which Taxnews thinks the EU will lose, will determine whether a new low tax system can be implemented in Gibraltar. UK government is said to be “100% on-side” with Gibraltar’s plans to expand its corruption services.

3 Convicted in KPMG Tax Shelter Case
Dec 17 (NYT) - A US federal jury on Wednesday found three white-collar defendants guilty in a tax-shelter trial once billed as the largest ever. The verdicts, on multiple counts of tax evasion, are a victory for the government, after a series of setbacks.

Times Tough for Energy Overhaul
Dec 17 (WS Journal) - Obama’s future energy secretary Steven Chu has called for gradually ramping up gasoline taxes over 15 years to coax consumers into buying more-efficient cars and living in neighborhoods closer to work. "Somehow we have to figure out how to boost the price of gasoline to the levels in Europe." But no U.S. president has made significant headway altering America's energy habits during a period of falling oil prices.

Des personnalités signent la pétition
Dec 16 (Pelerin) – 20,000 people sign a petition against tax havens in a French magazine. In French. Sign up!

Trouble in the Liechtenstein case

We have received an email from a German citizen whom we know well, who has alerted us to a new story in the FT Deutschland newspaper, a sister publication of the FT. An abominable Google translation is available here; but our e-mailer has distilled some essential points:

"It seems as if the public prosecutor in Bochum, Ms Margrit Lichtinghagen, who is leading the investigations against Liechtenstein tax evasion, is to be removed.

This article casts light on corrput practices inside the public prosecutor's office and describes how two of their leaders have a record of being seen playing tennis with mayor parties who have been sued. In the last days, her bosses have made shadowy allegations against her of 'improper behaviour' and 'furtiveness' and are said to have fabricated a 64-page dossier on her; there is little substance to these accusations.

Now Lichtinghagen, it seems, is going to become a judge in a juvenile court and it is not clear how (and by whom) the Liechtenstein cases will be prosecuted."

(This is rather reminiscent, at least on the surface, of some of the things that happened to the tenacious investigating magistrate Eva Joly when she came up against powerful interests in the Elf Affair case in Paris.) Our correspondent continues:

"Probably, the FTD comments, this will result in all the processes being distributed to local prosecution departments with an easy-to-guess outcome: because of a lack of expertise of the local prosecutors and the sheer complexity involved in the LIE-cases, smart and specialist lawyers of the evaders will quickly reach an agreement without lawsuit. People from within the prosecutor's office say that Lichtinghagen was the only person capable of leading the complex litigations and fear a catastrophe for the case that Lichtinghagen must really go."

And:

"Please help us to get rid of corruption in Germany (as an aside - see this latest example) - it seems to be very deeply entrenched in the Bochum prosecution department. Please make this public; please contact whoever you know in Germany about this and try to reach central government.

We need an independent anti-corruption task force to screen this agency.

If the Liechtenstein processes are going to end in talk (and monetary fines only), then this would send out a terrible message to the HNWIs (High-Net-Worth Individuals) around the globe: "even in Germany and with all the evidence they can possibly long for, they are unable to put us into prison".

Update: we've been alerted to some action that's being organised in Germany to protest against this: for those German-speakers: click here.

Links - Dec 17

** Also see TJN's searchable news archive; and Offshore Watch for more stories. **

Goldman Sachs’s Tax Rate Drops to 1%, or $14 Million (Update1)
Dec 16 (Bloomberg) - Goldman Sachs’ effective income tax rate dropped to 1 percent from 34.1 percent, New York-based Goldman Sachs said today in a statement. “This problem is larger than Goldman Sachs,” Doggett said. “With the right hand out begging for bailout money, the left is hiding it offshore.”

Tightening up on the Intemediaries (2)
Dec 17 (Tax Research) - Our recent blog on the intermediaries seems to be having an effect already.

Links - Dec 16

** Also see our permanent list of past story summaries; and Offshore Watch for more stories. **

Even in this crisis, the government still offers refuge to pinstriped pirates
Dec 16 (Guardian) - By George Monbiot - Last month the British government announced that it will introduce new laws to prevent piracy: the armed forces will be allowed to detain ships and arrest suspected robbers on the high seas. Yet the same government offers an attractive portfolio of tropical and temperate islands in which pinstriped pirates can bury their treasure. NB he mistakenly refers to the Doha trade talks, not the Doha FfD talks.

For Tax Cheats, Meltdown Prompts Amnesty Offers
Dec 15 (AP) -- Turns out it's a pretty good time to be a tax cheat. Desperate to bring in revenue in the middle of a recession, states across the country are adopting tax amnesty programs, offering to let people pay their past-due tax bills with little or no penalties or interest.

Swiss Finance Ministry Announces Corporate Tax Reform,
Dec 15 (Tax news) - Switzerland's Federal Department of Finance (FDF) on Wednesday laid the foundation for major corporate tax reform, with proposals to simplify the federal and cantonal tax system in a bid to improve the country's international tax "competitiveness."

Tightening up on the intermediaries

When tax evasion and illicit cross-border flows happen, they invariably involve more than one set of actors. There is a demand side to this (the tax evaders and their like) and the supply side: the intermediaries who help them commit their crimes. There has been far too little attention to the demand side, of course, and even less attention to the supply side. That is now starting to change. TJN, through its senior adviser David Spencer, has just obtained an interesting determination on this.

First, some background. Intermediaries play a significant role in facilitating cross-border illicit financial flows. There are generally three categories of intermediaries:

• Attorneys, accountants, and tax advisers (in this blog we'll call them legal and tax advisers);
  
• Corporate service providers, promoters, corporate administrators and trust administrators (we'll call them service providers); and
  
• Financial intermediaries, such as banks, trust companies, brokerage firms, and other financial intermediaries.
  

It is heartening to see that intermediaries are now being subject to greater scrutiny. The U.S. Senate Permanent Subcommittee on Investigations held a hearing in August, 2006, “Tax Haven Abuses: The Enablers, the Tools and Secrecy”. And the OECD has initiated a Tax Intermediaries Project, which took a rather collaborative, "fireside chat" approach to the problem, which we think was, while interesting, far too timid.

An interesting recent case is the U.S. Government's recent indictment of two officers of the Swiss bank UBS, for conspiring to help U.S. citizens evade U.S. income tax by allegedly helping them to open and maintain bank accounts at UBS in Switzerland, which the UBS staff knew were not declared in the United States by those U.S. persons. The U.S. Government apparently considered indicting UBS (a new paper looks at some of the strategic differences between UBS' approach and that of prior high-profile tax shelter investigations, such as the KPMG tax fraud case in New York.)

Now here is a broad question. Will other governments that want to confront capital flight from their countries (and the tax evasion that typically follows) follow the same route and initiate criminal proceedings against officials of financial institutions engaged in international private banking who help residents open and maintain secret foreign banks accounts, not declared to their tax authorities, thus helping them evade tax?

Now here is a more specific question. Some jurisdictions license and regulate intermediaries such as legal and tax advisers. Can an attorney licensed in one jurisdiction assist and counsel a client if the attorney knows, or has reason to know that the client is violating foreign law? You would think that the answer is obvious: no, of course not. But it is not so simple. The prevailing view seems to be "don't ask, don't tell."

Now we have an informal decision - which holds much promise. The New York State Bar Association has recently issued the following determination about one of its Disciplinary Rules, based on a fact situation submitted to it:

"A client who is a citizen and resident of a foreign country has consulted with you about a proposed transaction (“Transaction”) in which the client would open a bank account in his name at a New York bank, or create a wholly-owned corporation in a zero tax jurisdiction (“Offshore Corporation”) and have the Offshore Corporation open a bank account at a bank in New York.

You know or have reason to know that the client is required under the laws of the foreign country to report the proposed Transaction in his tax returns in the foreign country and/or in other reports that must be submitted to the foreign country’s government. You have learned that the client does not want to report the Transaction in the foreign country because this would result in tax liability or other legal liability in the foreign country. The client has requested your assistance to help structure the Transaction to reduce the possibility that information about the Transaction will become available to tax and/or other government authorities in the foreign country.

Your inquiry concerns the scope of Disciplinary Rule DR 7-102 (A) (7), which provides:

In the representation of a client, a lawyer shall not … (7) Counsel or assistant the client in conduct that the lawyer knows to be illegal or fraudulent.

You inquire as to whether the reference in DR 7-102 to conduct that the lawyer knows to be “illegal or fraudulent” is limited to conduct that is illegal or fraudulent under the laws of New York, or encompasses conduct that is “illegal or fraudulent” under the laws of jurisdictions other than New York.

The meaning of the admonition in DR 7-102 (A) (7) is clear: if a lawyer “knows” that a client intends to engage in illegal or fraudulent conduct, the lawyer cannot explain to the client how to engage in the conduct nor provide legal services that enable the client to achieve the illegal or fraudulent purpose.

The language of the prohibition in DR 7-102 (A) (7) against counseling or assisting the client in conduct the attorney knows is illegal or fraudulent is not limited by jurisdiction ……….. Accordingly, we conclude that the phrase “illegal or fraudulent” in DR 7-102 (A) (7) encompasses conduct that is illegal or fraudulent in New York or any other jurisdiction."

The last four words of this determination have enormous implications, which go right to the core of the tax justice network's agenda. And we are delighted to hear it.

It is remarkable that the OECD Study into the Role of Tax Intermediaries has not yet focused on these issues. Why not? (There are plenty of details to consider - look, for example, at TJN's proposals to the Group of Experts in Rome in September 2007, especially point 13).

Will governments suffering from capital flight and the resulting tax evasion began to hold intermediaries liable as conspirators, as the U.S. Government has tried to do with regard to those two Swiss UBS officials?

Will governments that license and/or regulate intermediaries in their jurisdictions (such as legal and tax advisors, and financial intermediaries) prohibit such intermediaries from helping domestic and foreign persons to violate foreign law?

And let's not forget there are two sides to this equation: the countries which receive this illicit capital, and the countries from which it is fleeing. The United States may have indicted two UBS bankers for conspiring to help US taxpayers to evade US taxes -- but what are the possible instruments in the capital exporting countries (such as Argentina, Brazil, Mexico, etc) to go after intermediaries? Brazil has taken action against certain foreign bankers. What decisions might be taken in other jurisdictions? The possibilities are enormous, and the urgency is great. As this evolves, we will bring you up to date. Watch this space.

Links - Dec 15

** Also see TJN's searchable news archive; and Offshore Watch for more stories. **

These vile tax havens have had their day
Dec 14 (Observer) - Since 1997, Labour has not shown the slightest squeamishness about allowing the Barclay brothers and their kind to avoid the taxes that you, dear reader, must pay on pain of imprisonment. Ministers had the sovereign power to stop them, but in the bubble years they would do nothing that threatened the City, which routed so much of its business offshore. The energy they put into defending rich men and rich companies is shameful to recall. See also this Guardian editorial.

Attack on Irish 'low-tax zone'
Dec 10 (FT) - A senior UK Liberal Democrat has described Dublin as "Liechtenstein on the Liffey". Lord Oakeshott, a Treasury spokesman, told the Lords: "It promotes itself as a low-tax zone off north-west Europe, a kind of Cayman Islands in a cold climate and aggressively chases footloose financiers and less scrupulous British companies to move to Dublin to dodge tax." He said there were "worrying parallels" between Iceland and Ireland. Irish banks, which had lent heavily on property, were in "dire straits", although the problems were not as severe as in Iceland. "Dublin does not need to be Liechtenstein on the Liffey. If you set out to attract mobile money from around the world, you run much bigger risks when things go wrong."

Cable warns head of offshore review not to be 'seduced' by lobbyists
Dec 12 (Accountancy Age) - Vince Cable, Liberal Democrat shadow chancellor, has urged the head of a government-commissioned inquiry into offshore tax havens to consider recommending radical reforms to crackdown on tax avoidance. 'The tax havens are very good at lobbying and (Michael) Foot will be in danger of being seduced into some anodyne restatement of the status quo.'

Cracks in the crust
Dec 11 (The Economist) - Iceland was uniquely overextended, but other countries, too, have big banking industries relative to the size of their economies supported by lots of borrowing. Britain is one. Willem Buiter of the London School of Economics, who prepared a report on Iceland earlier this year that gave warning of the risk of disaster, asked in a recent, widely discussed blog whether London could be “Reykjavik-on-Thames”

Eurodad analysis of the Doha UN Financing for Development Outcome Document
Dec 11 (Eurodad) - Eurodad has done an assessment of the contents of the United Nations Financing for Development Outcome document. Eurodad staff and members participated actively in discussions with decision-makers across Europe and at the EU level. Looking at aid, debt, capital flight, taxation and systemic issues.

Hedge funds have to be regulated and transparent, or be put out of business
Dec 14 (Tax Research) - Almost all hedge funds are incorporated offshore. The UK’s FSA has said that it would not know what to do if one sought to register in the UK. Now news comes that a hedge fund run by Bernard Madoff, a former Chairman of NASDAQ, is nothing more than a fraud.

Stopping Corporate Tax Dodging: International Tax Justice
It is time students and youth recognized one of the most important challenges for our generation and joined the international campaign for tax justice.

Slapping a tax on playtime
Nov 25 (BBC) - Slowly but surely authorities around the world are turning their attention to online games and virtual worlds and the tax-exempt status of the economic activity taking place within them.

Letter from Singapore

A new Reuters analysis article has just looked at an emerging Asian dirty-money pariah, which we blogged recently following a series of three hard-hitting articles by a Singaporean opposition party. The new Reuters article starts like this.

"As pressure mounts on Switzerland's flagship bank UBS and the country's secrecy code comes under fire from the United States and Germany, Singapore's star as a haven for the super-rich is rising fast."

It highlights the problems of trying to crack down on crime and cross-border corruption as centres "compete" against each other to attract dirty money.

We now have a different angle, a wonderful email to TJN from a Singaporean citizen, taking a more personal perspective on the growing problem (we publish it with their permission). It refers to the three fascinating articles by opposition leader Chee Son-Juan (which we highlighted in our recent blog.) Here is a the main part of the e-mail:

LETTER FROM SINGAPORE

"It's really interesting that you brought this notion of dirty money in Singapore up, particularly with the casinos going up. Much has been made of the casinos and the prospect of a wealth influx and massive job creation, but this idea of a casino as a lure for the super-rich adds a whole new dimension to it. I'm reading the article and writing my thoughts on this as I go, so this might be atrociously long, and I apologise for it in advance. Let me also just clarify that these are my instinctive thoughts on the matter, based on impressions that I have gleaned from living in Singapore for 18 years. Which may mean that they may be inaccurate - I do not claim to be able to portray the entirety of Singapore, just the aspect of Singapore as seen through my eyes.

I don't think people in Singapore think of Singapore as a tax haven, at least not the layman. In my case I never even considered Singapore as a tax haven until I started researching into this matter last year for a course I was taking. John Christensen might remember speaking on a panel when a Singaporean student stood up to question the presence of Singapore on a list of the biggest tax havens - I feel his attitude is emblematic of the knowledge deficit that Singaporeans are in. We have economic growth, stability (both economically and politically - leaving aside the intricacies of Singaporean politics for another time), and this is enough to keep us happy to keep our eyes on the ground. It's a tricky thing, this rather intertwined social contract that I feel many non-Singaporeans might have trouble understanding why we put up with it. As long as our iron rice bowls (a phrase meaning a constant income) don't get threatened, we're willing to let the government do whatever they want. Just like Jersey and many other countries, really. But there's never been a culture of questioning the government - we take paternalism all the way in Singapore.

Then again you have the opposition in Singapore, including Chee Soon Juan. A note about Chee - he has been a very prominent opposition figure in Singaporean politics, and as such his relationship with the Peoples' Action Party (the incumbent ruling party in Singapore) is tumultuous at best. At the very least, his character has been assassinated by the government so many times that it is a veritable zombie, surviving by will alone. I've been brought up to believe that he is a troublemaker for the sake of being a trouble maker, and that he and his sister (who stands alongside him as yet another opposition member of the Singapore Democrats) just stir up trouble to be noticed. I cannot say for sure - I never followed it closely enough (at that point I preferred sticking my head in the sand) to adequately form an opinion, but I must say that their political and social ostracization is not entirely the fault of the government. Part of it is their intractability, refusal to speak to the press (which they say is merely a government mouthpiece, and this is true, to an extent. More on this later), and I get the sense that he has been both an opposition member and a figurehead for so long that he is in a sense clinging to an ideal, be it an idealised version of himself or the notion that he embodies one of the few bastions of a kind of check against the government. But for someone so disempowered and disarmed by the incumbent government, the reactions by the Singaporean government can sometimes seem somewhat extreme, almost knee-jerk fearful. And this in a sense tells you a lot about Singapore and its government.

In any case, being labelled "opposition" can sometimes mean "enemy of the state." The cynic in me would strike out the word "sometimes." Either way, having this label tends to mean that what you say and what you write can often be discounted. I refer you to one of the great Singaporean opposition leaders named J. B. Jeyaretnam, a very interesting fellow, often labelled as a subversive (and in Singapore, that is enough to ruin you). Before he died, he was often seen hawking his memoirs near one of a few train stations in Singapore. Naturally, they did not sell very often since subversive words (and their authors) may well be toxic to one's own reputation. So it is not hard to imagine that the Singaporean government may well label this entire piece (the articles TJN blogged) as "yet another publicity stunt," despite the many solid arguments and (probably because of) uncomfortable questions that this piece raises.

I am trying to consider how much of a ripple this article would cause in mainstream Singapore. While there are outraged comments under the article, it is a very self-selecting group of Singaporeans who actively seek out sites like the Singapore Democrat, and they are naturally inclined to agree with anti-government articles. Most Singaporeans are unlikely to see this sort of government criticism, as the main media is more or less state controlled.

This was particularly evident a couple of years ago, during the 2006 election. It was an interesting stint, as that was the time when the PAP faced the largest opposition turnout in history. An example of the sort of censure that the ST has - the opposition held rallies, which are normally not covered in the mainstream media. This is not new - opposition parties normally do not get the same media coverage as the PAP does, and if they do, it's normally negative. But what made this interesting was that at least 5,000 or more people turned up to listen to the opposition. Comparatively, meet-and-greets with the incumbent PAP members tend to be very, very scripted. And this frighteningly large turnout was not covered by the press until 3 day later, when it had made the rounds on the Internet via email, was effectively an open secret, and the ST could not not report on it without looking like a fool. I'll send you the e-mail - it is an interesting read (TJN: it seems to have been posted on the internet - here - scroll down to see the size of the opposition crowd, which is remarkable for such a small country.)

Although there usually is no need for the government to deal with the media - they do a good job of self-censorship. A lot of the reporters I've talked to are surprisingly anti-establishment. Their only problem is that they can't print just anything they please, else someone will call someone, who will call someone else, who will call someone else, who will call the editor, who will call the journalist into the office for a Talk. And with the government willing to sue various publications for slander (think the WSJ - click here), the media's pretty much useless in terms of a fourth estate. So there's not really a lot of room for dissent - it's a game of Whack-A-Mole. You know that if you stand out, you will get whacked. Or at the very least Taken Note Of.

Which is why the Internet tends to be the place for lots of venting. But the people who bother to go to political sites and air their view are usually not your average man on the street. So while there is anger, it's the same anger that there has always been. Some scandal will blow up, people will be Angry, there will be Talk of Change, and then things will simmer down. Maybe one day it will finally boil over - the acerbic pointing out of the flaws in the PAP's facade (interestingly enough their uniforms are pure white shirts and trousers, with a black belt) is more and more frequent these days, and the youth of Singapore tend to be polarised into apathy or furious change (more apathy, I'm afraid). The winds of change are blowing, but I suspect they won't be strong enough to make the incumbent government seasick until the casinos are up and running, and money is flowing in, what with the financial crisis and Singapore's famed reticence.

On another interesting note, an inordinate amount of Singaporean students tend to take their bachelors in Finance and Business, or some equivalent, as it is commonly viewed as the moneymaking business, apart from being a doctor or a lawyer. And what with one thing and another, most Singaporean undergrads have no clue as to what they are really interested in, or just want to make money, and so they just so happen to fall into the finance business. With this sort of apathy towards anything but themselves, their interest in making money, Singapore's "bubble" of banking practices (I somehow doubt that the secretive world of Singaporean banking shares best practices on transparency and accountability with other countries, unless it is in making more money), and an extant culture of "don't ask, don't tell, but you really should know the OB (out of bound) lines -- i.e. what is permissable in this country and culture, and what is not"-- is it all that surprising that a culture that permits tax havens has arisen? Admittedly I cannot really back this up, but it is a curious thought."

The American offshore repatriation plan

There's an old tax wheeze that the offshorers like to wheel out on a regular basis. They say that it's often OK when money that is held offshore isn't taxed - because it gets taxed as soon it gets back onshore. So what's the problem?

Well, there are many problems. One is that the money is often spent offshore, before the tax can be paid. Another is that it is all too often brought back illegally (or in ways that are of questionable legality) using all kinds of tax gymnastics that stop the tax being paid. But here is a big one: the tax amnesty. These are billed as "one-off" measures to help bring the money home at times of stress (like now). They aren't part of the permanent tax code. Here's a lobbying effort for a new one (and one might suspect President George W. Bush of nurturing such plans, to enact before he leaves office.)

Seems like a good idea, at a time of stress? Here's what Citizens for Tax Justice in the U.S. had to say, in an article entitled "Congress Should Not Fall for Corporate America's Latest "Repatriation" Plan"

Corporate America is gearing up for the upcoming stimulus by recycling one of its favorite responses to any economic downturn. The plan is to let U.S. companies bring home, tax-free, the billions of dollars they have stashed away in offshore tax havens. Most of this money was actually earned in the U.S. but then deflected to tax havens through artificial accounting schemes.

Congress and President Bush enacted a similar “tax amnesty” program back in 2004, and huge sums were “repatriated” by some giant corporations. As almost everyone concedes, most of the repatriated money was used to buy back corporate shares and for other expenditures favoring management. There is no evidence that the tax amnesty added a single job to the U.S. economy. Anyone who thinks that repeating the 2004 mistake, with supposed new restrictions on the use of the money, might work out better this time is dreaming. After all, the precise reason that corporate executives favor the amnesty is that it provides extra cash to benefit themselves personally.

To be sure, there could be some benefit from unlocking that huge horde of offshore tax-avoidance money. But the approach that Corporate America is pushing is totally backwards. The right answer, from a fairness and economic efficiency perspective, is to impose a one-time 35 percent tax on the entire amount of the tax-sheltered offshore profits.

Taxing those profits and then allowing them to be repatriated without further tax is certainly a fair result -- it would put the tax avoiders in the same position as U.S. companies that dutifully paid their fair share of taxes over the years. Perhaps more important in these troubled economic times, the move would also get high grades on efficiency grounds. A one-time levy on corporate tax-avoidance funds not only would have no undesirable effects on corporate behavior, it also might even discourage companies from shifting profits offshore in the first place.

The suggested tax on offshore tax-avoidance money would raise considerable revenue, perhaps as much as $350 billion. That revenue could be used for domestic public works projects, which could stimulate the domestic economy without resulting in any increase in the federal budget deficit.

Johnson's nonsense

TJN's senior adviser Richard Murphy has written an important blog about Boris Johnson, the clownish new mayor of London, and his plans to turn London into more of a tax haven than it already is. Johnson represents Britain's Conservative Party. He wants to accelerate a race to the bottom on tax and regulation (and let's not forget the subtexts: secrecy and a blatant resistance to judicial co-operation with crime-fighters in other jurisdictions.) Johnson's arguments about "competition" are entirely bogus.

Richard also paraphrases proposals to set up a new Financial Services Board, like this:

"we want to take London out of democratic political control because we can’t be sure the electorate will always deliver what we want."

We won't do much more than say this: read the blog.

One last thing, though: remember the Conservatives' recent policy paper? We copied a section of it onto our quotations page:

The last ten years in particular have been good years for the world economy as a whole. They have been characterised by two massively favourable trends. The first is an era of easy money. The main central banks worldwide have opted for low interest rates, the ready creation of credit, and tolerance of innovatory means of financing public and private sector activity through big increases in debt. It has been the era of public/private partnerships, specialised credit-based funds and funds of funds, collateralized debt obligations, collateralized loan obligations, credit default swaps, special purpose vehicles and many other similar ways of raising borrowing throughout the financial system.
- Britain's Conservative Party, Policy document "Freeing Britain to compete", August 2007, amid the start of global economic turmoil triggered by collateralized debt obligations, collateralized loan obligations, credit default swaps, special purpose vehicles and many other similar ways of raising borrowing throughout the financial system.

It's astonishing that they published this even after it had started to become clear what a monumental idiocy it has all been. Johnson's nonsense is more of the same folly.

Doha: a cup half full

The final outcome document from the Follow-up International Conference on Financing for Development (FFD), held in Doha, Qatar, from 29th November to 2nd December, is now available for download here.

This blogger was present in Doha for much of the period of the protracted negotiations during the final days of the conference, and can bear witness to the dedication of the UN team who slogged away, night after night, to find compromise wordings that would bring together widely diverging views, including those of some countries that would have loved to scupper the whole process. The end result shows progress in several areas (though not, regrettably, on debt relief), and the very fact that there was a final document at all was a success in itself. And, as many people at Doha noted, progress on the tax justice agenda was considerable.

As the Conference title implies, this event followed-on from the first FFD conference held in Monterrey in 2002. That conference laid out a new agenda for development - the Monterrey Consensus - which emphasised in its first chapter the importance of using domestic resources as a source for both private and public investment. So far so good, but while many people attending the Monterrey conference had raised concerns about capital flight and tax evasion, their concerns scarcely got a mention in the final Consensus document.

For example, capital flight was mentioned (paragraph 10), but tax evasion was not. Nor had there been any mention of tackling tax practices that undermine development, such as tax competition and tax avoidance, and the role of tax havens in facilitating all of these. Importantly, however, the Monterrey Consensus relating to systemic issues, included the following commitment to strengthening international tax cooperation:

Strengthen international tax cooperation, through enhanced dialogue among national tax authorities and greater coordination of the work of the concerned multilateral bodies and relevant regional organizations, giving special attention to the needs of developing countries and countries with economies in transition; (section F, paragraph 64).

This clause played a part in stimulating the launch of the Tax Justice Network. Those of us with an interest in domestic capital accumulation in poorer countries (and the role of tax havens in disrupting that) saw this as an opportunity to promote global efforts against capital flight and tax evasion. We were heartened in December 2003 when the UN General Assembly agreed to upgrade the obscure and flaccid Ad Hoc Group of Experts on International Cooperation on Tax Matters to Committee status, mandated with the task of advancing the Finance for Development agenda on tax cooperation. TJN was the first genuine civil society organisation to attend the Committee's annual sessions in Geneva, and we see the Tax Committee as the most legitimate agency working in this important area (the OECD plays a powerful role, but it ultimately represents rich countries.)

The TJN team, which right from the start included our colleagues at the Paris-based Plateforme Paradis Fiscaux et Judiciaires, started to focus on the Doha follow-up conference in September 2006. Here we saw an opportunity to galvanise European non-governmental organisations (NGOs) around a short list of clear demands. These included:

1. Strengthening commitment to tackling illicit financial flows, capital flight, tax evasion and avoidance;
2. Upgrading the UN Tax Committee to intergovernmental status and rebalancing its composition to include more genuine developing countries and fewer tax haven countries;
3. Including an explicit commitment to progressive taxation (anathema to anti-state extremists);
4. Adopting measures to tackle tax practices that undermine the integrity of tax regimes, e.g. the aggressive tax competition of tax havens;
5. Promoting the UN Code of Conduct on Cooperation in Combating International Tax Evasion.
   

We made significant progress with items 1 and 2, but not with 3 and 4. But as for raising tax justice up the agenda, which was a broader aim, we certainly put tax issues centre stage - and many allies rallied around: see here and here, for example.

But one thing at a time. On illicit financial flows, the section on systemic issues saw a new, stronger wording emerge, addressing our calls for more transparency and information disclosure: the key sections of paragraph 72 have been emphasised below -

New and highly globalised financial instruments continue to change the nature of risks in the world economy, requiring continuing enhancement of market oversight and regulation. To strengthen the resilience of the international financial system, we will implement reforms that will strengthen the regulatory and supervisory frameworks of financial markets as needed. We will strive to improve key accounting standards to remedy weaknesses and deficiencies, including those exposed by the current financial crisis. National regulators should enhance financial information and transparency at the domestic level. We will further enhance cooperation amongst national regulators from all countries to strengthen international financial standards. These efforts should address timely and adequate risk disclosure standards in order to improve the foundation of decisions of investors. There is also a need for enhanced transparency by financial institutions. Enhanced disclosure practices and transparency should assist efforts to reduce illicit financial flows.

That last sentence came in at the very last moment, apparently with the sponsorship of the German negotiating team. Well done to our friends in Berlin. This provides a suitable hook for much work, including the country-by-country reporting standard, and disclosure of beneficial ownership. The reference to risk disclosure has a strong bearing on off-balance sheet vehicles used in the shadow banking system, which in no small way contributed to the current financial crisis: off-balance sheet financing has no legitimate role in a market economy and must be abolished.

Another key section is paragraph 16, which includes the following:

We will step up efforts to enhance tax revenues through modernised tax systems, more efficient tax collection, broadening the tax base and effectively tackling tax evasion. We will undertake these efforts with an overarching view to make tax systems more pro-poor.

Well that's OK as far as it goes, but for the record the earlier drafts of that final sentence read "more progressive and pro-poor" and the reference to progressive tax was deleted at the insistence of the Americans and their allies. Ho hum. Leopards, Spots, etc. The paragraph continues:

While each country is responsible for its tax system, it is important to support national efforts in these areas by strengthening technical assistance and enhancing international cooperation and participation in addressing international tax matters, including in the area of double taxation.

(Its a shame they can't quite get to the point of explicitly mentioning double NON-taxation, but I digress) and now we get to one of the most hotly contended sections of the entire document

In this regard, we acknowledge the need to further promote international cooperation in tax matters, and request the Economic and Social Council to examine the strengthening of institutional arrangements, including the United Nations Committee of Experts on International Cooperation in Tax Matters.

Now this latter part is hugely important. We had hoped for a stronger wording: explicitly committing the UN to upgrade its Tax Committee, but the agreed formulation provides an opportunity to map out what changes are needed in the way of balanced representation (and that includes not allowing them to shoe-horn a multitude of tax havens into the "developing country" categories), political status, resourcing and staff. We regard this as a vital step towards improving on the current situation, where the interests of poor people from real developing countries are not being effectively served.

Paragraph 20 helpfully refers to strengthening national and multilateral efforts to address the various factors that contribute to capital flight (we, of course, focus especially on the pull factors contributed by tax havens) and to efforts to tackle money laundering and preventing illicit financial flows. As with other parts of the document, the paragraph is weak on the specifics, but the broad commitments are immensely important.

Paragraph 21 elaborates on the fight against corruption "in all of its manifestations" in the private as well as the public sector, and calls for "effective legal and judicial systems and enhanced transparency." We have strong views on corruption (see here, for example) and hope to see tax evasion explicitly listed as a corrupt practice under the UN Convention Against Corruption.

There's much more we could comment on , not least paragraphs 78 and 79 relating to the UN's role in reviewing the international financial and monetary architectures. We do not have a great deal of confidence in the ability of the Group of 20 to carry out this crucial task, and deplore any move that precludes any of the 192 UN member states from participating in this process.

Other positive outcomes from Doha included the launch of a book on the South-South Sharing of Successful Tax Practices Programme (co-organised by TJN in conjunction with New Rules for Global Finance, UN Development Programme and UN Department of Economic and Social Affairs), and the 2008 Social Watch Report, which includes a chapter on tax and development contributed by TJN's Nicholas Shaxson and John Christensen.

Half full? Half empty? We think the former. Sure -- there was strong resistance from the usual suspects, including some tax havens from the G-77 group of countries, but there was also strong support from important allies, and progress on many fronts. Above all, we came away with a strong impression that tax matters have moved from the periphery to the core of the development debate, and we know that TJN played a part in making this happen. That alone makes the efforts of the past two years more than worthwhile.

Links - Dec 11

** Also see TJN's searchable news archive, and Offshore Watchfor more stories. **

France To Sign Bilateral Tax Agreement With Switzerland,
Dec 10 (Tax-News.com) - During recent discussions with Swiss President Pascal Couchepin (pictured), French Prime Minister François Fillon revealed firm plans to conclude a bilateral tax agreement between Switzerland and France

Reprieve for Tax Shelter Is in Proposed Bailout for Detroit
Dec 10 (NY Times) - A little-noticed provision in the proposed bailout plan for Detroit’s automakers blesses an aggressive tax shelter sold by large banks and insurers to municipal transit agencies across the country.

Shedding Feudalism, a Channel Island Fights Over Its Future
Dec 10 (NY Times) - First ever elections in Sark. The shift to democracy has been marred by extraordinary amounts of bad blood and ill will. On one side are the people who feel that Sark, with no income taxes, should be left to make its own decisions. The other side supports the development plans of a pair of reclusive identical-twin British billionaires who have bought up more than one-fifth of Sark in the last few years.

Swiss Bank Secrecy In Toughest Test Since Nazi Gold
Dec 10 (Reuters) - With Washington joining Germany to press for an end to a code they believe helps tax dodgers, many see it as only a matter of time before the Swiss lift the cloak guarding the secrets of the world's wealthy. "The challenge to bank secrecy is a thunderstorm which has been brewing since the holocaust money,"

French writer says he's a "mosquito" in arms trial
Dec 9 (Reuters) - Sulitzer told the court Falcone had wired money to offshore accounts or handed him wads of cash. He said the legal moves against him were out of proportion to the crime. “They are trying to kill a mosquito with a nuclear bomb," he said. Judge Jean-Baptiste Parlos retorted” "Assuming that you are a mosquito, you are a mosquito with a lot of bank accounts," he said.

IRS to Crack Down on Tax Dodge Sold by UBS, Citigroup (Update1)
Dec. 8 (Bloomberg) -- The Internal Revenue Service has made a priority of cracking down on derivatives created by banks such as UBS AG and Citigroup Inc. that are designed to help offshore hedge funds avoid a 30 percent dividend tax.

Liechtenstein signs milestone tax deal with U.S.
Dec 8 (Reuters) - Banking secrecy stronghold Liechtenstein signed a landmark deal with the United States on Monday that paves the way for the exchange of bank data with Washington in certain cases of tax evasion.

Swiss scrap 'foreign-based' firm status to defuse EU row
Dec 10 (Ebusiness) - The Swiss government on Wednesday announced plans to abolish a status accorded to some foreign firms that offers fiscal benefits, in a bid to defuse a row with the European Union.

Links - Dec 10

Also see Offshore Watch and TJN's searchable news archive

What to Do
Dec (NY Review of Books, By Paul Krugman) - Anything that has to be rescued during a financial crisis, because it plays an essential role in the financial mechanism, should be regulated when there isn't a crisis so that it doesn't take excessive risks. Now we've seen a wide range of non-bank institutions create what amounts to a banking crisis, comparable regulation has to be extended to a much larger part of the system. In the aftermath of the Asian crisis of the 1990s, there were some calls for long-term restrictions on international capital flows, not just temporary controls in times of crisis. For the most part these calls were rejected in favor of a strategy of building up large foreign exchange reserves to stave off future crises. Now it seems that this strategy didn't work.

Capitalist Fools
Jan 09 (Vanity Fair) - Joseph Stiglitz' choice of culprits for the mess: 1. Replacing Volcker with Greenspan at the Federal Reserve ("If you appoint an anti-regulator as your enforcer, you know what kind of enforcement you’ll get,"); 2. Deregulation ("The most important consequence of the repeal of Glass-Steagall was indirect—it lay in the way repeal changed an entire culture."); 3. The Bush tax cuts ("The president and his advisers seemed to believe that tax cuts, especially for upper-income Americans and corporations, were a cure-all for any economic disease—the modern-day equivalent of leeches"); 4. Faking the Numbers ("The scandals had involved every major American accounting firm, most of our banks, and some of our premier companies, and made it clear that we had serious problems with our accounting system"); 5. Not acting fast enough ("Both the administration and the Fed had long been driven by wishful thinking, hoping that the bad news was just a blip, and that a return to growth was just around the corner.")

Why Wait to Repeal Tax Cuts for the Rich?
Dec 9 (NY Times) ON the campaign trail, Barack Obama said he wanted to eliminate the Bush tax cuts for top earners upon taking office in January. Now he seems to favor letting those cuts expire as scheduled, at the end of 2010. The added revenue from eliminating the Bush tax cuts would pay for larger temporary tax cuts for low- and middle-income families than the permanent ones now planned. Following our recent blog on this.

Recession-Plagued Nation Demands New Bubble To Invest In
What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future. From the satirical magazine The Onion. See also: Dollar Bill On Floor Sends Wall Street Into Frenzy

Illicit flows rob developing countries of $900bn a year

From a recent story in The Observer (which we didn't report because TJN bloggers were travelling):

"The world's poorest countries lose $900bn each year - nearly 10 times greater than the global aid budget - through illicit flows of capital, new research shows. Illicit capital is defined as money extracted from bribery and corruption, the illegal pricing of goods to avoid taxes, and outright tax evasion by individuals and companies.

A study by US think-tank Global Financial Integrity found that the volume of capital flight from developing countries is increasing by 18 per cent each year. Its director Raymond Baker said: 'Illicit financial flows siphon revenue out of poor countries, robbing them of much needed assets and stunting economic development.'"

We will bring you more details in due course - it seems the final report isn't available quite yet.

This follows the statements from the OECD such as this one (which may be measuring different things:)

"Tax havens have a bigger impact on developing countries than on developed countries," Jeffrey Owens, director of the Centre for Tax Policy Administration at the Organisation for Economic Cooperation and Development, told Reuters.

"There is an enormous drainage of revenues to tax havens. This is equivalent to around 7 to 8 percent of gross domestic product for the African continent and a multiple of the aid it gets from developed countries."

Almost nobody has measured this stuff before. Things are starting to change.

Links - Dec 9

Also see Offshore Watch and TJN's searchable news archive

Zorro zahlt nicht mehr
Nov (Der Spiegel) Excellent article in Der Spiegel, by one of their best writers, about Cayman. In German.

Liechtenstein Signs US Deal
Andreas Missbach of the Berne declaration on CNBC giving some useful background about the new US-Liechtenstein deal. A short clip making comparisons with Switzerland. On same subject, see this Forbes story featuring TJN's Richard Murphy.

Murdoch angry over Italy tax rise
Dec 2 (FT) - Rupert Murdoch's Sky Italia yesterday hit back over a tax increase imposed on its pay-TV operations by the government of Silvio Berlusconi. Opposition politicians accused Mr Berlusconi, the prime minister, of using his office to penalise his competitors.

And now for a world government
Dec 8 (FT) - For the first time in my life, I think the formation of some sort of world government is plausible, involving much more than co-operation between nations. It would be an entity with state-like characteristics, backed by a body of laws. The EU could be a model.

MPs condemn failure to prosecute rich tax dodgers
Dec 9 (Guardian) - 36 barristers have been forced to return £605,000 to tax authorities. this has not become public because none of the white collar tax evaders have been prosecuted, says the report by the Commons public accounts committee.

BIS warns of collapse in global lending
Dec 9 (Telegraph) - Cross-border loans worldwide fell by $1.1 trillion (£740bn) in the first half of the year, reflecting the scramble by the financial industry to cut leverage by pulling credit lines and slashing risky exposure.

Singapore: dirty money, no questions asked

A fascinating series of three articles has just appeared on a political party web site in Singapore, looking at its emergence into what it is today: a big, dirty Asian tax haven. The series was written by a leading Singapore dissident, Chee Soon Juan, secretary-general of the Singapore Democratic Pary, who has been imprisoned several times for his anti-establishment views.

These well researched and well-written articles are all well, well worth reading - and though we've said that of a fair few reports, we'd highlight these ones in particular. Part I looks at the emergence of Singapore as a tax haven; Part II looks at how tax havens affect the world's economies, and Part III examines whether foreign funds parked there have benefited locals.

So how did Singapore come to be a secrecy jurisdiction (or a tax haven, if you will.)?

"Circa 1998 in the wake of the Asian financial crisis, the Government decided to make Singapore the financial capital of Asia, if not the world. At about that time Switzerland, the Mecca of secretive banking, came under pressure from the European Union to amend its laws to enable greater financial transparency and to provide information to on accounts suspected to belong to tax evaders from other European nations.

The (Singapore) Government saw the opportunity and introduced legislation to tighten up secrecy protections in our financial institutions to attract investors and account holders fleeing Switzerland."

This is it, in a nutshell. As regards Europe, the article is referring to the EU Savings Tax Directive, which is currently in the process of being tightened. Lee Kuan Yew, Singapore's Prime Minister from 1959 to 1990, made some telling remarks in a memoir (which this blogger happens to have on his bookshelf.)

"In the early years from 1968 to 1985, we had the field all to ourselves in the regin. We attracted international financial institutions by abolishing witholding tax on interest income earned by non-resident depositors. All Asian dollar deposits were exempted from statutory liquidity and reserve requirements. By the 1990s, Singapore had become one of the larger financial centres of the world . . . .

Singapore's financial centre was considered over-regulated compared to Hong Kong's. Critics wrote: "in Hong Kong, what is not expressly forbidden is permitted; in Singapore, what is not expressly permitted is forbidden. . . . Only after the MAS (Monetary Authority of Singapore) had demonstrated the strength of its system to weather the financial crisis of 1987 and 1997-98 did I feel confident enough to move closer to a position where what is not expressly forbidden is permitted."

Note two things about this statement. First, his description of a move towards deregulation is expressive of the tax haven mentality. Second, that the reforms happened after the crisis: it was Singapore's "over-regulated" banking system that weathered the crisis.

Back to Chee Soon Juan's article, which continues:

"In 2001 Prime Minister Lee Hsien Loong, then deputy prime minister, finance minister and chairman of the Monetary Authority of Singapore all rolled into one, met with bankers from all over the world to discuss how Singapore could tailor its laws to become a premier banking centre.

Following the consultations, he introduced amendments to the Banking Act to revise secrecy provisions so that "only very few exceptions have been allowed for the disclosure of information relating to a customer's deposit and funds placed for investment" and that "a person who receives customer information will be required by law to keep the information confidential." The penalty for breaking such a law is a fine of up to $125,000 or 3-years' jail or both.

In 2004, trust laws were amended to allow foreigners, especially Europeans, to avoid laws in their home countries that regulate inheritance of an estate by family members."

The article then describes the huge asset growth in Singapore's banking system, rising from $150bn in 1998 to $1.173 trillion by the end of last year, and then looks into a curious website offering offshore services through Singapore, but doesn't reveal anywhere who is running it (though an anonymous commenter under Part 1 seems to have traced the web site to someone in Germany).

"Its front page pictures a gentleman cupping his chin as if in deep contemplation - but doesn't tell us who he is."

So how dirty is Singapore? Well, we only have anecdote (which tends to be the way with tax havens,) but try these:

"Not only have tax evaders found a haven in Singapore, money-launderers are also flocking to the city-state. Former chief economist at Morgan Stanley, Andy Xie, wrote in a private email that was inadvertently leaked to the public, said that Singapore's financial success "came mostly from being the money laundering center for corrupt Indonesian businessmen and government officials.''

In 2006, now bankrupt Merrill Lynch and Capgemini reported that the number of "super-rich" Indonesians living in Singapore is a staggering 18,000 whose wealth amounts to approximately US$87 billion. Much of this wealth, complains the Indonesian Government, came from illegal activities in Indonesia. Xie added that in order to sustain its economy, Singapore was resorting to "building casinos to attract corruption money from China."

Corrupt ruling generals in Burma are also suspected to be stashing their assets in Singapore, leading many to criticise the PAP Government following the Burmese regime's crackdown on monks and civilian protesters in 2007.

Not too long ago, a friend of mine from Cambodia intimated to me a story about four women, all single, from Phnom Penh depositing $80 million between them in Singapore banks. No questions asked. "Four single women? $80 million? From Cambodia which is dirt poor?" she asked with a mixture if rhetoric and incredulity, "And no one here bothers to ask how they got the money?" In case anyone thinks that the remark carried sexist overtones, my friend was female and a hard champion of equal rights for women.""

And you might find the description of the activities of a former chief of an Italian bank curious too. And, as is also usual with the secrecy jurisdictions, the government claims that

"our banking and financial system is open and transparent, and our rules vigorously enforced."

And of course, no protestation from a tax haven would be complete without the "we are not a tax haven" assertion, in Part II:

"Singapore is not a tax haven," Foreign Minister George Yeo insists, "We are a low-tax country but not a tax haven. We're an international financial centre so banking secrecy is very important. It is protected by law."

Of course, of course. And the article note just how very wrong he is.

"Singapore has been adamant in its non-cooperation. Even the chairman of the Swiss Bankers' Association, Mr Urs Roth, is pointing (hypocritical) fingers at Singapore. Comparing his country and ours, Mr Roth noted that Singapore's banking secrecy provisions are even stronger than the ones in Switzerland. . . the Singapore Government has played the role of Switizerland's heir apparent to perfection."

As if all that weren't enough - try Part III. It starts with this question - one of the quintessential tax haven questions:

"Why should Singaporeans care? Isn't it good that we have become fabulously rich from all the money pouring in to our banks? Clean money, dirty money, it's still money. We get to use it and that's all that matters."

And they have an answer. One part of it starts like this:

"For all the hoopla about our economic prowess, we have an income disparity that is akin to those of Third World countries: Our Gini coefficient among employed households, a measure of income inequality, has been rising through the years. Its figure of 48.5 is between developing countries like Argentina (49) and Ecuador (46), and almost double that of European countries like Sweden, Denmark and Germany. It is even higher that those of Japan, South Korea and Taiwan (non tax haven Asian economies) which have Ginis around the mid-30 mark."

And then look at the remarkable graph (click on it to enlarge it): it shows inequality rising sharply, just as the assets under management in Singapore rise sharply. (As an aside, to any academics out there - why not start studying this, on a worldwide basis? More research needed on different countries, and fast.)

Now this stuff about Gini coefficients may sound like dull economist-speak, but for real people with real lives, it can be shattering. But here's another way of talking about it:

"We see the ultra-luxurious property at Sentosa Cove, the Bentleys and Maseratis zooming around on our streets, and immediately think that Singaporeans are more than a fortunate lot. Not quite. Such trappings are built for and owned by overseas financial magnates . . . while these super-rich foreigners live it up here Singaporeans, especially those in the lower income bracket, see their fortunes go in the other direction.
. . .
Between 1998 and 2003, the average household monthly income of the poorest 20 percent of the population decreased by nearly 15 percent while the richest 20 percent increased by 11.7 percent. In that same period, while the average wage dropped for the poorest 40 percent of households, their expenditure continued to outstrip their income
. . .

Does all this money do you any good? Look at our other blogs on this subject - here and here, for example, and see the parallels. Expatriates call Singapore "one of the least stressful places in the region" while

"Locals, on the other hand, find the city one of the most stressful places o live in. As a result, among the various Asian societies, Singaporeans are most likely to have suffered depression, stress, and fatigue. Another study showed that job-related stresses continue to be the biggest problems for working Singaporeans. Because of the system, an increasing number of adult Singaporeans are driven to seek the help of mental professionals due to financial woes. Marriages are also being torn apart because of economic pressures at home."

Reading through this, while chatting on Skype with today's blogger, TJN's director John Christensen exclaimed, after reading this paragraph, that "This sounds just like Jersey."

This whole article is full of more good stuff. We won't reproduce too much more of it here: read it yourself. Look at the section entitled "Ethics-shmethics. Money is money," for example.

But we will highlight one part of this, which is absolutely crucial, and fits exactly with the atmosphere of intimidation that we have encountered in so many parts of the world.

"The Government made the decision to turn Singapore into a tax haven because it was the easy thing to do. All it needed was some skilfull rewriting of the law and a handsome advertising campaign to lure big, and often dirty, money to our banks.

Of course the alternative economic strategy, as discussed below, is not politically viable, at least not for the PAP (Singapore ruling party, which won 82 of 84 seats in the last parliamentary elections). Fostering dynamism and creativity means having to open up the political space which the PAP is loathe to do. The combination of making money on Easy Street while remaining solidly authoritarian was an opportunity too delicious to pass up."

And therein lies the problem. It is true in Britain - until the economic crisis hit, it has been politically very difficult to criticise Britain's tax haven model and be taken seriously.

What should Singapore do to change? The article's authors make many suggestions, but here is a crucial one, we feel:

"We also need to democratise our political economy. This means that Singaporeans must be allowed to become the drivers of economic growth rather than the Government. Private enterprise, and not the GLCs, must lead our economy. If Singapore develops politically and its citizens find their rightful place in society, we will have the foundations of a system that is free and enterprising, one that will stimulate the entrepreneurial mind."

To end this blog, a few general comments.

Part II quotes the chairman of the Swiss Bankers' Association, who pointed out that while Singapore is not getting as much attention at the moment compared to Switzerland "I would guess that it is a question of time." Jeffrey Owens of the OECD (whom we blogged very recently) summed up the matter for Singapore cogently:

"The political climate is changing and I do not think that Singapore is correctly reading the political signs that a change is about to come."

Take a look, too, at the comments underneath these stories. Here are just a few of many.

"Let's wait and see whether LKY and sissy Loong will start suing Any Xei and Dr. Chee."

"fast wealth is a shaky foundation to build on and the social cost is very costly."

"We Singaporeans are fed up with the main stream media propaganda of reporting and sugarcoating the news."

"For the US it is that simple, if any countries that refuse to co-perate with them in combating tax evation, then they would not renew licences for those banks with their head office in those countires to operate in the USA."

"The international community must slap PAP with some financial sanctions"

And several more in this vein, many of them stronger than these.

The kinds of comments above are the voices of ordinary Singaporeans. We agree with them. And we call on the EU and the United States, and a few others who are at last starting to show some activism in this area, to listen to them. And to put Singapore squarely in their sights.

Stop Tax Haven Abuse Act - coming soon

US Senator Carl Levin, one of the co-sponsors (along with President-elect Barack Obama) of the Stop Tax Haven Abuse Act, has been speaking about the likelihood of it coming to pass. (We recently blogged the Act, one of the most forward-thinking and useful pieces of legislation on tax havens in history.)

This is what the latest news story from Bermuda has to say:

"American lawmakers will waste no time in helping President-elect Barack Obama to fulfill his campaign promise to "shut down the tax havens", a leading US Senator has indicated.

Sen. Carl Levin said the Stop Tax Haven Abuse Act — a bill which names Bermuda as one of 34 "offshore secrecy jurisdictions" — will become law next year with the support of the new president

"The President-elect has co-sponsored our bill, which goes after the misuse of these tax havens, the avoidance of taxes by American taxpayers, individuals and corporations using the Cayman Islands and all these other places to avoid paying their bills to Uncle Sam," Sen. Levin said."