Thursday, September 09, 2010

Kabul Bank

Kabul Bank has been in the news lately, amid allegations of corruption and the fleecing of Afghan depositors. And where have the financial shenanigans been taking place? In Dubai.

Dubai scored a whopping 92 percent in our last Financial Secrecy Index, making it an extremely secretive jurisdiction (it got its 8 percent on transparency for not practicing bank secrecy.) Is it surprising that Kabul bank got into trouble?

Now, from the FT:

"People are uncertain about life in Afghanistan, so they bring money here. Corrupt people also bring money here, in case they are caught. Then there are legitimate business reasons for bringing money here."

And this brings us to a point that many people misunderstand. As a general principle, it is indeed legitimate if people take their money out of a country if they fear it is going to disappear down some dark hole. But here is the crucial point: the secrecy part of it is absolutely unnecessary. Place your account in a transparent jurisdiction, so that the Afghan authorities can take their tax share of your income (for example, that would be $15,000 on $1m earning 5%, taxed at 30%) and your principal is quite safe - you would have $1.035 million at the end of a year, under these calculations.

We repeat again: international financial transactions are OK, as a general idea. But secrecy is absolutely unhelpful, and unnecessary. Without Dubai's secrecy, Afghanistan would be a better place.


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