Uncounted ownership: Time to stop hiding?

Cross-posted with permission from Alex Cobham

It really matters, for all sorts of things from fair taxation to the prevention of corruption, that people are unable to hide their ownership of major assets or income streams. Could the post-2015 development framework provide an opportunity to change, fundamentally, the level of international transparency about beneficial ownership?

The UK’s Deputy Prime Minister Nick Clegg has been talking about a possible ‘mansion tax’ on high-value properties. He explained to the BBC, among other things, that wealth taxes on property are much harder to avoid than taxes on financial assets which can be moved quickly around the world.

Mr Clegg is certainly right about the latter – as discussed here, the latest Tax Justice Network estimates indicate somewhere between $21 trillion and $32 trillion of hidden assets around the world, with massive implications for real levels of inequality.

I’m not sure, however, about the point on property taxes being hard to avoid. This Observer story from last year, for example, found that only 9 of 62 flats in “the world’s most expensive residential block” were registered even for council tax:

An analysis of the records by the Observer shows that 25 of the flats’ registered owners are companies in the British Virgin Islands. Other offshore tax havens used to purchase the properties include Guernsey, the Cayman Islands, Liechtenstein and Liberia.

There are two reasons relevant to tax dodging (and of course many that are not) to use companies to hold the ownership of property:

• first, to hide the actual ownership – this is why you would use a company formed in a secrecy jurisdiction like the BVI rather than a UK one; and
• second, to hide changes in ownership – so that individuals can sell and buy the company which owns a property, rather than property itself, since although these are equivalent actions the former allows the possibility of not paying stamp duty.

The same secrecy, of course, poses a major challenge to developing countries too – BVI companies are also involved in the ownership of Zambian copper mines, for example; and without implicating any of them, the human impacts of lost tax revenues and greater corruption can be much more direct in countries at lower income levels.

The Norwegian presidential commission on tax havens presented considerable evidence on the links between developing countries and havens, pulling out link after link that threatens development and revolving around the hiding of ownership – whether for purposes of facilitating corrupt payments, trade mispricing to dodge tax, or money laundering. In addition, the commission set out (see Appendix I) a model of how governance in a country could be broadly undermined by greater exposure to tax havens.

Because the key to havens is not in fact tax rates but secrecy, I prefer the term ‘secrecy jurisdiction’ (for reasons set out at some length in my chapter of this World Bank volume). Ultimately, it is the hiding of ownership that havens facilitate which undermines regulation and taxation around the world – not any tax competition they may engender.

A measure to address UK stamp duty avoidance in the last Budget implicitly recognised the problem that Mr Clegg’s argument faces. Instead of simply requiring the identification of the beneficial owner of a property (i.e. regardless of any intervening corporate structure), the government imposed a higher rate of stamp duty for residential properties over £2m bought by “certain non-natural persons”.

Despite the centrality of identification of beneficial ownership for international measures against everything from tax dodging to money laundering to grand corruption, the ability of even a relatively powerful government like the UK to effectively police it remains limited, and so the UK itself was reduced to working around the problem rather than challenging it. [Meanwhile, the UK itself must face the challenge of transparency in relation to the ownership of trusts, and its many satellite jurisdictions.]

What this means is that Mr Clegg’s optimism about the solidity of property reducing tax avoidance may be misplaced. The bright side, though, is this: that effective international exchange of information on beneficial ownership would deliver great benefits not only for the effectiveness of the UK’s tax system, but for a great many other countries and their citizens too.

The US has unilaterally enacted FATCA, the Foreign Account Tax Compliance Act, which demands beneficial ownership globally for “financial accounts held by U.S. taxpayers, or held by foreign entities in which U.S. taxpayers hold a substantial ownership interest”. A future with substantially lower levels of international corruption, money laundering and tax dodging relies on this type of transparency being available to all governments, not just the most powerful, and applying to bank accounts, trusts and foundations, companies and so on. FATCA for all! Or perhaps something more cooperative, like a broader version of the EU Savings Tax Directive which requires automatic information exchange among participating states.

The coming proposal is this: a requirement for some minimum, international exchange of beneficial ownership information (as once suggested by Richard Murphy), as part of the global policy package associated with the post-2015 development framework. Alongside the measures championed by the Open Government Partnership to ensure that governments are transparent and accountable to their citizens, this seems a natural complement: to ensure a higher degree of transparency and accountability to society.

A more or less continuous critique of the Millennium Development Goals has been that there is little or no accountability for international policy commitments (contained in MDG 8, on ‘global partnership’) – notwithstanding the worthy efforts of the MDG Gap Task Force. Can we envisage detailed tracking of commitments to (i) collate, and (ii) exchange automatically, data on beneficial ownership of each asset class? What’s there to hide?

The alternative would be an international convention, cutting across the multiplicity of related measures on tax, corruption, money laundering, terrrorism financing and so on, that would establish simply the responsibilities of signatories in regard of beneficial ownership transparency. Mooted by Norway in 2010, the time may have come for a group of leading nations and civil society organisations to take this forward.

UK's ruling Liberal Democrats, steeped in money from tax haven Jersey

Cross-posted with the Treasure Islands blog:

A few interesting stories have emerged in the past few days about Britain's Liberal Democrats, the minority party currently in the ruling coalition with the Conservative Party (which used to be the self-styled party of Business, but is now really the party of Finance.)
Let's start with this one about a speech by LibDem Danny Alexander, Chief Secretary to the Treasury. The following heading and sub-heading say it all:

"Danny Alexander: firms in tax havens will be denied public money: Firms will be banned from getting public money if they are based in tax havens rather than mainland Britain, Danny Alexander has said."

The UK Business Secretary, Vince Cable, had a similar but broader message:

The business secretary told delegates he would crack down on those who used secretive, low tax jurisdictions: "No one keeps their cash in tax havens for the quality of investment advice; these are sunny places for shady people," he said.

So far, so good. But now look at these shockers. First, take a look at this from BBC Jersey, (which locals tell me -- and this story is a prime example -- is essentially a mouthpiece for the island's tax haven industry. It concerns the LibDems' leader, and the UK's Deputy Prime Minister, Nick Clegg:

"The financial services industry in the Channel Islands has been described as "hugely important" by the UK's Deputy Prime Minister Nick Clegg. He told the BBC the islands were "an important gateway for the wider financial sector and indeed the economy in the United Kingdom".

Well, first of all, this is accurate: in Treasure Islands I describe Jersey as a feeder of vast gobs of global finance into the City of London. Yes, the Channel Islands tax havens are indeed 'hugely important' to the City of London - but that is absolutely not the same thing as saying that this is a good thing. No, Virginia: it is an appalling truth.

And then we get to what may, perhaps, be the nub of the issue. Take a look at this, from the Daily Mail: a firm called Brompton Capital, based in The Septic Isle (a term that many financial experts use to describe Tax Haven Jersey - and we don't mean the population of Jersey here, but its financial sector), which is:

"the biggest corporate backer of the Lib Dems, donating £777,000 since the General Election in 2010. . . . Shares in the firm are owned by an offshore firm called Integro Nominees (Jersey) Ltd, which is based in the Channel Island tax haven."

The owner of the company has repeatedly refused to respond to questions about why his company shareholdings were based in Jersey, or why he had donated money to both the Lib Dems and a senior Conservative. One of the recipients of the company's money is Andrew Mitchell, who is fighting to save his job following claims he called Downing Street police officers ‘fucking plebs’ after they wouldn't allow him to pass through the main gate at Downing Street on his bicycle.

As Tax Research comments on Nick Clegg's and the LibDem party's acceptance of this money:

"Oh, how convenient. And how corrupt. He's been bought."

And if you have any doubts as to the depth of corruption in Jersey, try this, and follow the links on back. There's more. From the Guardian:

"Alpha Healthcare and its sister company C & C Alpha Group, part of a venture capital group in the private health sector, have together donated £970,000 to the Lib Dems since 2004. Alpha's parent company, Harberry Investments, is based in a small office in Tortola in the British Virgin Islands."

If you think Jersey is dirty - that's nothing compared to the gigantic global swamp of crime, corruption and secrecy that is the financial and offshore corporate and trust sector in the British Virgin Islands. (More on that quite soon.) And there's plenty more on the LibDems' offshore links in that same story.

(An aside: the owner of the Jersey company mentioned here won the UK Franchise for Domino's Pizza, which was one of the star purchases for Mitt Romney's Bain capital.)

Links Sep 26

Canadian Money In Tax Havens at All-Time High Canadians for Tax Fairness
Sep 10 - "Nearly a quarter of all Canadian overseas investment dollars end up in tax havens. Those latest Statistics Canada figures are considered low because notorious havens like Monaco and Liechtenstein don’t share much information with Canada."

See also:
Occupy holds People's Parliament on anniversary Canadians for Tax Fairness
Sep 17 - Dennis Howlett,  C4TF Executive Director writes on an Occupy rally in Canada.

Switzerland Ponders a Future of Clean Money Spiegel
Sep 25 - "Where does the country's wealth come from? How much of it is due to Switzerland's tradition of banking secrecy, and for how much longer will it exist?"

Switzerland tax system set for overhaul The Telegraph
Sep 24 - "Wealthy foreigners can still enjoy special low-tax rates in Switzerland but the amount they pay is set to increase."

Australia Tax Office flags carbon emissions tax fraud scheme Money Management
Sep 26 - "The combination of offshore 'emission units' which may not exist, transactions with entities located in tax havens and large tax deductions generated from small upfront payments with little financial risk are all indicators common to tax avoidance."

Zimbabwe Miners to Face Greater Tax Scrutiny Fin24
Sep 25 - Reporting on amendments to the Revenue Authority Act, giving greater power to the Zimbabwe Revenue Authority to enhance revenue collection."  Hat tip: Ann Njeru.

Implications of FATCA For Non-US Financial Institutions Financier Worldwide
Oct edition - Discussing the Foreign Account Tax Compliance Act (FATCA), the US anti-avoidance tax law aimed at stopping US citizens and taxpayers from ‘hiding’ income offshore. See here for a recent blog explaining FATCA.

How the largest tax crackdown in world history failed and could go right again Quartz
Sep 24 - "But even though America’s heavy-handed pursuit of its own tax evaders abroad while it shelters foreign ones in America seems hypocritical, it could lay the groundwork for a real international tax infrastructure."

The Real Problem With Romney's Offshore Investments Mother Jones
Sep 25 - "Romney's not just depriving voters of critical information about his own taxes. He's sidestepping a much larger policy question about this unaccountable financial system that has been a key driver of global inequality." Cites Nick Shaxson's Vanity Fair article.

China’s rich list: bad for business Financial Times
Sep 25 - "China’s billionaires and millionaires have long suspected that inclusion in China’s Hurun Rich List is bad for business. They worry that a high-profile ranking can often be followed by a high-profile knock on the door from the tax department, or worse."

Trust us, we're euphoric - Private equity and a tax haven part of the EBRD's first post-Arab Spring swoop

For its first loan to 'Arab Spring' countries the European Bank for Reconstruction and Development has chosen vehicles and partners whose ability to deliver developmental value is highly uncertain.

Public investment millions provided to a private equity fund based in a tax haven - these days, with the buccaneer activities of private equity firms and the use and abuse of tax havens very much in the public spotlight, this kind of thing could validly be expected to provoke a public outcry. Yet when such investments are made under the cloak of international 'development finance', as the European Bank for Reconstruction and Development did last week, there is not only cursory media reporting but, by the sounds of it, some hearty back-slapping within the EBRD itself.

The deal in question, a EUR 20 million equity investment in Maghreb Private Equity Fund III, is part of the EBRD’s first raft of signed-off investments for the Middle East and North Africa (MENA) region.

Private equity may set some alarm bells ringing (just ask the Obama presidential campaign) but the Maghreb Private Equity Fund III is also based in Mauritius, a renowned tax haven, a fact not alluded to in the EBRD’s press materials. It is, however, cited in the bank's project summary document that was published unusually late: not months in advance of the EBRD's board meeting to discuss it, as is the norm, but on the same day as the board approved it.

Accompanying the press announcement of this private equity deal, and two others involving 'intermediated finance' (see below) in the EBRD's new region of operations, was a Tweet from the bank’s recently appointed president, Suma Chakrabarti:

Suma Chakrabarti @ebrdsuma

EBRD Board just approved the first projects for Morocco, Tunisia and Jordan. Historic day. Euphoria, with staff and countries praised.

18 Sep 12

Clearly much excitement, then, as the EBRD’s lengthily trailed and controversial entry into the MENA region became a reality. Given the nature of these investments, though, and their highly uncertain ability to deliver developmental value in these acutely needy economies, what exactly is there to shout about?

Black hole development finance

Last week's private equity deal and the two other accompanying investments in Jordan and Morocco see the EBRD relying on intermediary institutions to select and pass on loans to thousands of final beneficiaries, usually in the small- and medium-sized enterprises (SME) sector.

While the intention of these investments is to spur economic development by lending to SMEs, the investment model (so called 'intermediated finance') raises more questions than answers.

For one thing, based on the EBRD's track record in eastern Europe over more than a decade, accountability for this type of lending is nowhere to be seen due to commercial confidentiality. The EBRD is not compelled to (and very rarely does) reveal publicly who the final beneficiaries are, or what they have been doing with the funding; nor do the intermediary institutions, be they commercial banks, private equity firms or hedge funds.

And yes, the World Bank's private lending arm, the IFC, has invested in a hedge fund under the 'development' banner. As Nick Hildyard of The Corner House has recently pointed out, though:

'An IFC review of its private equity portfolio has concluded that any correlation between high profits and wider positive development outcomes was relatively weak, and that the most pronounced impact of private equity investments was in "improvements in private sector development", such as encouraging changes in the law favourable to the private sector. In effect, what is good for private equity is good for private equity – but not necessarily for the wider public.'

What's more, a May 2011 report of the World Bank Independent Evaluation Group, Assessing IFC’s Poverty Focus and Results (pdf), found that less than half of the projects reviewed (the IFC invests only in the private sector) were designed to deliver development outcomes, and just one third of the projects addressed market failures, such as enhancing access to markets or employment of the poor.

A further red flag

If you're new to intermediated finance, then, it doesn't exactly seem to add up. But there's the added red flag that the investments announced by the EBRD include a client that is registered in a tax haven. In spite of its development bank status, and similar to other institutions such as the World Bank and the European Investment Bank, the EBRD is still permitted to provide financing to entities based in tax havens. The risks of doing so, particularly in a development context, are becoming increasingly well documented - as usual the peerless Tax Justice Network has been leading the way.

More evidence is provided in a recently published report from the development NGO Eurodad. Private profit for public good? Can investing in private companies deliver for the poor? maps out the recent rapid growth in the intermediated finance sums being doled out with a 'development' stamp by the international financial institutions, and has uncovered the alarming trends that come with it.

Analysing this kind of private sector financing provided by the EIB, the IFC and other development finance institutions (the EBRD was not part of the analysis), between 2006 and 2010, Eurodad found that:

• Only 25 percent of all companies supported by the EIB and IFC were domiciled in low-income countries.
• Almost half of the analysed financing went to support companies based in OECD (ie, developed rather than developing) countries and tax havens.
• Around 40 percent of the companies in Eurodad's sample are big companies listed in some of the world’s largest stock exchanges.

As the Eurodad report points out,

'Unfortunately development banks and private financial institutions have a spotty record when it comes to the development impact of their projects, so “trust us” does not qualify as an effective method of monitoring and evaluation.'

Development ineffectiveness

The UK Department for International Development (DfID), the UK government agency responsible for interacting with and channelling UK development money to the EBRD and other agencies, has arrived at similar conclusions regarding the EBRD and development. DfID's 2011 multilateral aid review rated the EBRD among the bottom ten of 43 institutions assessed in 'contributing to UK development objectives'.

At the time of this review EBRD president Chakrabarti was the top civil servant at DfID, so these findings can not have escaped his attention. Transforming the EBRD into an institution that delivers much more effectively on development goals is surely one of the key challenges for Chakrabarti's presidency.

What's in store for Egypt?

It is highly concerning that the EBRD has opted to signal its entry into a new region of operations with these type of investments. More of the same can now be expected, involving not millions but billions of public money. With EBRD investments expected shortly to commence flowing into Egypt, where tax haven abuse by Hosni Mubarak, his family and other cronies was rife, the people of the region must be scratching their heads about the west's post-revolution response.

The EBRD's dubious infant steps into North Africa and the Middle East, not to mention its already very grey-tinged footprints in eastern Europe, could be set on a more appropriate path. To do so requires this development bank to grant full public disclosure of where these funds are going, who is benefiting and what the real added value in terms of job creation and environmental sustainability actually is.

This blog is cross posted with permission from CEE Bank Watch
Original author Greig Aitken, Bankwatch Mail editor in chief

Links Sep 25

Serious flaws in Uganda’s draft oil laws despite MPs recommendations Global Witness
Sep 7 - Global Witness analysis points to "concerns over excessive ministerial control, absence of parliamentary oversight, a lack of guarantees on contract and financial transparency, and lax environmental and social safeguards."

Dictators’ Riches Are Stolen at Home, But Banked in the West Freedom House
Sep 18 - "It is remarkably easy for these criminals to hide their identities behind anonymous shell companies and bank secrecy in order to bring their dirty money into the United States and Europe."

Waking Up To The Price Of Corruption GhanaWeb
Sep 24 - "Leadership is not about how much money you make for yourself and your family but how much difference you make in people’s lives and how you change lives forever. "

Bangladesh: Rights group blasts new VAT law The Financial Express
Sep 15 - "Criticising the International Monetary Fund (IMF) for pursuing discredited tax policy in Bangladesh, civil society members at a discussion Saturday urged the government to reconsider new VAT (Value Added Tax) law." The piece notes the regressive impact of the VAT.

European Parliament vote makes it harder for business to dodge taxes Eurodad
Sep 20 - Reporting on latest developments in the European Parliament - The Green economic and finance spokesperson, Sven Giegold (MEP, Germany), stated "These ‘legitimate’ tax avoidance schemes like the ‘Double Irish’ and the ‘Dutch sandwich’ should be totally outlawed and member state governments should take on board today’s vote.”

U.S.: Mitt Romney's 2011 Returns Reveal a Tax Code Stacked in Favor of the Very Rich CTJ
Sep 21 - Citizens for Tax Justice reports: "Mitt Romney’s 2011 Returns Reveal a Tax Code Stacked in Favor of the Very Rich Because of Loopholes and Special Rates Not Available to Ordinary Taxpayers."

Clinton calls on elites to pay more tax Guardian
Sep 24 - Reporting on remarks by Hilary Clinton: "One of the issues I have been preaching about around the world is collecting taxes in an equitable manner, especially from elites around the world ... There are rich people everywhere, and yet they do not contribute to the growth of their own countries."

Asian HNWIs To Have $16.7 Trillion Of Wealth By 2015 - Julius Baer Report WealthBriefing
Sep 25 - "Banks such as Julius Baer, Royal Bank of Canada, UBS and Credit Suisse have been pushing into the Asian market to tap the rising wealth population. The recent RBC/Capgemini World Wealth Report showed that Asia now has the biggest population of HNW [High Net Worth] individuals in any region."

UK: Danny Alexander promises to 'bring in billions' in crackdown on tax havens London Evening Standard
Sep 25 - "Treasury Chief Secretary Danny Alexander today launched a major crackdown on tax-dodgers, insisting everyone must "play by the same rules" as the country faces further austerity."

Britain's biggest taxpayers: Super-rich list of top earners who buck trend and pay their share Belfast Telegraph
Sep 24 - "At a time when politics is dominated by debate on the billions of pounds that recession-hit Britain loses in revenue to shady, offshore tax havens and tax avoidance schemes, research by The Independent newspaper has revealed that many of our highest-earning taxpayers choose not to hide their income from HMRC ..."

UK's former top tax man Hartnett ambushed at Oxford dinner by "trespassing scum" giving tax avoidance award

The UK's former top tax man, Dave Hartnett, was ambushed while giving a speech at New College Oxford when a group posing as representatives of the tax-avoiding companies Vodafone and Goldman Sachs burst in to the event to present him with a "Golden Handshake" lifetime achievement award for his services to corporate tax avoidance.

Enjoy the video, which among many other things features an Oxford official called Robert (apparently Robert Venables QC, a corporate tax lawyer), gently ushering the protesters out with the not-so-gentle words, in a voice dripping with condescension

"You will depart immediately, before we set the dogs on you."

They depart, singing "for he's a jolly good fellow . . . and so say Goldman Sachs!"

And at the door, the same official pushes them out with the immortal words:

"You are trespassing scum. Go!"

In the light of the current "Plebs" scandal in the UK, the timing of this is rather unfortunate.
Interestingly, a few people in the Oxford audience appear to be clapping the protesters.

And just look at that list of speakers!  "Tax Planning for Trusts," and much more.

See the full story in The Telegraph.

Links Sep 24

Tanzanian investor evades tax, goes into hiding The East African
Sep 22 - "The Tanzania government is threatening to revoke the licence of a mining firm over tax evasion ... Investigators say they have found a link between the tax evasion and [an] Italian party and a gold smuggling ring. The cash from the sale of the gold is believed to be deposited in accounts in Switzerland under a fictitious name." Hat tip: Ann Njeru.

Nigeria: NEITI Urges Agencies to Recover U.S.$9.8 Billion From Companies allAfrica
Sep 24 - The Chairman of Nigeria Extractive Industries Transparency Initiative, (NEITI) Ledum Mitee has called on relevant government agencies responsible for custody and management of the extractive resources revenue to take practical steps to recover the sum of $9.8 billion ... from oil and gas companies."

Assets found in Switzerland “a drop in the ocean” swissinfo
Sep 21 - "Acting on behalf of the Tunisian government in the affair, lawyer Enrico Monfrini says the fact that so little has been found indicates the presence of a sophisticated money laundering operation put in place by the former Tunisian ruler."

Cabinet moots further easing of banking secrecy swissinfo
Sep 22 - "The government has launched a lengthy process to grant cantonal authorities access to bank client data in a bid to crack down on suspected tax evasion. The move could lead to a further weakening of traditional banking secrecy rules."

The high price of havens for tax avoidance Guardian
Sep 23 - Letters responding to the scenario reported in our Friday blog Tax Haven Britain - now they want more!

Evidence companies are using Spain and Gibraltar to dodge UK’s LVCR removal International Tax Review
Sep 21 - Under pressure from the EU and domestic taxpayers struggling to compete with their offshore rivals, the UK removed LVCR on mail orders in this year’s budget. Now transactions are being re-routed for tax dodging.

Tech firms accused of using Ireland as tax haven Independent.ie
Sep 21 - "The Government was on alert ... after US lawmakers described the country as a "tax haven" and accused American technology companies operating here of using Ireland to avoid paying corporation tax at home." Hat tip: Offshore Watch.

G20 Update Heinrich Boell Foundation
Sep 2012 edition - The Heinrich Böll Foundation publishes a monthly newsletter, the “G20 Update,” on the G20 Summit processes and outcomes with special emphasis on the contributions to the processes by civil society organizations

The September Taxcast: whistleblowers, Accountants, Bangladesh - and more

In September's Taxcast: A whistleblower reward threatens banking secrecy - where will the money go next? Bangladesh considers expanding a regressive VAT tax and Professor Prem Sikka on the neglected role of the Big Four accountancy firms aka the 'pin-stripe mafia.'

Listen here.

Update: For latest and previous Taxcasts, see here.

New report: big countries are the worst offenders on shell companies

 When we first published the Financial Secrecy Index many were amazed that the USA came top, and the UK high up the list.

In 2011 that changed slightly as we extended the range of measures used to determine the issue, but the top 15 still looked like this.

While some were surprised to see the USA, Germany, UK, Japan and Belgium revealed as secrecy jurisdictions, this table - created from objectively measured criteria - supported exactly what we have been saying for a very, very long time.

Jason Sharman, an Australian academic TJN has known for some time, has now confirmed this. He and his co-authors Michael Findley and Daniel Nielson have a new report out today, where they impersonated a variety of would-be money launderers, corrupt officials, and terrorist financiers to requesting anonymous companies.

The Economist describes it succinctly:

"SHELL companies—which exist on paper only, with no real employees or offices—have legitimate uses. But the untraceable shell also happens to be the vehicle of choice for money launderers, bribe givers and takers, sanctions busters, tax evaders and financiers of terrorism. The trail has gone cold in many a criminal probe because law enforcers were unable to pierce a shell’s corporate veil."

The international standard governing shells, set by the inter-governmental Financial Action Task Force (FATF), is clear-cut. It says countries should take all necessary measures to prevent their misuse, such as ensuring that accurate information on the real (or “beneficial”) owner is available to “competent authorities”. More than 180 countries have pledged to follow it. A forthcoming study* scrutinises the level of compliance worldwide. The results are depressing.

The data looks like this:

As The Economist concludes:

"This study, by far the most thorough of its kind, makes sobering reading for anyone who worries about the link between financial crime and corporate secrecy. OECD countries show little willingness to tackle their own weaknesses and end their hypocrisy. In America, by some measures the least compliant of all, the incorporation-friendly states and business groups opposing reform continue to have the upper hand, despite valiant attempts by Senator Carl Levin to push through legislation that would require the registration of beneficial owners. Movers of dirty money know where the best shells are to be had, and it is not on a Caribbean island."

It is important to note that this tests just one issue: that is all. It is an important issue, to be sure, but our Financial Secrecy Index considers 15 secrecy indicators, which cover a far broader range of issues.

But let’s not deny that this unearths an important point that many people have ignored and that we have been saying for years: this problem begins in rich, developed countries: not small islands.

Endnote: The report argues:

"The overwhelming policy consensus, strongly articulated in G20 communiqués and by many NGOs, is that tax havens provide strict secrecy and lax regulation, especially when it comes to shell companies. This consensus is wrong."

The way this section is written suggests that by 'tax havens' the report's authors mean small jurisdictions. As our long years of work (and this blog) make clear, we don't think that small jurisdictions are the heart of the problem, much that we like to criticise the relevant ones (and much that they deserve it). In fact, we argue that the world's previous obsession with small islands in this context has served to distract from the real problem, which is big countries - most importantly the United Kingdom, which runs its own 'spider's web' of satellite tax havens around the world.

Despite minor differences in the way tax havens are defined, we welcome this new report. Bring it on, may it get the coverage it deserves, and may the world's journalists and citizens continue to wake up to the gigantic threat it poses to the lives of the 99.9 percent of the world's population who aren't rich enough to be able to afford to send their money offshore and escape the rules of civilised society.

(Adapted from the Tax Research blog.)

Press Releases: Italy, Belgium, Greece must not sign "Rubik" tax deals with Switzerland. They are a swindle

Monday, Sept 24, 2012

Greece, Belgium and Italy are each currently talking to Switzerland about a tax deal under a model known as “Rubik”, which is supposed to raise big revenues from the Swiss bank accounts of wealthy Italian tax evaders, while keeping their accounts secret.

This would be a disaster for these countries, and for wider transparency. This is not just for ethical reasons but because the Rubik model, designed by the Swiss Bankers’ Association, is filled with as many holes as a Swiss cheese. The promised billions in revenues will never materialise. In fact, all things considered, such deals would most likely be revenue-negative for Europe and for the countries that sign them.

These deals are the centrepieces of a plot by Swiss bankers to sabotage progress on a major global initiative on financial transparency, the EU Savings Tax Directive which is in the process of being strengthened.  As we noted earlier, the SBA said the initiative was designed as an "independent counter-concept" to prevent the global emergence of the gold standard of transparency, automatic information exchange:

Our accompanying press releases explain the extreme upper limits of possible revenues for these countries from such a deal: for Greece, for example, these would constitute a one-off tax payment of just €650 million -- but the true figure would be far less than that. Even these small sums would soon be offset by bigger losses elsewhere because of Rubik.  Each press release is accompanied by a background note, outlining relevant background and our detailed calculations.

These countries must reject a Swiss tax deal.

The individual press releases and background notes are below.

Italy - Press Release
Italy - Background Note
Greece - Press Release
Greece - Background Note
Belgium - Press Release
Belgium - Background Note

Endnote: a cartoon (courtesy of The Best of Both Worlds) commenting on the differences between the U.S. Foreign Account Tax Compliance Act (FATCA) and the approach of individual European countries.