Wednesday, June 17, 2009

Beyond the London Summit

The Put People First alliance, of which we are an active member, has issued a report on the steps required in response to the current economic crisis. You can find the report here.

The report rightly commends the G-20 presidency for its consultative process in advance of the London Summit, but also rightly notes that the Summit outcomes were insufficient: a more holistic approach is required to tackle the deep rooted systemic failures underlying the crisis.

As much as anything else this is a crisis of democratic governance. Too many areas of public policy making are devolved to bodies that either ignore or are only partially responsive to democratic control. The World Bank and International Monetary Fund are examples, but also our old friend the International Accounting Standards Board, which has played a largely un-noticed role in degrading the quality of information made available to relevant stakeholders.

In its recommendations the report starts with addressing this governance issue, noting that in advance of the April summit: "we asked for the government to tackle tax havens, insist on fundamental reform of the World Bank and IMF, and increase accountability of financial institutions, financial markets and multinational companies. On tax havens small moves have been made, but without reform to the underlying rules of the system. " Quite right. In fact, as the evidence piles up that secrecy jurisdictions are busily engaged in signing up to worthless tax information exchange agreements with as many of their mates as possible (viz UK/Cayman) and tiny statelets just beyond the edge of the known universe, it becomes clearer by the day that a mockery is being of the G-20 process and of the ability of the OECD to deliver anything meaningful under its current processes.

Hence the emphasis placed in the new report on raising the global standard for information exchange:

We .. feel a priority is that the government: Prepare, by the G20 finance ministers meeting in November, a proposal for a truly multilateral and automatic tax information exchange agreement that will benefit developing countries and assist those that need help in developing the capacity to make full use of the information that will be available.

TJN has already discussed this with UK government officials and we are currently in the process of drafting a model for a multilateral and automatice information exchange agreement. We maintain that the strength of the automatic exchange process lies with its deterrent effect. This contrasts starkly with the weakness of the 'by request' information process which has little deterrent effect and imposes unreasonably high evidence requirements on requesting countries.

The full set of recommendations relating to tax havens is repeated here:

Recommendation 1: Tackle tax havens, particularly those with strong connections to the UK such as Crown Dependencies and UK overseas territories, by compelling them to abide by strict international rules and participate in systems of automatic exchange of information.

The UK can particularly take action on UK crown dependencies and overseas territories, by requiring them to abide by stricter international rules [including the European Savings Tax Directive]. The G20 agreed to “stand ready to deploy sanctions to protect our public finances and financial systems” but there were not enough specifics to that pledge. The Prime Minister has told crown dependencies and overseas territories that they must meet or exceed the OECD guidelines on tax information exchange. He has also encouraged them to sign up to bilateral tax information exchange agreements.

To tackle tax havens there needs to be an objectively compiled list of jurisdictions which do not comply with stricter rules than the insufficient ones currently in place, including on transparency of information, as well as sanctions applied against those jurisdictions. The G20 agreement “noted” the OECD list of jurisdictions which do not comply with the international standard for information exchange, but did not mention the need to strengthen the rules, include transparency requirements or develop a multilateral sanctions regime. The Prime Minister has stated his intention to sanction non-complying jurisdictions. The OECD blacklist has now been emptied with no benefit to developing countries, as the OECD guidelines are not sufficient. The UK government has yet to take sanctions against other jurisdictions.

To effectively stop tax evasion and avoidance schemes, there must be multilateral systems of automatic information exchange through global multilateral institutions with democratic and participatory governance. The G20 is “committed to developing proposals, by end 2009, to make it easier for developing countries to secure the benefits of a new cooperative tax environment.” The Prime Minister has written to the OECD to explain that the G20 intends for tax information exchange through multilateral systems, but did not mention whether information will be exchanged automatically. The OECD, though multilateral, is not a representative or global multilateral organisation. To date the UK has signed bilateral tax information exchange agreements with a number of territories, but there have so far been no new actions on multilateral information exchange.

Check out the full report.


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