Friday, March 20, 2009

OECD setting itself up for failure?

A major new threat appears to be emerging to efforts to crack down on tax havens. It is coming, if early reports are correct, from the OECD.

Recently we noted a story on a Luxembourg blog site, pointing to a (hitherto unpublished) proposed OECD blacklist on tax havens. The blog was entitled "The less you contribute to OECD budget the more influence you have on the policies." and was based on a report in Germany's Tagesanzeiger newspaper.

It seems that four of Europe's most pernicious secrecy havens, Switzerland, Luxembourg, Austria and Belgium, will not be on the OECD blacklist. This is complemented by the story in Switzerland's Le Temps newspaper today.

These countries have made limited concessions on bank secrecy in the face of ferocious pressure - they are not meaningless but we stress that the OECD standards of information exchange on request upon which these concessions are based are little short of pathetic, and have to a large degree legitimised the illegitimate. The standard that everyone must push for is that contained in the EU Savings Tax Directive which provides for multilateral and automatic exchange of information (though it is admittedly full of loopholes.)

The OECD appears to be preparing two lists, one black one grey. This could be the giant trick that the promoters of tax havens use to derail the entire agenda. The trick is this: shift all the blame onto small, vulnerable islands; whip up a storm of righteous anger saying (with considerable justification) that these microstates are being victimised and the big countries need to clean up their houses too; then use this manifest unfairness, combined with aggressive lobbying, to de-legitimise the entire process, leading to the collapse or enfeeblement of the whole project.

If you don't believe this could happen, take a look at this book by Jason Sharman, in a review is entitled "Lessons from the last war on tax havens": which shows two things happening in the key period 1998-2002:
First, ferocious lobbying from the likes of the Center for Freedom and Prosperity (CF&P) and a loss of support from the administration of George W. Bush resulting in a "stunning victory" (in the CF&P's own words) when US Treasury Secreary O'Neill released a statement on May 10, 2001, announcing that Treasury would not support the OECD's initiative to stamp out "harmful tax competition."
Second, the CF&P got major lobbying support from the Congressional Black Caucus, whose members said in a letter to O'Neill that the OECD initiative "threatens to undermine the fragile economies of some of our closest neighbors and allies."

Re-read the OECD's 2000 blacklist - and see if you can find Switzerland, Belgium, Austria or Luxembourg in there either. They aren't! These new and old lists look dreadfully alike. And neither of them include the City of London. What an extraordinary omission.

Sharman's book, on page 86, says:

"(black)Listed jurisdictions repeatedly charged that rather than occupying the moral high ground, the OECD was in fact practicing a 'do as I say, not as I do' selective morality, and that small nonmember states had been targeted precisely because they were small and vulnerable.
. . .
a major focus of attack was Luxembourg's and Switzerland's refusal to be bound by the provisions of the 1998 report or any further work along these lines. The OECD was thus in the position of trying to impose standards on others which had been rejected by important sections of its own membership. The OECD was ultimately forced to concede."

The stage is set for another great muddying of the waters. The messengers are already out there and foaming - we've noted Avinash Persaud beating the drum on behalf of the small states. He makes two points: the first, a fair one, that the small states are being unfairly picked on; the second, a foolish one, follows a false logic: "tax haven = small island state - so and we should stop this nonsense of picking on tax havens - they are a distraction."

John Christensen, TJN's director, remembers the last campaign against tax havens ten years ago, and recalls how it dawned on him fairly early that this is, as he says, "a big game." This is a perfect way to set it up: blame the wrong parties, allow public sympathy to side with the small fry, then pull the plug on the whole thing.

This hypocrisy from the OECD - if indeed the TagesAnzeiger is right as seems both plausible and likely - needs to be exposed. We will do so again, and again, and again. They won't get away with it so easily this time.


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