G-20 progress report
Take the section on tax havens for example.
On information exchange (item 75) the report states:
Unprecedented progress has been made sine the November 2008 G20 summit. All of the 87 jurisdictions covered by the Global Forum have now committed to the Global Forum's standards of tax information and transparency, with more than half having substantially implemented them; major financial centres both within and without the OECD area which had strict bank secrecy rules or other impediments to achieving an effective exchange of information are in the process of removing these impediments; and more that 70 Tax Information Exchange Agreements have been signed - a larger number than the total for the previous 10 years.
Its true that progress in the previous decade was worse than feeble. But sufficient numbers of TIEAs were negotiated during that period to reveal something rather crucial to the entire process: TIEAs based on the 'on request' model, which is the standard that secrecy jurisdictions are now signing up to, just don't work. They are not sufficiently strong to deter tax evaders (as the UBS case demonstrates), and they require countries requesting information exchange to have a large body of evidence of malfeasance before they can even approach a secrecy jurisdiction with an exchange request. As a result, information exchanges are expensive and seldom happen.
Item 77 also relates to information exchange, this time bringing in the interests of developing countries. The progress report states:
The Global Forum agreed to monitor progress on how developing countries are benefiting from the more transparent environment. It will receive a report early next year from the Global Forum Secretariat on how such countries can be integrated in and benefit from the Global Forum's work including concrete suggestions on the more effective use of information exchange.
The Secretariat will accelerate its work on multilateral instruments and will prepare a report on how developing countries can benefit from this process. In advance of the G20 Finance Ministers meeting in November, the Global Forum will submit a report to inform Ministers on how multilateral tax information exchange agreements (TIEAs) work and what steps are necessary to accelerate full implementation of the standards.
Now at face value the language used is rather encouraging. We like the reference to multilateral instruments. Ditto talk about integrating developing countries into information exchange processes. A commitment by the Secretariat to "accelerate its work" sounds good as well. We have been puzzled by the lack of clear progress towards agreement of international protocols for Taxpayer Identification Numbers (TINs) and on what information must be obtained by banks and other financial institutions on their offshore clients. These technical matters are crucial parts of effective information exchange, so we encourage G-20 Finance Ministers to give priority to finalising these long overdue protocols.
But the word 'automatic' is missing. And we suspect this does not result from oversight. We all know that adopting a automatic information exchange (AIE) processes at a global level is an ambitious proposal. But Rome wasn't built in a day, and we do not expect AIE to become an instant reality. What we want to see is a clear commitment from G-20 to substituting AIE for the weak and ineffective 'on request' exchange model that they currently persist with. We know from discussions with officials in a number of secrecy jurisdictions - large and small - that many of them would be prepared to adopt AIE if this were done on a level playing field basis. They all agree that AIE is an effective deterrent to tax evaders. Instead of throwing further effort into the 'on request' model, G-20 Ministers should raise their ambitions to a higher level and commit to adopting AIE as the appropriate international standard.
Moving on, we note the following (item 80):
The FATF is also about to consider some parts of the Recommendations in preparation of its fourth round of mutual evaluations. Among the topics identified for consideration are Customer Due Diligence, law enforcement, beneficial ownership of assets, international cooperation, and whether tax crimes should be considered as a predicate offence for money laundering.
We strongly urge the FATF (Financial Action Task Force) to move in this direction. Tax crimes are massively more harmful to the majority of developing countries than other forms of money laundering. Making tax crimes a predicate offence under existing AML regimes would send very strong messages to the financial intermediaries who engage day by day in facilitating these crimes but fail to report anything under existing suspicious activity reporting systems. We also urge the FATF to examine more closely the role of offshore trusts and offshore companies in disguising beneficial ownership of assets. Now is the time to do this job in a comprehensive fashion.
In advance of the Pittsburgh Summit we have submitted our proposals to the appropriate G-20 Working Group. AIE features prominently. As does our call for an International Financial Reporting Standard on Country-by-Country reporting. Neither of these proposals receives a mention in the G-20 report. Nor is there any hint of the proposal that financial professionals be mandated to adopt codes of conduct with respect to the promotion and facilitation of abusive tax avoidance structures.
On the basis of what we read in the current progress report, we find it hard to award more than C for effort on progress to date.