Monday, August 31, 2009

On poverty, talent beyond belief, and social silence

Christian Aid organised a fascinating panel discussion at the annual Greenbelt festival in Cheltenham this weekend. Panellists included the Financial Times' star financial markets journalist Gillian Tett (author of Fool's Gold); Mike Truman (editor of LexisNexis' Taxation magazine); Christian Aid's economic justice campaign's manager Judith Cavanagh, who jointly leads the Big Tax Return campaign; and, finally, our own director John Christensen. Christian Aid's director Daleep Murkarji chaired the panel.

All the panellists agreed with TJN's central proposition that tax havens undermine economic justice and social stability by providing legalised secrecy services. Secrecy supports tax evasion and other corrupt practices, but it also facilitates tax avoidance strategies, often involving transfer pricing strategies that would be more easily challenged if corporate accounts revealed more information about trades that occur between subsidiaires of multinational companies. Hence Christian Aid's decision to make the campaign for country-by-country report a campaign priority. Mike, a chartered tax adviser, admitted to being unconvinced about whether a new international accounting standard would be successful in tackling this problem, but acknowledged that greater accounting transparency would be helpful.

Gillian Tett noted how phenomena like tax havens, tax avoidance, shadow banks and virtually the entirety of contemporary financial capitalism, has been shrouded in what she calls a "social silence", which has enabled powerful elites to avoid scrutiny of their activities. Social silence has reinforced the myth that those who work in banks and other parts of the financial sector are a social elite, talented beyond belief and worthy of bonuses and tax subsidies because of the unique contribution they make to 'wealth creation.' This sense of detachment was used to justify their aggressive position on tax avoidance (taxes, as we all know, belong to the realm of the "little people") but it also created an environment -- all too recognisable to observers of tax havens -- that has kept bankers and other members of financial capitalism's praetorian elite totally detached from reality: "like the inhabitants of Plato's cave, who could see the shadows of outside reality flickering on the walls, but rarely encountered that reality themselves".

As Tett suggests, financial journalists have played a crucial part in perpetuating the social silence that largely survives intact around the role of tax havens in fomenting inequality, poverty and economic crisis. The operations of banks, law firms and accounting practices located in these places have come under little or no critical scrutiny. On the few occasions in the past when journalists have tried to penetrate the social silence surrounding tax havens, they have generally been bamboozled by arguments about the competitive benefits of working in a "tax efficient" and de-regulated financial environment. Very few have been able to successfully challenge this line by examining how tax competition undermines tax systems, or how by asking searching questions about how loosening controls over capital markets can contribute to market instability and asset price booms.

This being a faith-based event, there was much focus on the culture of the tax avoidance industry. Christensen said that the tax avoidance industry has gone unchallenged for far too long, all too often finding support from a pliant judiciary. By definition, he argued, tax avoidance involves exploiting loopholes that were not intended by governments. This is what differentiates avoidance from tax planning, since the latter involves making use of allowances that have been explicitly granted. The best way of tackling the tax avoidance industry, he argued, was to introduce a General Anti-Avoidance Principle into law, sending a strong signal to the judiciary (and the tax avoidance industry) that avoidance is not to be tolerated.

As recently as three or four years ago the idea of holding a panel discussion on tax avodiance at a public event such as as Greenbelt would have seemed outlandish. Tax was too boring; too technical; too dominated by specialists using an arcane language designed to exclude anyone other than experienced practitioners. No longer. There were some tax practitioners in the audience of around 300 people, but happily the discussion never veered off into techno-speak and the focus remained strongly on development issues. No-one now disputes the idea that tax belongs on the development agenda, and judging from the audience response at Greenbelt, tax is now seen as a crucial part of the process of moving poorer countries in the direction of greater self-reliance.

The idea of economic justice has strong roots in the faith communities. The trade justice movement gained much of its strength from faith-based NGOs. The debt relief campaigns of the 1990s, culminating in the Jubilee Debt Campaign, built its strength on convictions that economic justice is a fundamental social requirement. The tax justice movement has widened the economic justice debate to another dimension. Needless to say, we at the Tax Justice Network are delighted to have such a strong contribution from the faith communities. This is exactly how it should be.


Sunday, August 30, 2009

France gets Swiss banking details

From the Guardian:

"France announced it had received the details of thousands of people suspected of evading taxes in undeclared accounts."

The FT explained:

"a list of 3,000 citizens holding some €3bn in Swiss bank accounts . . . The government said two banks operating in France had volunteered most of the information on the 3,000 account holders, while the rest came from its own tax investigation."

(unfortunately, if you scroll down you will find that this FT journalist, like so many others, still doesn't understand the meaning of the word "competitive".)

This follows the US' activism against UBS, Germany's activism on getting information out of Liechtenstein, some apparent interest from Canada, some changes in Portugal, and, surprise surprise, no serious efforts from Britain, at least as far as we can see (and this one, as the blog explains, doesn't make the cut.)

The original interview with the French budget minister Eric Woerth, in French, is here (with a rough English translation here.) Let's hope they run with this as far as it will go.

These French, German and US actions are all most welcome - but still a pale shadow of what is really needed.


Thursday, August 27, 2009

The UK and the Crown Dependencies

This is the text of an article by William Wallace (Baron Wallace of Saltaire) published in the Jersey Evening Post on 26th August 2009. Unfortunately the JEP does not provide a URL to the original article, but the author has approved its online publication:

The UK and the Crown Dependencies

The world does not stand still; and the Channel Islands cannot expect to be unaffected by developments beyond their shores. A concerted drive by major states to tighten controls on tax avoidance and evasion through offshore financial centres is now under way, focusing in recent weeks most directly on Liechtenstein and Switzerland. The Financial Times editorial on 17th August, headlined ‘Closing the Havens’, commented that ‘havens may feel aggrieved at being bullied by the diplomatic gunboats of grander powers. But they have only made concessions when forced to do so.’

The negative impact of the current recession on tax revenues necessarily makes governments more acutely concerned about tax erosion through use of offshore schemes. The Channel Islands provide many incentives for companies which conduct their business onshore to establish official domicile offshore – and offer similar incentives to wealthy individuals. It is entirely proper for British politicians to question whether these incentives are acceptable. The United Kingdom has also lost significant revenue through companies exploiting the small-package VAT exemption to mail packages through the Channel Islands; the Jersey and Guernsey authorities have now accepted that this must stop.

The UK Government provides many services for its three Crown Dependencies, in terms of international representation, protection of citizens abroad, and contributions to global order. It would be far more costly for the Dependencies to have to protect their own interests in the many multilateral negotiations that affect them. The Isle of Man makes a modest annual payment to the UK, under a 1994 agreement, in recognition of the benefits it receives. Jersey offers much less, and Guernsey even less than that. Guernsey, indeed, has been claiming for many years that its spending on the Alderney breakwater is its ‘contribution to UK defence’, even though the British Ministry of Defence ceased to have any interest in the breakwater – built in the 1850s as a naval anchorage in the face of a French threat – in 1950. It is entirely reasonable for British politicians to ask why Channel Islanders should not contribute a fairer share.

The original relationship between the Channel Islands and the English Crown, in the 13th century, was about the construction and maintenance of castles and defence against France. When a British royal commission last looked at the relationship, between 1969 and 1973, the Channel Islands had a stable population living primarily from tourism and horticulture. Now the Channel Islands have attracted many very wealthy new residents from the British mainland and elsewhere, while financial services for global markets have become their most important source of income. This social and economic transformation necessarily has political consequences for the governance of the islands and their relations with the UK and other states.

Jersey and Guernsey are dependencies of the British Crown. The British Government represents the Crown. The British Parliament, within a constitutional system which is based on parliamentary sovereignty, holds the government – and through it the Crown – to account. Both Houses of Parliament have neglected this duty, so far as the Crown Dependencies are concerned, for many years. The Justice Committee of the House of Commons is now remedying this neglect by launching an enquiry into how well the British Government manages the relationship with the Crown Dependencies. I encourage all those in the Channel Islands concerned about that relationship to contribute to the enquiry.


UN tax committee warms up for its new mandate

"I've got to take my problem to the United Nations" sang Eddie Cochran in Summertime Blues. Civil society groups this week heeded that advice, attending a meeting in Amsterdam to discuss the agenda of a United Nations committee which is dedicated to improving international cooperation on tax. The mood and outcome of the meeting were very positive.

The meeting was hosted by the International Bureau of Fiscal and Tax Documentation and largely funded by the Norwegian government. It was attended by some 20 officials from all the world's regions. Some of them are new to this committee, but all of them experienced in tax policy and implementation matters.

The idea of the meeting was to orient the committee members on current issues and debates and to ensure that members understand the slightly arcane workings of the committee itself. This will ensure that they can hit the ground running at their official meeting from 19-23 October in Geneva.

Participants discussed many aspects of current tax debates, aiming to think through how they can be most effective in fulfilling their mandate and contributing to produce an updated model UN tax treaty and other outputs. Possible new items on their agenda include developing a practical manual and checklist for developing countries on corporate transfer pricing and further work on corporate tax competition and on taxing services.

We civil society groups were invited to attend and speak at one session (following another where international business representatives made their case). My colleagues (from SOMO, Oxfam-NOVIB, ActionAid, Both ENDS, Christian Aid and Tax Justice Network Netherlands) and I informed the officials about the rapid increase in the number of organisations taking up tax and related financial regulation questions and encouraged them to move boldly and fast.

The main points we raised were automatic information exchange, country by country reporting by transnationals, tax competition and environmental taxation. Another issue tabled was the roles of International Financial Institutions such as the European Investment Bank (which has just this week issued a new policy on offshore financial centres). The officials - a much livelier bunch than several similar groupings I've had the pleasure to address - responded with interest.

One very much welcomed the broad approach being taken, saying that just focussing on tax havens was "so 1980s". He indicated that many developing countries felt huge pressure from transfer pricing, for example by oil and gas companies, and that some countries are considering adopting transfer pricing legislation. At the same time he cautioned against encouraging developing country governments to run before they can walk, reiterating that several do a bad job at collecting simple direct taxes: how then that they be expected to administer more complex ones?

Several officials asked for more information about how we NGOs are organising ourselves on this issue, how we are linking North and South, and whether we can help get more groups working on tax justice in countries where there are as yet none.

I returned down the train line to Brussels optimistic that, though it may take them another summer or two, this UN body will establish itself as a rival standard setter to the OECD. As regular TJN readers know this body is allowing secrecy jurisdictions to be whitelisted just as soon as they sign half-hearted information exchange agreements with another dirty dozen countries such as themselves.

Alex Wilks, director, European Network on Debt and Development


On finance and fertilliser

Complementing this morning's blog, from Benjamin Friedman of Harvard University:

Aside from the recession, it is important to ask what this once-admired mechanism (the financial system) costs to run. If a new fertiliser offers a farmer the prospect of a higher crop yield but its price and the cost of transporting and spreading it exceeds what the additional produce will bring at market, it is a bad deal for the farmer. A financial system, which allocates scarce investment capital, is no different."

He looks at, among other things, the opportunity cost of allowing so many talented people to be sucked into the financial sector - a cost that doesn't show up on most calculations of the cost-benefit analysis of allowing a country's financial sector to run amok. He continues:

"What makes a more efficient financial system worthwhile is not just that it allows us to achieve greater production and economic growth, but that the rest of the economy benefits. The more the financial system costs to run, the higher the hurdle."

Indeed. If you haven't already, follow this up with this morning's blog. It's amazing it's taken people so long to wake up to truths like this. The logical solution for Britain - prepare for a major political assault on the City of London corporation and its praetorian guard at the heart of the British state - the Bank of England.


Britain's regulator calls much of City "socially useless"

Lord Turner, head of Britain's Financial Services Authority (FSA) has long been regarded as something of a lame duck: Private Eye calls it the "Fundamentally Supine Authority". For too long it has been seen as supporting the City of London - that state within a state - in its race to be lower than everyone else in terms of lax regulation and tolerance of criminality.

Now, in an interview in Prospect Magazine (not yet on the web) he has said the FSA should

"be very, very wary of seeing the competitiveness of London as a major aim."

And, The Guardian reported,

"Lord Turner described much of the City's activities as "socially useless" and questioned whether it has grown too large."

We have been saying this for years -- indeed this was one of our main themes since we launched, but the idea, it seems, is now becoming mainstream, and not only in Britain. Even a year ago, Ken Rogoff, former IMF chief economist, said the world was suffering from

"an excess supply of financial services"

and this was followed last May by an excellent column by Martin Wolf of the Financial Times, containing phrases such as

The UK has a strategic nightmare: it has a strong comparative advantage in the world’s most irresponsible industry
. . .
In the years leading up to the crisis, that influence was surely malign: the “light touch” approach led the way in a regulatory race to the bottom.
. . .
A recent report on the future of UK international financial services, produced by a group co-chaired by Sir Win Bischoff, former chairman of Citigroup, and Alistair Darling, chancellor of the exchequer, fails to provide such self-examination. This is partly because the committee consisted of the industry’s “great and good”. It is far more because Mr Darling had already decided that “financial services are critical to the UK’s future."

Could the tide be turning? We are sure that it will be, up to a point, but we should never underestimate the enormous stranglehold of power that the City of London and its secret guardian in the corridors of power - the Bank of England - have always held on the British state. This is absolutely no time for complacency, and Britain will need help from its foreign friends - with the judicious application of pressure - to help ordinary British people break this stranglehold.

What is to be done? Martin Wolf has one answer:

So how should one manage a sector that produces such “bads”? The answer is: in the same way as any polluting activity. One taxes it”.

And this, as it happens, is also what Lord Turner is now proposing - if a little timidly:

"If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit. Higher capital requirements against trading activities will be our most powerful tool to eliminate excessive activity and profits.

And if increased capital requirements are insufficient I am happy to consider taxes on financial transactions – Tobin taxes."

Now there is an idea. TJN is generally favourable towards Tobin taxes, although we haven't made it a central theme of ours, partly because others are already ably doing so. James Tobin's original and famous "sand in the wheels" article from 1978 is here, and it contains a number of things that could have been written by TJN, had it existed then. Such as:

"the mobility of financial capital limits viable differences among national interest rates and thus severely restricts the ability of central banks and governments to pursue monetary and fiscal policies appropriate to their internal economies. Likewise speculation on exchange rates, whether its consequences are vast shifts of official assets and debts or large movements of exchange rates themselves, have serious and frequently painful real internal economic consequences. Domestic policies are relatively powerless to escape them or offset them.
. . .
There are two ways to go. One is toward a common currency, common monetary and fiscal policy, and economic integration. The other is toward greater financial segmentation between nations or currency areas, permitting their central banks and governments greater autonomy in policies tailored to their specific economic institutions and objectives. The first direction, however appealing, is clearly not a viable option in the foreseeable future, i.e., the twentieth century. I therefore regretfully recommend the second, and my proposal is to throw some sand in the wheels of our excessively efficient international money markets.
. . .
The proposal is an internationally uniform tax on all spot conversions of one currency into another, proportional to the size of the transaction."

The Tobin tax is a currency tax, though the economist Dani Rodrik recently, commenting on Tobin's 1978 speech, added this:

"How about generalizing this idea to all securities transactions, domestic as well as international? If leverage--short-term debt--is a big part of the problem, isn't taxing it an important part of the solution?"

Now that makes sense. Hold on a second, however, for there are already nay-sayers about. The FT has this:

“This isn’t on the table,” said one government official. “If Adair Turner has views on tax policy, perhaps he should go and work in the Treasury.”

and The Guardian adds:

"Finance industry figures agreed that a Tobin tax would be complicated to implement and unlikely to be agreed by countries keen to protect rival financial centres."

Why can't these people see the obvious flaw in their own argument? The flaw is this: that they have a starting point that says that what is good for the financial services industry is good for Britain. As most people have come to realise, it isn't good for Britain. The result has been vast taxpayer losses, Dutch Disease effects, a drain of some of Britain's best minds into "socially useless" (though we'd prefer to say "socially desctructive") jobs, and almost the highest levels of inequality in the OECD.

Clearly the financial services industry - or at least one this size - isn't at all good for Britain. So a unilateral tax, without international agreement, is clearly a good idea. A properly implemented tax policy would flush all the dirty, dangerous and destabilising elements of financial services -- including much of the "casino part" - away from Britain, leaving it with the socially useful, mostly "utility" bits that everyone needs and benefits from.

International co-ordination on this would certainly be welcome, but we don't need to wait for it. Get cracking right away with regulating and taxing this sector appropriately, and Britain, on the whole, will be so much the better for it.

* * * And finally - some comments under the Guardian article -- which we love:

1. "If you will permit me to speak frankly, the answer to the question "why does a financial exec pay himself so much?" is the same answer to the question "why does a dog lick its private parts?" Because it can."

2. Responding to a comment that "The big winners from this will be Swiss, German and Dutch bankers." Which is very different, of course, from claiming that the big winners from this tax will be the Swiss, the Dutch and the Germans.

Quite so.


Wednesday, August 26, 2009

Howitzers on Liechtenstein spiked

Recently we blogged (here, with update here) on the tax co-operation agreement between the United Kingdom and Liechtenstein, finding some good parts, but with some fundamental, even fatal, flaws.

Britain's exceedingly well informed (subscription-only) magazine Private Eye has now added its voice.

British tax dodgers using Liechtenstein banks will have to come clean, and in return they get

"a cushy deal on their tax bill, with penalties limited to 10 percent, as opposed to the maximum 100 percent and/or a spell at Her Majesty's Pleasure" (which, to non-British people, means prison.)

Given that just a few months ago HMRC's (that is, Her Majesty's Revenue and Customs) tax boss Dave Hartnett told a Panorama programme that he had "smoking guns: smoking tanks, smoking howitzers" on the Liechtenstein dodgers -- including household names -- this is quite a comedown, ruling out the powerful deterrent to tax evasion of seeing a well-known suit taken down the steps (a fate that often befals tax credit and benefit fiddlers.)"

Once again, as Private Eye points out, Britain emphasises one rule for the wealthy, and another for the rest of us. The article also notes that Stephen Timms, UK Treasury Minister actually endorsed Liechtenstein's facilitators of criminality, er, banks.

If you buy a copy of Private Eye you will also find out (p30) what happened when one member of parliament asked the National Audit Office to investigate how Lord Rothermere, who owns a media empire including Britain's popular Daily Mail via offshore companies and trusts, has managed to claim being domiciled in France for tax purposes.


Tuesday, August 25, 2009

UBS Chairman claims systemic tax evasion is limited to USA

In a revealing interview given to Swiss sunday newspaper NZZ am Sonntag, UBS chairman Kaspar Villiger has suggested that the problems of systemic tax evasion uncovered by the indictment of his bank in the USA does not affect other countries. Who does he think he's kidding?

The globalisation of financial markets, and the extraordinary ease with which HNWIs (high net-worth individuals) can shift their assets offshore - as the New York Times acknowledges here - has made tax evasion a global phenomenom, and one which UBS and most other private wealth management banks have been keen to cash in on. Worse, such is the profitability of helping HNWIs with their tax evasion, since the 1980s these banks have been in a frenzy to attract such clients and shift their affairs offshore. This blogger has witnessed this firsthand, having worked in the tax haven racket for many years and attended a 'wealth management' conference in London in 1995 at which all the emphasis of the interventions by bankers and lawyers was on confidentiality issues (for those who don't know bankspeak, that means keeping client data secret from revenue authorities).

Villiger has a point when he argues, as reported in SonntagsBlick (another Swiss sunday paper), "The clients are not just harmless victims. They knew what they wanted to evade".

But what are we to make of the follow-up comments: "But they trusted the bank that it would work. Now we have to correct that," There's a nasty whiff of ambiguity about the second part of that particular comment: is he trying to suggest that having failed to keep client data from IRS discovery they now need to work harder at keeping the stuff secret? Or does he expect us to believe that they will work harder to dissuade clients from tax evading? If the latter were the case, why don't bankers report their suspicions about tax evading clients under anti-money laundering regulations?

Were UBS serious about trying to dissuade its clients from tax evading it would welcome moves towards Switzerland participating in automatic information exchange. This is undoubtedly the most effective way of deterring tax evaders. But Villiger makes it clear in the interviews this weekend that he expects Switzerland to continue resisting European Union requests to fully participate in the EU Savings Tax Directive: "If Europe took unilateral action to introduce an information exchange and also forced this on Switzerland, money would flow to Asia in a big way."

Money has been flowing to Asia in a big way since 2005, when the Savings Tax Directive came into force, and UBS has massively expanded its operations in places like Singapore precisely to profit from this exodus. This is one of the reasons why Tax Justice Network argues that the only solution to the globally systemic problem of tax evasion lies with a multilateral framework based on fully automatic information exchange. We are well aware that some regard this proposal as utopian. We counter that the alternative approach, based on bilateral treaties using the "on request" model for information exchange, is pissing into a hurricane.

Villiger's comments, supported by the massive hike in UBS share prices after the announcement of the light-touch treatment by the US authorities last week, suggests that international investors agree with our analysis. In the absence of a more ambitious global agenda, it remains business as usual for the tax evasion industry.


Monday, August 24, 2009

UBS: the bad news

Our colleagues at Citizens for Tax Justice in Washington have published some interesting comments on the UBS settlement. Whilst welcoming the investigation into the 4,450 banking clients whose names UBS is now required to disclose to the IRS, they are concerned about some of the messages that can be read into the settlement, starting with the clients whose names won't be being handed over:

Of course the bad news is that the 4,450 names expected to be released to the IRS make up less than 10% of the estimated 52,000 American-owned accounts. Without 100% disclosure, American taxpayers may in the future be tempted to play the "audit lottery," assuming they have only a 10% chance of getting caught.

Whilst some might be tempted to think that size is everything, one of the risks of targetting accounts with balances above a specified level is that the crooks will be encouraged to spread their cash assets across different accounts and banks:

Another piece of bad news is that the criteria used to select the UBS account holders to be disclosed to the IRS will not be released. But there is a strong indication that the size of the account has some importance. Taxpayers might avoid this danger in the future by spreading their offshore funds among several accounts and numerous banks so that they can "fly under the radar."

Which raises questions about the treatment of UBS itself. The bank has been revealed as a criminal enterprise, but far from being tough on crime the authorities have been relatively lenient:

What also seems like bad news is that under the settlement, UBS will pay no civil penalties. It has already paid $780 million in criminal penalties for the actions of certain bank employees facilitating illegal tax evasion.

What's even more alarming is that the IRS will withdraw its "Notice of Default" that was issued to UBS for violating the agreement it entered into with the U.S. government. This agreement, which made UBS a "Qualified Intermediary" or "QI," is one that foreign banks enter into with the U.S. in order to get favorable treatment in return for complying with certain reporting standards. Given that UBS bankers came into the U.S. to solicit illegal business from Americans with the express purpose of helping them evade taxes, it's hard to believe UBS is not in default of such an agreement. If this egregious behavior can't get a bank kicked out of the QI program, what in the world can?

Good question (we suggested last year that UBS should lose its licence). All of which leads CTJ to conclude that the road ahead remains long and largely uphill:

So the settlement certainly does not mean that the offshore tax evasion problem is resolved. If anything, it shows how badly we need legislation to deal with the problem, since there are apparently limits to how far the U.S. government will go, using existing laws, to crack down.

You can read the full text of their article here.


BNP Paribas aux Iles Caïman: Mais qu'est ce qu'ils foutent là bas?

Frangy en Bresse, dimanche 23 août 2009

Notre directeur, John Christensen, était parmi les invités à la 37ème Fête de la Rose de Frangy en Bresse (Saône-et-Loire).

Après un toast à la Mairie de Frangy et une cuisse de poulet de Bresse, il a pris son place sur la plateforme à cote de Arnaud Montebourg, Député de Saône-et-Loire, et Benoît Hamon, Porte-parole du Parti socialiste français.

Voici le texte de son intervention (here is the English text).


Chers amis

En avril, le G 20 s’est engagé à lutter contre l’existence et les activités des paradis fiscaux. Depuis Avril ils ont revendiquée des avances sur l’échange des informations fiscales et la régulation financière.

C’est une bonne nouvelle. Mais en réalité même si il y a des petites avances sur le domaine du secret bancaire, nous ne voyons pas des avances pour lutter contre le régime des trusts et des fondations. Tous les experts savent que c’est les trusts qui permettent le secret financière dans le plupart des paradis fiscaux et judiciaires.

Au même temps c’est clair que les autorités financières n’ont pas compris le role jouait par les paradis fiscaux dans cet crise. Pire, il’s n’ont pas la volonté d’attaquer contre le système financiere dit « offshore ».

Donc avant le sommet du G-20 qui se tiendra à Pittsburgh le mois prochain, il est impératif que nous proposions un programme beaucoup plus ambitieux pour lutter contre les paradis fiscaux.

Depuis cinquante ans nous avons vu l’émergence d’une économie parallèle qui s’appelle l’économie offshore. Voici quelques chiffres pour démontrer l’échelle de cette économie :
• En Mars 2009, les dépôts bancaires dans les Iles Caïman et les Iles Anglo-normands arrivent à 2,3 mille milliards de dollars. Tandis que les dépôts bancaires ici en France arrivent à 2,4 mille milliards de dollars. Les populations de ces îles sont moins importantes que la population de l’agglomération de Chalon s/Saone ;
• En tout, les avoirs privés détenus offshore à des fins d’évasion fiscale représenteraient un montant estimé à 11mille milliards et demis de Dollars US ;
• Plus que 90% des hedge funds se sont établis offshore, le plupart dans les Iles Caïman, Jersey, et Luxembourg. A ma connaissance, l’ensemble des activités bancaires fantômes prolifèrent sur les territoires offshore.
• Ce sont les banques qui en général figurent toujours en tête de la liste des utilisateurs de territoires offshore. BNP Paribas, pour exemple, a 189 filiales dans des paradis fiscaux, dont 22 dans les Iles Caïman et 77 à Londres. Mais qu’est ce qu’ils foutent là bas ?

Au plupart les banques ont créé un système bancaire de structures opaques et complexes dont les seuls buts sont l’évasion fiscale et le non-respect des lois. Et c’est nous qui payons.

Tout ceci explique la raison pour laquelle les paradis fiscaux ont largement contribué à la crise actuelle. La tendance des banquiers à structurer des instruments financiers complexes au travers des paradis fiscaux représente en gros leur réponse au traitement fiscal favorable des plus-values et aux transferts de bénéfices dans paradis fiscaux.

Derrière le terme d’innovation financière, souvent repris par les journalistes, on ne trouve que divers moyens d’évasion fiscale. La nécessité de masquer cette évasion derrière des structures complexes a empêché les régulateurs, les commissaires aux comptes, les analystes des agences d’évaluation de solvabilité, les journalistes spécialisés et bien d’autres d’analyser le risque sur le marché financier.

Le Fond Monétaire Internationale vient de reconnaître que les tendances fiscales ont encouragé le refinancement excessif des dettes ainsi que les autres distorsions qui sont à l’origine de la crise actuelle. .

Nous devons donc plus réfléchir à ce problème et recommandons que le FMI et la Commission des affaires économiques et monétaires de l’Union européenne soutiennent activement des travaux de recherche afin d’établir l’impact des régimes fiscaux et des systèmes judiciaires des paradis fiscaux, à la fois sur d’autres pays et sur les marchés financiers mondiaux.

Avons-nous gaspillé les possibilités de réforme ?

Au lendemain des élections américaines, Rahm Emmanuel, le conseiller spécial de l’administration Obama, a dit « never let a crisis go to waste » («on ne doit jamais se permettre de gaspiller la gravité d’une crise ».) La gravité de la crise actuelle va sans dire. Mais jugeant du ton des politiciens, des banquiers, des entrepreneurs et des journalistes ces dernières semaines, nombreux sont ceux qui semblent penser qu’une remontée des places boursières signale une reprise de l’économie réelle. En réalité, le chômage augmente plus rapidement que dans les années 30. L’illusion de cette reprise doit être considérée comme très inquiétante dès lors que les chances de réforme issues de cette crise pourraient en fait être gaspillées.

Il est hors de question que cela arrive. Des réformes fondamentales sont nécessaires à tous les niveaux : les institutions qui n’ont pas passé le test du marché doivent être rationalisées pour nous assurer que la culture de cupidité et du court terme qu’affectionnent certains soit remplacée par une culture de justice et de prospérité pour le plus grand nombre.

Depuis trente ans nos dirigeants ont placé leurs confiance dans la capacité des marchés financiers à établir leurs propres règles de fonctionnement, puis à s’autoréguler dans le contexte de règles qui favorisaient les seuls intérêts des élites fortunées. Maintenant ça suffit. Le temps est venu d’exiger une architecture financière qui repose sur la coopération internationale, la responsabilité démocratique et la transparence opérationnelle.

Rappelons qu’en avril le G 20 s’est engagé à lutter contre les paradis fiscaux. Mais les mesures qu’ils poussent se sont basées sur de conventions d’échange d’informations fiscales bilatérales « sur demande » qui se révèlent complexes, longues et inefficaces. Les dirigeants des pays du G 20 doivent saisir l’opportunité politique actuelle pour promouvoir un processus de conventions multilatérales plus ambitieux qui reposerait sur l’échange automatique d’informations semblable au modèle couramment en vigueur dans l’Union européenne.

Certains se plaindront que cet échange automatique est trop complexe et détaillé pour être adopté au niveau mondial. Nous sommes ici en désaccord complet ! Le standard d’échange « sur demande », que les dirigeants de G-20 souhaiterait voir adopter au niveau mondial, se caractérise par sa faiblesse et son inefficacité.

Permettez-moi une seule statistique révélatrice ! Ces trois dernières années les dépendances de la Couronne britannique de Guernesey, l’île de Man et de Jersey ont coopéré dans seulement 17 demandes d’échange d’informations émanant de l’ensemble de leurs cosignataires de conventions. Cela équivaut à moins de 2 échanges par an pour chaque île.

Ne soyons donc pas surpris si l’industrie de l’évasion fiscale préfère le modèle d’échange de l’OCDE (Organisation pour le coopération et développement économique) plutôt que celui de l’Union européenne !

Quiconque douterait de l’efficacité du modèle européen se doit de savoir qu’un avocat britannique influent- je veux dire un conseiller des paradis fiscaux !- a conseillé à ces juridictions de s’aligner sur les processus de l’OCDE afin de mieux résister aux pressions posées par le processus alternatif d’échange automatique. C’est de cela dont l’industrie de l’évasion fiscale a peur et pour de bonnes raisons !

L’urgence de la lutte contre les paradis fiscaux ne peut plus être ignorée. Ces paradis sont la source des inégalités massives de revenus dans et entre la plupart des pays. Ils transfèrent la charge de l’impôt sur le capital vers les salariats et les consommateurs, ce qui cause des distorsions économiques massives et apportent des changements fondamentaux à l’équilibre des pouvoirs dans les sociétés.

Les paradis fiscaux réduisent les créations d’emploi ; ils encouragent la spéculation ; et ils facilitent la corruption. Ils rendent les activités du secteur financier plus risquées et plus dangereuses et menacent en même temps l’ensemble de nos moyens d’existence économiques. Mettons fin à cette scandale.

Exigeons le renforcement de la lutte contre les paradis fiscaux et exigeons que ce renforcement s’opère aujourd’hui. Ne laissons pas cette crise être gaspillée.

Donc notre message pour le President Obama et les autres dirigeants des pays du G-20 est simple: vos propositions pour lutter contre les paradis fiscaux sont beaucoup trop timide. Pour faire fin a l’industrie de l’évasion fiscale vous devez adopter un processus de conventions multilatérales qui reposerait sur l’échange automatique d’informations.

Merci de votre attention.


Friday, August 21, 2009

Eva Joly tackles BNP Paribas on its tax haven subsidiaries

According to the French press, Eva Joly, Member of the European Parliament and former French examining magistrate, has called on the Board of French banking giant BNP Paribas to explain the purpose of its secrecy jurisdiction affiliates.

Madame Joly, who came to international fame for her tenacious investigations into the Elf-Acquitaine Affair during the 1990s, now chairs the European Parliament's Development Committee and is developing proposals for a parliamentary commission of enquiry into the impact of secrecy jurisdictions on development processes.

Speaking at a Europe-Ecology summer school in Nimes, she commented: "BNP was not chosen haphazardly. During our researches on Africa, we saw all too often that BNP was implicated in oil related schemes which enabled heads of state to shift state assets to their own accounts in secrecy jurisdictions."

BNP Paribas, which has received €5 billion of state aid since the start of the current crisis, has an estimated 189 affiliates in secrecy jurisdictions. Link here to watch Jean Merckaert of CCFD speaking outside the Jersey branch of BNP Paribas, which itself employs over 400 staff in Saint Helier, calling on the Board Chairman to explain the purpose of all these secrecy jurisdiction affiliates.


Banking in the Shadows: A trip to Jersey

In March 2009, during the run-up to the G-20 Summit in London, activists from all over Europe visited the British Channel Island of Jersey to highlight the role of tax havens in the global crisis.

Along with TV teams from far and wide, film-maker Zoe Young covered the events in Jersey, described in the London Review of Book as "an awfully genteel protest", and she has now released this short film. We think its great and hope you will enjoy it and share it with your friends.

Banking in the Shadows: A trip to Jersey

A film by Zoe Young

Jersey: Island of cows, potatoes, beaches, secret trusts and tax evasion, shadowy banks and stolen billions, dodgy companies behind corrupt practices and the SPVs (special purpose vehicles) which hid the financial crisis...and Jersey promotes itself as the clean end of the tax haven world!

Join us on a visit to the dark side of global finance . . .

The British Channel Island of Jersey is a major European tax haven. Over $500 billion of client money is hidden on accounts in Jersey to evade and avoid taxes.

We visited Jersey in March 2009 to expose how tax havens affect the lives of ordinary people around the world, who pay their taxes and carry the burden of tax evaders. Activists from across Europe spoke about how different banks have supported corrupt and unethical practices.

We want politicians to take action against tax havens like Jersey. Two weeks after our events G20 leaders met in London and agreed to take action.

But their proposals are weak and do little to help the poorer countries, including some of the small islands which have seen their traditional industries swept aside by tax haven activity.

Our politicians must go much, much further in their actions against the tax havens.


TJN-USA - Comment on the Agreement between UBS, the Swiss Government and the IRS

Tax Justice Network USA on the Agreement between UBS, the Swiss Government and the IRS

August 20, 2009

Contact: Sarah Lewis, sarah.lewis (at), +1 202 550-6504
(Click here to watch Sarah discussing the Agreement on a Reuters programme)

The agreement between UBS, the Swiss Government and the IRS is a good first step toward putting banks out of the business of selling to wealthy Americans tax evasion assistance under the guise of "wealth management." But it is only a first step. And, while the agreement is a reasonable resolution of a particularly egregious case it will not put Switzerland and its banks out of the cross-border tax evasion business for good. That should be the objective of national and international policy.

"The UBS settlement should be seen as the opening round in a long fight, " said Sarah Lewis, Executive Director of Tax Justice Network USA. "The key to success will be vigorous follow-through at the national and international level."

"Because of the UBS and Liechtenstein disclosures, we now know that foreign banks in bank secrecy jurisdictions have been routinely selling tax evasion services to Americans and to other wealthy people around the world. As the result of voluntary disclosures over the last several months it is now obvious that there is an entire offshore industry busy soliciting this tax evasion business. The industry is illegal and illegitimate and must be put out of business. This is the first major IRS offshore banking enforcement action in years, the first against a major Swiss bank, and no ordinary Swiss bank, but the world's largest player in international private banking." she continued.

Tax Justice Network USA takes the position that continued vigorous action at the national and international level is essential.

The US government should do the following:

• Insist that the issue of cross-border tax evasion be on the agenda of the September G-20 Summit in Pittsburg.

• Push for immediate international action to facilitate increased tax information exchange.

• Press for mandatory standards of bank behavior enforced by home governments that preclude assisting in cross border tax evasion.

• Use the UBS disclosures to prepare and serve additional "John Doe" summonses on other banks known to have offered tax evasion services in the US.

• Identify and prosecute, where appropriate, the intermediaries and salesmen who work in the industry.

• Apply the necessary resources to insure that the voluntary disclosures made under the IRS program are complete and honest.

The impact of the tax evasion business is worldwide. UBS is offering the same tax evasion services in dozens of other countries. Other banks were and are doing the same thing. Other governments should join in the effort to open UBS's books and expose its global role in supporting tax evasion.

Tax Justice Network USA applauds the forward progress represented by the agreement in this case, the question of follow through is critical.


A timely warning to lawyers

We recently blogged about lawyers and their part in the tax evasion scandal that has engulfed Swiss banking giant UBS and the Swiss Federal Bank. Bang on cue, the US Department of Justice has charged Matthias Rickenbach, and Swiss lawyer, with conspiring to defraud the United States. Hansruedi Schumacher, described as an executive director at the Zurich-based Neue Zuercher Bank - a private wealth management bank' (Double-speak for tax evasion services) - has been indicted alongside Rickenbach.

Cool. Of course, both are innocent until proven guilty, but these charges should set shock waves in motion throughout the financial and legal professions. Let's not kid ourselves about this: the tax evasion industry is not restricted to Switzerland, and the culture of profiting from tax evasion is deeply embedded in many law firms.

We are not suggesting that all lawyers are crooks. But a significant minority undoubtedly are. And there is no evidence that this self-regulating profession has either the balls or the capability to get its house in order. This must change. Public opinion has shifted firmly against the tax evasion industry. Legal associations should take note and issue clear codes of conduct relating to how their members should advise on tax planning matters (rule of thumb: tax planning fine; tax evasion and avoidance absolutely unacceptable in all circumstances; likewise use of tax havens).

Here is the text of the press release issued by the DoJ:

THURSDAY, AUGUST 20, 2009 (202) 514-2007
WWW.USDOJ.GOV TDD (202) 514-1888

Defendants Aided Wealthy Americans Conceal Assets in Secret Swiss Bank Accounts

WASHINGTON - Hansruedi Schumacher and Matthias Rickenbach, both of Switzerland, were indicted today for conspiring to defraud the United States, the Justice Department and Internal Revenue Service (IRS) announced. According to the indictment, Schumacher worked as an executive manager at Neue Zuercher Bank (NZB), a Swiss private bank located in Zurich, Switzerland. Rickenbach worked as a Swiss attorney who provided legal advice and services to U.S. clients. Both are alleged to have aided wealthy Americans conceal assets and income in Switzerland from United States authorities.

According to the indictment, Schumacher and Rickenbach helped wealthy American clients conceal their assets by establishing sham and nominee offshore entities to hide their U.S. clients' assets and income while allowing these clients to still control the assets and make investment decisions.

The indictment further alleges that Schumacher and Rickenbach regularly traveled to the United States to conduct banking and investment activities with their U.S. clients and that when they traveled they concealed their business activities in the United States by falsely representing to American authorities that they were traveling to the U.S. for personal reasons. While in the United States, the defendants would sometimes bring cash for their clients..

According to court documents, Schumacher and Rickenbach aided their wealthy American clients repatriate money back to the United States using several deceptive means. Schumacher and Rickenbach helped their clients obtain offshore credit cards and created sham loan documents. Additionally, Schumacher and Rickenbach falsified bank documents to generate the appearance that assets of their U.S. clients belonged to Swiss citizens, and they falsified documents to disguise their United States clients' repatriation of offshore funds as inheritances from foreign citizens.

According to court documents, Schumacher and Rickenbach discouraged their U.S. clients from voluntarily coming into compliance in the United States. Instead, the defendants encouraged their clients to transfer their assets from UBS, a large Swiss bank, to NZB, a smaller bank in Switzerland. The defendants told their clients that their assets and identification would be safer at NZB because they had no presence in the United States and was therefore less likely to be pressured by the American authorities to disclose the identities of their United States clients.

"The Justice Department will continue to investigate leads provided by U.S. taxpayers who have come forward to disclose foreign bank accounts and will prosecute those foreign bankers and banks who illegally helped U.S. clients evade taxes," said John A. DiCicco, Acting Assistant Attorney General of the Justice Department's Tax Division. "We encourage foreign banks to come forward and disclose their conduct immediately, before we learn about their criminal conduct from U.S. taxpayers."

"Today's Indictment is the latest prosecution in this District against foreign bankers and professionals who enabled and assisted wealthy Americans conceal their assets offshore," said Jeffrey H. Sloman, Acting U.S. Attorney for the Southern District of Florida. "As more Americans voluntarily come into compliance and face their financial obligations, more leads are being developed and new investigations are initiated. American taxpayers who sought to avoid taxes by hiding their assets in Swiss accounts are on notice that this investigation continues."

"This is another step in our ongoing effort to pursue hidden offshore assets -- no matter where they are located," said IRS Commissioner Doug Shulman. "We're in the early stages of our work to crack down on offshore tax evasion. Through our efforts, we are gaining access to more and more information on institutions and individuals involved in offshore tax evasion, and you can expect us to use all of our enforcement tools to stop this abuse. For people with hidden offshore assets, they have an opportunity to get right with the government. Time is quickly running out, and people should take advantage of our voluntary disclosure process before special provisions expire September 23."

Acting Assistant Attorney General DiCicco and Acting U.S. Attorney Sloman commended the investigative efforts of the IRS agents involved in this case. The prosecution is being handled by Senior Litigation Counsel Kevin M. Downing and Trial Attorney Michael P. Ben'Ary of the Tax Division, and Assistant U.S. Attorney Jeffrey A. Neiman. U.S. citizens who have an interest in, or signature or other authority over, a financial account in a foreign country with assets in excess of $10,000 are required to disclose the existence of such account on Schedule B, Part III of their individual income tax return. Additionally, American citizens must file a Report of Foreign Bank and Financial Accounts, or F-Bar, with the U.S. Treasury, disclosing any financial account in a foreign country with assets in excess of $10,000 for which they have a financial interest in or signature authority, or other authority over.

More information about the Justice Department's Tax Division and its enforcement efforts is available at


Thursday, August 20, 2009

Grown-up thinking in the European fight against tax fraud

Sorry to distract our readers away from the UBS settlement, but here's something interesting coming out of Brussels (Euro-phobes might want to stop reading now, since the idea that anything interesting might come out of Brussels will doubtless induce choking, vomiting and worse).

The European Commission is proposing to create a common operational structure spanning all member states to streamline actions against cross-border tax frauds. This is grown-up stuff. Bring it on.

Here is the text of their press release:


Brussels, 18 August 2009

Fight against tax fraud: Commission proposes measures for a more efficient cooperation between tax authorities

In the framework of its strategy to combat tax evasion and fraud ( IP/06/697 ), today the European Commission adopted a proposal for a recast of the Regulation on administrative cooperation in the field of valued added tax, extending and reinforcing the legal framework for the exchange of information and cooperation between tax authorities. One of the key elements of the proposal is the creation of a legal base to set up Eurofisc: a common operational structure allowing Member States to take rapid action in the fight against cross border VAT fraud. The Commission today also adopted a report on the functioning of the administrative cooperation.

László Kovács, Commissioner for Taxation and Customs, said: "In the current economic situation it is more important than ever to fight tax fraud efficiently and a fully functioning administrative cooperation between tax administrations is key in that respect. My objective is to ensure that tax authorities have all technical and legal means to take action against European Union wide VAT fraud and to ensure that each tax administration is prepared to protect other Member States' tax revenue as effectively as their own."


One of the most novel elements in the proposal is the creation of Eurofisc. It is set out to be an operational structure where Member States will in practice, fight fraud together. It should allow a very fast exchange of targeted information between all Member States as well as the setting up of common risk and strategic analysis. This will enable Member States to react timely to stop fraud and catch fraudsters, making it more difficult for new fraud schemes to emerge and spread around the Community

Joint responsibility for the protection of tax receipts

The proposal changes the approach of the protection of VAT revenues. In addition to giving Member States tools to cooperate more closely and to exchange information faster, the Recast regulation sets out that Member States are jointly responsible for the protection of VAT revenues in all Member States.

Direct access to databases

Tax authorities store a large amount of information regarding their own taxpayers in their databases; rapid access to this information can be very useful to other Member States in order to detect cross-border fraud schemes. The proposal grants tax authorities of other Member States a direct access to a defined set of information contained in these databases.

Quality of data

The proposal contains a framework to ensure the quality, comparability and usability of the information contained in national databases. It includes rules on registration, deregistration and rules on initial and regular risk analysis processes.

Information to taxpayers

In order to prevent them from being caught involuntarily in fraud schemes, taxpayers will benefit from an enhanced and secure system of validation of their counterparts' VAT number and identity. This will significantly increase the legal certainty of their business environment when making intra-community supplies.

Report on the functioning of administrative cooperation

The report drafted according to article 45 of Council Regulation 1798/2003 in cooperation with Member States is the first report since the entry into force of the Regulation. It outlines areas where administrative cooperation is functioning well and points out areas for improvement. Its conclusions have been taken into account in the proposal for the recast of the Regulation.


Current arrangements on administrative cooperation in the field of VAT date from 2003 (Council Regulation (EC) n° 1798/2003).

In May 2006 the Commission launched a discussion on the need to develop a coordinated strategy to fight against tax fraud ( IP/06/697 , MEMO/06/221 ).

The European Commission has adopted on 1 December 2008 a Communication ( COM/2008/807 , and IP/08/1846 ) setting out a short term action plan with a list of future legislative measures enhancing tax administrations capacity to prevent and detect VAT fraud (in particular "missing trader fraud") as well as to recover taxes in case of fraud. The present Regulation and report constitute the last package of measures announced in this Communication.

The texts of the proposals are available at this web link:

Further information on the strategy to improve anti-fraud measures can be found at:


Senator Carl Levin on the UBS settlement: 19th August 2009


August 19, 2009

"The UBS settlement is at most a modest advance in the effort to end bank secrecy abuses, tax haven bank misconduct, and the tax haven drain on the U.S. treasury. It will take a long time before we know whether this settlement will produce meaningful gains due to treaty procedures which are complex, depend upon the Swiss government to carry out, and open the door to potentially lengthy appeals.

"In the meantime, the IRS needs to keep up the pressure against offshore tax abuse, not only by going after more tax offenders, but also by taking action against other tax haven banks that have helped U.S. clients cheat on their taxes.

"Congress also needs to act. If we want to stop offshore tax abuses that produce $100 billion in unpaid taxes each year and offload that tax burden onto the backs of honest taxpayers, it is essential that Congress enact the Stop Tax Haven Abuse Act which I and my colleagues introduced earlier this year and which President Obama has endorsed. Our bill would, for example, enable the United States to prohibit U.S. financial institutions from doing business with any foreign bank that impedes U.S. tax enforcement. That new authority would provide our government with a powerful new weapon to use against tax haven banks that help U.S. clients hide assets and evade U.S. taxes. The bill also contains a host of other enforcement tools that would strengthen our tax laws and help put an end to the $100 billion in offshore tax abuses each year."


Wednesday, August 19, 2009

Swiss to process 4,450 American UBS client accounts

The Swiss Federal Administration has just issued the following:


Bern, 19.08.2009

UBS: New Treaty Request Instead Of Unilateral Action
Bern, 19.08.2009 - Agreement between Switzerland and the USA enters into force In the UBS case, the United States will submit a new treaty request to Switzerland and will withdraw the John Doe summons that demands disclosure of the identity of 52,000 UBS account-holders. In return, Switzerland has undertaken to process the new treaty request, concerning approx. 4,450 accounts, within a year. These are the terms of the agreement between Switzerland and the USA to settle the looming conflict between the two nations' legal systems.

The agreement was signed today in Washington and entered into force immediately. It states that the United States will refrain from unilateral information-gathering measures that infringe Switzerland's sovereignty and rule of law. In particular, the USA will immediately withdraw the enforcement action relating to the John Doe summons against UBS that remains pending before the competent court in Miami. It also undertakes not to seek any further enforcement of the summons. The civil case in the US will remain pending for the time being to prevent any future claims expiring under tax law. It will nonetheless be finally and completely withdrawn in stages no later than 370 days from the date the agreement was signed.

Framework For Action Determined
The US tax authority, the Internal Revenue Service (IRS), will submit a new treaty request to the Swiss Federal Tax Administration (SFTA) on the basis of the tax treaty currently in effect between the two nations. The new request will draw on certain criteria in a framework for action that allows cases of "tax fraud and the like" to be identified in the case of UBS within the confines of applicable Swiss law and judicial practice. Some 4,450 accounts fall within this framework. The precise criteria are laid down in an annex to the agreement. At the request of the United States, the annex will not be published until 90 days after the agreement has entered into force to ensure the IRS voluntary disclosure program runs smoothly.

Serious Tax Offences Also Covered By Treaty Request
According to the tax treaty currently in place, the term "tax fraud or the like" is not restricted to conventional forms of fraud involving falsified documents or schemes of lies. Information may also be obtained with regard to serious tax offenses, specifically the continued evasion of large sums of tax. Under applicable law and the latest practice of the Swiss Federal Administrative Court, in dealings with the USA account information may also be released - through treaty request channels - even if the IRS does not yet know the name of the bank client concerned when it submits its request.

Project To Ensure Faster Handling
The SFTA will set up a project infrastructure to accelerate handling of the new treaty request. The project will involve around 30 specialists from an audit firm and some 40 lawyers and tax specialists recruited from within the federal government. These lawyers and experts bear sole responsibility for key sovereignty-related tasks, specifically the rendering of final decisions.

Under the terms of the agreement, the SFTA must issue final decisions on the first 500 cases within 90 days of the request being received. It has 360 days in total to make a final decision on whether the requested information may be issued in each of the 4,450 cases. UBS must make the account information covered by the treaty request available and prepare it for processing by the SFTA. This is the subject of a separate agreement between UBS and the IRS. The privacy of all of the persons concerned remains protected under the law, and they may contest the SFTA's final decisions before the Federal Administrative Court.

Regular Consultations
In an effort to build trust, the agreement provides for joint quarterly meetings to assess progress and identify and resolve any emerging problems at an early stage. Either party may also request further consultations on the implementation, interpretation or application of the agreement at any time. In addition, immediate consultations on appropriate measures may be requested if it appears that one of the parties is unable to fulfill an obligation on time or at all. If the actual results of the program fall significantly short of its targets after 370 days, both parties may take proportionate rebalancing measures to restore an equitable distribution of rights and obligations under the agreement. The United States government might, for example, delay the final withdrawal of its John Doe summons.


Austria: Under pressure

Breaking news:

We are picking up reports that sanctions are being considered against Austria due to that country's lack of cooperation in the fight against tax evasion (Austria is a member of the European Union but does not fully cooperate with the EU Savings Tax Directive and applies strict banking secrecy laws).

According to the article below (sorry, only available in French at this stage), as a result of pressure from the governments of France, Germany and the United Kingdom, Austrian banks risk being excluded from participating in EIB (European Investment Bank) projects. The EIB extends loans totalling around €60 billion every year on infrastructure finance and support for small and medium enterprises. If the sanctions go ahead they are likely to come into force at the end of March 2010.

Needless to say, we support such sanctions. We met the Austrian Finance Ministry earlier this year. They remain hard-line on banking secrecy and information sharing, as do proponents of the Austrian School of Economics. A bit of political muscle might help them understand that public opinion no longer tolerates their shenanigans.

Likewise we're pleased to see the EIB involved in this action. We are proud to be part of a civil society coalition that has been engaging the EIB on its policy - or lack thereof - on funding via tax havens. It is not acceptable that EIB funding be routed anywhere near tax havens, and we want the EIB to disengage entirely from working with banks and other companies which use these fiddle factories.

Bravo to the European Union.

SECRET BANCAIRE • L'UE en vient à sanctionner l'Autriche

19.08.2009  Der Standard

Fiches pays

* Autriche
* Union européenne

La Banque européenne d'investissement (BEI), face au manque de coopération de Vienne en matière de lutte contre l'évasion fiscale, a décidé de prendre des sanctions, annonce le quotidien autrichien. "Sous la pression de la France, du Royaume-Uni et de l'Allemagne, les banques autrichiennes seront désormais exclues des projets lancés par la BEI." La BEI dépense chaque année 60 milliards d'euros en financement d'infrastructures et de mesures de soutien aux PME. Ces sanctions doivent entrer en vigueur le 31 mars 2010.


Tuesday, August 18, 2009

G-20: No more business as usual

TJN is a founder member of the Put People First coalition in the UK. Here are details about forthcoming events planned for Autumn 2009:

Put People First Campaigning Day

Friday 4 September 2009
Central London

This autumn the G20 is back. On Friday 4 September, the G20 Finance Ministers are meeting in London to discuss the financial crisis, for the first time since April's G20 summit. So far they've flunked the challenge of putting people first in response to the financial crisis, preferring instead to patch up the old system that has led to global poverty, inequality and the threat of climate chaos.

Join us in central London to tell the G20: No More Business As Usual. We'll be demanding action on jobs, justice and climate, learning more about some of the key institutions behind the crisis, and discussing what's next for Put People First campaigning.

a.. 10am-11am: Put People First stunt targeting the Finance Ministers - bring your jobs, justice and climate banners.
b.. 11.30am-1pm: A walking tour of companies and institutions that have contributed to the economic crisis. Meet at the Bank of England.
c.. 2pm-6pm: An afternoon of talks and discussion at the London School of Economics.
Register now

Place are limited so registration is advised. To register to attend, email or phone 020 7324 4722.

Invite people to the Facebook event:

What's next for the G20?

On 24-25 September, the G20 leaders will hold a further summit in Pittsburgh in the United States.

On 7-8 November, G20 Finance Ministers will reconvene in St Andrews, Scotland. On Saturday 7 November there will be Put People First Alternative G20 conferences held in London and St Andrews - watch out for more details coming soon.

Then from 7-18 December the UN will hold international climate change negotiations in Copenhagen, Denmark. On Saturday 5 December the Wave ( will see the UK's biggest ever demonstration in support of action on climate change in London.

Put People First public meetings

A limited number of grants of £400 are available for local groups to work together in the autumn to organise local public meetings, which look at the links between movements for jobs, justice and climate, and help mobilise for 'The Wave' Climate March on 5 December.

To qualify, the sponsoring groups need to include at least one development organisation, at least one trade union, and at least one environment group.

If you would like to apply for funding, please contact BOND Campaigns Communications Officer Tim Gee on as soon as possible, and no later than 15 September.

About Put People First

Put People First is a coalition of development charities, trade unions, faith groups, environmentalists and other organisations, formed in response to the G20 London summit in April to call for a fair, sustainable route out of recession. For more information, including our 12 recommendations to the UK government, see


Lawyers: get your house in order

The banking profession has rightly gained a reputation for greed, incompetence and worse. But what about the lawyers?

Read through Attachment A to this plea agreement between US citizen John McCarthy and the Attorney's Office of the Central District of California, and you will see how hard his Swiss lawyer worked to encourage him to break the law. McCarthy was a client of Swiss bank UBS.

No doubt many, many other clients of UBS will be signing similar agreements in the coming months. We understand that other US citizens with offshore accounts at banks other than UBS are coming forward to fess up to their tax sins. Doubtless they too will have been given bad advice by crooked lawyers.

Not all lawyers are crooked, of course, but we don't detect signs of discussion within the legal profession about these renegade elements. And absence of serious discussion suggests that the profession is either unable or unwilling to regulate itself when it fails to act in the public interest. The same applies to the banking and accounting professions.

Question: where are the professional codes of conduct relating to how lawyers can advise their clients on tax dodging and the use of tax havens?


Monday, August 17, 2009

Financial Times: War on Tax Piracy is Making Progress

Today's Financial Times carries an editorial titled "Closing the Havens" which, having noted that "the war on tax piracy is making progress", concludes that tax havens "cannot guarantee to keep clients' wealth hidden if home countries continue wielding their weapons." If this is the case, and it may well be that we are approaching that stage, then remarkable progress has been made in the past few months: plaudits to all concerned, not least the US authorities who have been resolute in their pursuit of the UBS affair, and the German authorities who took on the Liechtenstein/UBS scandal with similar resolve, and last, though not least, our friends at the OECD who have gained some courage as they make their way along the yellow brick road.

But the progress to date is just a start. The initially modest standards set by the OECD in April need to be ratcheted up significantly: twelve signed and sealed tax information exchange agreements does not spell the end of the tax evasion industry, and poorer countries remain conspicuous by their absence from the table. Likewise, as the FT observes, the standard promoted by the OECD is weak and even if they do "make tax evaders sleep less easily" we must continue to press for a far higher standard for international tax information exchange.

The FT is also right to push the UK government to "make sure that its own overseas territories do not remain safe for tax evaders", which means tackling the mis-use of trusts and other entities that have their basis in English Common Law. This is crucial in the run-up to the Pittsburgh G-20 Summit, since G-20 leaders will rightly be accused of hypocrisy and worse if they brag about tackling banking secrecy but have nothing to say on the subject of trusts and similarly secretive devices.

The one small matter on which we would take issue with the FT editorial relates to what we regard as the bogus arguments touted around by the supporters of tax havens. This is what the FT says:

Supporters of banking secrecy have wrung their imaginations dry in coming up with ingenious defences for secret accounts. The very real fear of kidnapping in places such as Latin America is one of the few good reasons that might justify allowing the rich to hide their wealth. But for the most part opacity simply helps to evade taxes.

Now the kidnapping threat is one of those red-herrings that pops up virtually every time we discuss with the tax evasion industry. It was thrown at this blogger in Geneva in 2007, again in Douglas last autumn, and in both Saint Helier and Vienna this spring. Do we smell the whiff of an orchestrated PR puff? Whatever the origins, the argument quickly dissolves when exposed to common sense and we have addressed it, at length, here. Anyone who has worked and travelled in Latin America will know that everybody, and we mean EVERYBODY, knows who is rich. The idea that the rich even attempt to hide their wealth is frankly bizarre in a continent noted both for its extremes of inequality and the in-the-face devotion of the the wealthier classes to conspicuous consumption.

The FT rightly comments that the pressure on the tax havens must not be lifted. TJN is determined to keep the pressure full on. Tax havens are on the back foot: as every boxer knows, that's the time to strike again and again and again. Banking secrecy, trust secrecy, non-disclosure of corporate ownership, accounting opacity, weak information exchange processes: all must be swept aside for once and for all. This is just the beginning of the end of the tax havens . . .


Channel Island VAT abuse: time for action

The Observer reports that online retailers are facing a crackdown on the use of the British Channel Islands to exploit a VAT loophole. Such a move would be very welcome.

The so-called 'fulfillment industry', which operates out of Jersey and Guernsey, is a bizarre example of the law of unintended consequences. Back in the dim mists of time both islands had significant horticulture sectors which, due to geographical advantage and proximity, prospered from selling fresh flowers direct, by post, to British consumers. There was a slight hitch, however. Neither islands were part of the UK VAT regime (having opted in the late 1960s to stay outside the European Economic Community) and their flower exports were liable to VAT on entry into the UK, which would have both increased the final price to consumers and potentially incurred shipment delays as the packages cleared customs. So a deal was struck specifically for the horticulture sector: postal packages shipped from the islands below a certain threshold (known in the current jargon as low value consignment relief) would be exempted from VAT. This token gesture satisfied everyone, allowing cartons of perishable daffodils to arrive on the doorstep fresh and blooming in time for the all-important Mother's Day in March.

So what could go wrong with such a sweet and simple arrangement? Quite a bit as it happens. Guernsey and Jersey flower exporters started to source their produce from outside the islands, importing produce from far and wide and re-exporting - mainly to the UK markets - under the Jersey produce label. When we say far and wide we mean it. At one stage carnations were being imported from Colombia and re-exported under this VAT exemption. Rumours persist in both islands that flowers exports from Latin America were being used to launder proceeds from narco-trafficking, but in the spirit of The Three Monkeys the local regulatory authorities did nothing. Needless to say UK retailers suffered from this abuse of the special concession, but since when has HM Treasury worried about the small retail sector?

And then in the 1990s the big boys moved in. Never particularly worried about the niceties of things like gentleman's agreements and "playing a straight wicket", the government's in Guernsey and Jersey - both of which directly profited from additional postal revenues - turned a blind-eye as new products joined the cut flowers exports. Pharmaceutical products, CDs, then DVDs, and other items liable to VAT, were shipped into Jersey, briefly warehoused, and then onwards posted to customers in the European Union. This was (and remains) an economic madness involving huge additional transport charges, hundreds of millions of lost VAT revenue, and micro-economic distortions favouring large online operators (including WalMart/Asda, Amazon, Tesco and Woolworths [RIP]) who enjoy an indirect subsidy not available to small retailers. But since when has HM Treasury been worried about competition policy in the UK, where tax policy largely consists of tax breaks for rich and powerful organisations, with others taking up the slack?

As The Observer notes, the European Court of Justice has established an 'abuse of rights' principle which invalidates complex tax structures designed to secure an extraordinary advantage. Exploiting a VAT exemption intended to allow rapid postal entry of fresh cut flowers to the Mother's Day market to fulfil internet orders for DVDs, CDs and other low volume, high value items seems to fall into this category. It is time to kick this particular abuse as far as possible into the long grass.


Wednesday, August 12, 2009

Britain and Liechtenstein: more odd things

We've just blogged on the innovative but flawed UK-Liechtenstein agreement, and a couple of extra things have been drawn our attention. It's an important one because it contains many new elements, so forgive us for banging on about it a bit.

First, we should re-iterate (it got a bit buried in the last blog) the massive flaw in the agreement - that there is a five-year time lag in the reporting procedures. This gives the criminals more than enough time to ship their accounts to another jurisdiction. Amongst the clique of private bankers, they tend to scratch each others' backs even while competiting with each other, so referrals to other institutions are likely to be taking place. Transferring may be easier for the wealthiest of those criminally evading tax, as they typically will have close access to the circles in which the most elite and "discreet" (that is, secretive) institutions operate.

Now look at the Memorandum of Understanding. Under "Audit procedure (page 21) we see this, related to the audit process, which is potentially the most important part of the agreement:

"The Panel (or such other institution(s) or person(s) as the Government of Liechtenstein may decide) will gather the audit reports from the auditors, combine the statistics, and submit the consolidated summary not more often than once a year to HMRC."

In other words, the auditors don't just send the information to the UK authorities. No, they sumbit this to a panel (that is, "a panel or other review board that may be established and
operated by the Government of Liechtenstein") which only then submits the information to Britain, once a year. This is odd. Why can the auditors not just sumbit this information directly to Britain? Clearly, this puts power into Liechtenstein's hands to strip out important information. And why do they have to submit a "consolidated summary" and not all the information. It is very odd.

Next, the auditors must submit to the panel

"the number of auditors and the level of compliance in a way which is statistically significant and anonymous."

This is incredibly vague. Why does it need to submit the number of auditors? And what does "level of compliance" mean? Does this mean that Liechtenstein, a notorious provider of criminal services, will decide how good the audits will be?

Very odd indeed. Please see our previous blog for more detailed comment.


Britain and Liechtenstein: another curate's egg

A little out of date, as we're down to a skeleton staff of bloggers in the holiday season, we note that:

"Britain on Tuesday signed a tax cooperation agreement with Liechtenstein that would allow British holders of assets in secret accounts to declare their holdings voluntarily in exchange for a reduced penalty fee or face the closure of their accounts."

Now this is a curate's egg of a deal: parts of it are probably good (for one thing, it's an improvement on Liechtenstein's almost pure secrecy to date), but it is also riddled with shortcomings. Three of the obvious ones are: first, that Britain has had to actually negotiate with the providers of criminal services to curb these services, at least partially; second, that developing countries, which have seen plenty of their loot stashed in Liechtenstein, have once again been left out entirely from a bilateral deal; third, that a key component of the deal is that it conforms to a fair degree to the deeply inadequate OECD concept of information exchange "on request" which means you have to know what you are looking for before you request it.

The two countries have issued a joint declaration here, and a memorandum of understanding here, and the Tax Information Agreement (TIEA) is here (see our simple explanation of what TIEAs are here.) The British tax authorities said in a press release:

“Those who have been evading UK tax on assets held in Liechtenstein banks must now settle with us. There are no alternatives."

This sounds good, and the agreement certainly has good elements. Yet there are some other important drawbacks specific to the deal. For one thing, it essentially means that for five years Britain must rely on Lichtenstein to ensure that UK tax evaders using Lichtenstein regularise their affairs through this new 'Liechtenstein Disclosure Facility.'

Take a look at Article 6 of the new TIEA, for example, which contains a lot of ifs and buts about exchanging information. For example, requests made before the end of 2015 are restricted to tax matters where a formal criminal investigation has begun, or to persons who have applied under the Disclosure facility. So if a person does not apply under the Disclosure facility, the UK cannot make a request for information under the TIEA for 5 years, except for in formal criminal investigations.

That is a pretty serious shortcoming. Here is another one. TaxAnalysts (subscription-only) note that:

"in relation to the financial intermediaries, in view of the expected cooperative role that such financial intermediaries will undertake in ensuring that the taxpayer assistance and compliance programme as well as this disclosure facility are successful, HMRC anticipates that it is highly unlikely to be in the public interest of the UK to undertake a criminal investigation against such financial intermediaries."

In other words, the deal essentially offers a 'stay-out-of-jail card' to most UK tax evaders using Lichtenstein, and, importantly for the government and the Prince, Lichtenstein financial intermediaries.

And there seems to be a lot of bending over backwards to accomodate and placate the rampant criminality that has been going on. Tax evaders are to be allowed to come clean under the disclosure facility which basically caps their obligations at back taxes plus interest and a maximum penalty of 10%, which is extremely low. It also includes a special Bespoke Service, including an option for personalised treatment by a `discrete [sic] HMRC (UK Revenue and Customs) team to ensure consistency of treatment'.

There is also a question mark about trusts. One blogger says this about trusts in Liechtenstein:

"A Liechtenstein Trust is set up by a deed between the settlor and trustees. The trust deed does not have to name the beneficiaries. If the trust deed is deposited with the Liechtenstein Registrar of Trusts, it will not be publicly available, and later instruments, which might, for example, name beneficiaries, who might just happen to be Anglo Saxon, do not have to be disclosed. So if the trust is established with Liechtenstein trustees, there is no reason why the details of UK resident beneficiaries should show up in an audit. And, trust me, they won't."

Now Article 2 of the TIEA says that

"A Contracting Party is not obligated to provide information which is neither held by its authorities nor in the possession or control of persons who are within its territorial jurisdiction."

This question of trusts also seems to be a bit up in the air, for as the MoU says:

"Liechtenstein and HMRC will agree no later than 3 months of the signing of the MOU on written guidance and consistent approach to characterisation, recognition and treatment of a trust enterprise (trust reg.) (“Treuunternehmen”) and an establishment (“Anstalt”) in Liechtenstein."

Yet despite all its shortcomings, this agreement does represent an improvement on an appalling situation, and it does contain some innovative mechanisms which, it has been argued, represent an important and innovative step forward -- it being a document requiring active steps, in contrast to traditional TIEAs which are more passive documents. Also, as TaxAnalysts put it,

"Liechtenstein financial intermediaries will be required to verify that all clients subject to U.K. tax are complying with their U.K. tax obligations. If the financial intermediary can confirm that a U.K. investor is in compliance, it may continue to provide financial services to that client. If the intermediary cannot verify compliance, it must stop providing services to that client. . . . independent auditors will verify that undeclared accounts are closed. Liechtenstein must enact legislation within 12 months of the MOU's signing to give effect to the compliance verification and audit procedures."

That seems quite an improvement on many traditional exchange of information agreements.

There will be discussions with a view to a full Double Tax Treaty between the two countries, which no doubt Lichtenstein hopes will allow it to offer more mainstream offshore financial services. This would, we presume, include agreement on income on Lichtenstein trusts and Anstalts with UK-resident beneficiaries, although the wording in the MOU suggests that Britain will try to retain as much discretion as possible in how they tax such vehicles (for clear explanations on how trusts are used to evade tax, click here.)

And although we have often excoriated the OECD for its pitifully weak standards of information exchange and for allowing a large number of seriously abusive jurisdictions to sneak onto its so-called "white list", there is no doubt that to the extent there has been progress the OECD has certainly been an important part of the push.

Still, a lot of the devil will be in the detail, and we will watch to see what happens with the proposed Lichtenstein law on financial intermediaries, and how far their obligations will extend, for example, in relation to how assets are transferred to other jurisdictions -- which many tax evaders will no doubt wish to do during the five year grace period.