Friday, February 22, 2008

Blockade the Tax Havens

The Liechtenstein scandal has brought out a number of wonderful editorials in newspapers across Europe and beyond, from left to right. We particularly like this uncompromising one called Blockade the Tax Havens, by the Financial Times columnist Willem Buiter, by no means a left-leaning ideologue. He is, as his blog describes, "Professor of European Political Economy, London School of Economics and Political Science; former chief economist of the EBRD, former external member of the MPC; adviser to international organisations, governments, central banks and private financial institutions." The whole article is worth reading, but here are some nice excerpts.

Tax havens are to those engaged in tax evasion what fences are to thieves.

Well said.

It is time that the more determined, if not yet sufficiently aggressive, attitude and actions of the civilised world towards money laundering is extended to tax evasion through off-shore tax havens and the corrupt states/entities that live off this trade.


Jersey, Guernsey and the Isle of Man should simply be absorbed lock, stock and barrel into the UK, with English laws, rules and regulations applying across the board.

Well, this goes beyond what we have been saying, but we applaud it.

The special status of these strange entities is not cute; it’s an enabler and facilitator of unethical and illegal behaviour. The EU should adopt a directive on bank secrecy that would end the nefarious practices of Luxembourg and Austria. Belgian dentists will just have to get used to paying taxes. Andorra, Monaco and Liechtenstein should be given the choice of ending bank secrecy or facing annexation (by France and (once it abandons its bank secrecy laws) Austria respectively).

Strong stuff. Right on the money.

The activities engaged in routinely and as a matter of course by these tax havens are hostile acts towards all countries whose tax bases are undermined by them.

This is just what Richard Murphy has been arguing. It is amazing how quickly the mood is changing in Europe. But there is more. The OECD's Secretary-General Angel Gurría said this, in a press release:

Excessive bank secrecy rules and a failure to exchange information on foreign tax evaders are relics of a different time and have no role to play in the relations between democratic societies," he stated.

But there is still more.

Disclosures concerning alleged widespread tax evasion by German citizens through Liechtenstein highlight a much broader challenge in today’s globalised economy: how to respond to countries and territories that seek to profit from tax dodging by residents of other jurisdictions.

Now the interesting thing here is this: the OECD used the word "tax dodging". This language is immensely encouraging, for it means that the OECD is implicitly including legal forms of avoiding tax, as well as criminal tax evasion, in its assessment of the harm that tax havens cause. Gurría also wrote a comment piece in the FT agreeing with TJN on many points, and the FT, in a separate story, described his comments like this:

The forceful language used by the OECD suggested that it had returned to the offensive, according to the Tax Justice Network, a campaign group.

And Gurría himself argued:

Jurisdictions characterised by strict bank secrecy and a policy or practice of non-co-operation with law enforcement in other countries prosper by attracting brass plate banks, anonymous financial companies and asset protection trusts. But they do so to the detriment of the integrity of the world financial system and such be
haviour is no longer acceptable.

We applaud this statement, although the OECD paints a picture of real progress to date on cracking down on tax havens: in reality that progress is feeble. Gurría seems to think that the answer is for Liechtenstein to establish "a network of bilateral tax agreements" with other countries. This is, again, a weak-kneed suggestion. How likely is is that Liechtenstein is going to establish a bilateral tax agreement with Tanzania, say, or Haiti? These countries are especially vulnerable. No, the answer is a dose of far stronger medicine: automatic exchange of tax information on a multilateral basis. This is what David Spencer, a New York-based tax attorney and senior adviser to TJN, told a February 14th meeting at the United Nations in New York, in his role on the NGO Committe on Financing for Development.

We return to Buiter's article now. It finishes like this:

It is time to stop being polite about it. If the EU, the US, Canada and Japan were to take a united line on this, things could change very quickly.

Quite so. It is time for a sea change in the world. South African Finance Minister Trevor Manuel recently illustrated the worries that poor countries have about this. The mood may soon be right in America too: witness what Barack Obama has been up to. And if you read the comments underneath the Buiter article, you will see the usual comments from the offshore nutcases, comparing Germany's behaviour to that of the Nazis (as the Swiss have just, rather foolishly, done) as well as a couple from TJN. Important people are gearing up for action. Angela Merkel, Germany's Chancellor, accused the principality’s banks of “encouraging lawbreaking” in Germany and warned that the German parliament could block Liechtenstein’s entry in November into the European Union’s border-free Schengen zone.


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