Maria Fekter, the Austrian Ostritch, must be ostracised

Austria's Finance Minister Maria Fekter has been patting herself on the back and comparing herself to a lion - promising on the occasion of an Ecofin meeting on April 12-13 that she had had to 'fight like a lion' to protect Austria's status as a tax haven, by insisting on making no concessions on banking secrecy. She is certainly combative, as showed by her fights with fellow European leaders, all of whom want to push forwards with financial transparency to help cash-pressed governments start to collect some proper tax revenues from their wealthiest citisens.

We at TJN are not comfortable with her self-bestowed title 'lion' We don't believe that that noble animal would want to be chosen as an emblem as the protector of the global criminal underworld. For - and make no mistake - that is what Fekter is fighting for.

We considered a few animals as alternatives to 'lion.' We discarded 'snake,' even though her words (see below) are filled with devious misrepresentations of reality and her core message is poisonous. ( 'Snake' is not a particularly worthy or clever insult to use in such a case - nor are 'vampire' or 'weasel' or a few of the others that we considered.)

But we know that Fekter is pushing against a powerful tide of history-in-the-making here. She is refusing to see the obvious. Luxembourg and Switzerland have for years insisted that their banking secrecy is not up for discussion - but have eventually understood that providing a hothouse for the tax evaders and other criminals of other nations is not a particularly wise course of action. We don't think that vowing to persist in engaging in economic warfare against other nations - which is exactly what Austria is doing by clinging so violently to its banking secrecy model - is defensible in the modern world.

So we've settled on 'ostritch.' (Thanks Markus!) And she certainly does have her head in the sand.

Essentially, what's at stake here is a massive EU-wide transparency initiative, the EU Savings Tax Directive, which came into effect in 2005 and under which 43 territories in the EU and elsewhere automatically share relevant information with each other about the cross-border incomes earned by each others' citizens. The current EUSTD is full of holes but powerful amendments are waiting in the wings, ready for approval, which will plug the main loopholes. Further broadening of the scope of the directive is in the offing too, as EU Tax Commissioner Semeta notes (in an interview that's worth reading in its entirety):

SPIEGEL: The European Savings Tax Directive, which is meant to regulate the taxation of savings across the EU, leaves many loopholes for tax evaders.

Semeta: The savings directive has many merits, but it is true that we identified important loopholes which were being exploited by tax evaders. Already in 2008, the Commission set about trying to close these loopholes and strengthen the EU rules. But, up until now, member states have not managed to agree on a revised directive, because Austria and Luxembourg have blocked efforts. Now that Luxembourg has changed its stance on bank secrecy, and with Austria hopefully soon to follow suit, I hope we will see the fast adoption of a stronger savings directive.

SPIEGEL: But dividends and other investment income are excluded from the exchange of information?

Semeta: The new rules that entered into force this year foresee a gradual but significant expansion of the automatic exchange of information. Starting in 2014, it will apply to labor income, pensions, director's fees, life insurance and revenue from property. The next step is to extend the information exchange to dividends, royalties and capital gains. But maybe now with the current appetite to move quicker and harder against tax evasion, the member states will seek to speed up the wider application of automatic exchange foreseen in our legislation.

Those words of Semeta's are tremendously important, and we'll return to them.

For some time a complex political chess game has been playing out where Switzerland, outside the EU, in partnership with Austria and Luxembourg inside the union (with various other secrecy jurisdictions riding on their coat-tails), have been blocking the progress of the all-important Amendments. Whereas most of the 43 jurisdictions transmit information, these recalcitrants have clung to a model where they merely levy withholding taxes on cross-border income and remit it to the account holder's home jurisdiction. They are blocking the Amendments, which would require them to switch to automatic information exchange.

Now, though, the political winds have changed decisively, and Luxembourg has thrown in the towel, saying it will accept automatic information exchange. Switzerland can't directly block what the EU does - so that leaves Austria, the last blockage to be removed.  And in truth, despite the Ostritch's bombast, her country is divided on the issue. As Reuters reports:

"Austria has sent mixed messages on this ahead of a EU summit in May supposed to address the matter.
. . .
Conservative Finance Minister Maria Fekter has defied pressure on Austria to automatically exchange data on foreigners, while Chancellor Werner Faymann, a Social Democrat, has said Austria may do so as long as its citizens' details stay confidential.
. . . "We want to preserve banking secrecy for Austrians. That is the big difference we have to other countries," he said."

This Reuters exploration of Austria's long and unhappy history of a love for financial secrecy is worth reading, even if it doesn't put in much effort to skewer the arguments of those who are saying it's a good idea.

There is the clear makings of a compromise here: Austria can keep its secrecy for its own citizens (if it's happy to tolerate criminality in its own country) while ending it for foreigners. That should satisfy the EU and unblock the blockage. Why doesn't Fekter just throw in the towel now, rather than backing herself into a corner and bringing down opprobrium on Austria's head?

The Austrian Ostritch is clearly deeply confused, and doesn't really understand her brief very well.

First, she says clearly that "Austria is not a tax haven" and then fights furiously for banking secrecy. Yes, well, she might like to reflect briefly on the teensy-weensy contradiction there. And of course when it comes to the term 'we are not a tax haven': they all say that.

Next, she says that "all this data exchange will not put one red cent in my tax coffers." She is quite free to say that - just as she is quite free to say that she is a lion, or the Queen of Sheba - but that doesn't change the fact that she is talking complete nonsense. (She might try reading this paper on automatic information exchange, for instance, or looking at pp12-14 of this one.) Which clearly demonstrates, among other things, the clear deterrent effect brought about by automatic information exchange.)

And if you think that's confused - then try this, from Austria's Finance Secretary Andreas Schieder, last year, concerning blockages in efforts to push the EU transparency project forwards:

"We can not wait until all tax matters with Switzerland are negotiated by the European Union. This has taken 20 years and we think this is certainly far too long."

Yes, Mr. Schieder: that's because your country has been helping Switzerland block progress.

We can also point to the unedifying spectacle of what happened when Austria was signing a useless bilateral deals with Liechtenstein (as one element of the chess game aiming to kill progress on transparency). Fekter insisted that loopholes be carved out for trusts administered in Liechtenstein, helping Austrian tax evaders. (Rough web translation of that here.) Astonishingly, she insisted on a move that would damage Austria's tax revenues, not those of other countries'. A rather odd move for a finance minister, one might think.

Austria is a relatively small tax haven in global terms, but because of its ability to block transparency in Europe it is currently a very dangerous player, and the friend of the world's criminals.

It is now essential that Austria - and its resident Ostritch - be ostracised from polite society in Europe.

Endnote: a number of countries in Europe have promised to push forwards an alternative  U.S.-designed transparency model that has been mis-named as "Fatca" bilateral agreements, supposedly similar to the Fatca model designed by the U.S. but in practice much narrower. However at this point we believe these will not conflict with the EUSTD, but could serve as useful if limited addtional tools. 

That is an important topic in its own right but not in the scope of this blog. Read more on that here.

The key point is that these bilateral deals should not distract from progress on the Savings Tax Directive, and from the need for a truly multilateral, increasingly global system of automatic information exchange that includes the most important ingredient: deep, comprehensive and detailed customer due diligence procedures and protocols for identifying the beneficial owners of accounts, entities and arrangements.