paying the piper, countries considered tax havens
Walter Bieri/AP
UBS is no longer providing offshore banking and securities services to U.S. residents through
its branches in Switzerland, the bank says, responding to accusations it helped wealthy
Americans avoid paying taxes when setting up accounts there.

Developed Countries Get Tough on International Tax Havens

October 24, 2008 06:32 AM
by Anne Szustek
A number of countries, including France, Britain and Germany, have vowed a harsher crackdown on countries known to be home to a large number of tax shelters.

Top World Economies to Blacklist Shelters

Representatives from 17 countries convened in Paris this week to discuss blacklisting countries considered to be tax havens. The governments in attendance at the meeting agreed to charge the Organization for Economic Cooperation and Development (OECD) to create an updated, expanded blacklist of countries deemed uncooperative in terms of banking transparency and tax evasion. French Budget Minister Eric Woerth told a news conference that the 30-member bloc has until the middle of 2009 to come up with the updated list.

Thirty-eight countries are currently on an OECD list of countries having strict banking secrecy laws and little to no taxation. Three of those, European microstates Andorra, Liechtenstein and Monaco, have been blacklisted by the OECD for disclosing scant information on their financial industries. This is down from the year 2000, when the OECD identified 40 countries as “uncooperative” in terms of banking transparency.

Placement on the list carries little in the way of penalties, other than the stigma of being on it.

Some of the 38 countries are financially independent territories of the countries pointing fingers, such as British territories Jersey and the Cayman Islands. Others are full-fledged countries bordering the whistle-blowing nations, including Switzerland.

Switzerland, long known for opaque regulations on banking, did not attend the meeting. But a statement from the country’s Ministry of Finance read, “Switzerland has taken note of the results of the conference and does not see any reason to react.” The statement also added that Switzerland participates as an “active OECD member” on issues such as tax fraud in reference to a 2000 OECD agreement on banking data information.

German Finance Minister Peer Steinbrueck pushed heavily for Switzerland to be included on the OECD’s blacklist of international tax havens. “Switzerland offers conditions that invite the German taxpayer to evade taxes. Therefore, in my view, Switzerland belongs on such a list,” Steinbrueck was quoted as saying in The Daily Telegraph.

In response, the Swiss government called German Ambassador Dr. Axel Berg to discuss Steinbrueck’s statements. Swiss Foreign Minister Micheline Calmy-Rey called the comments from the German Finance Minister “inappropriate,” according to Swiss news agency SDA.
Tax havens have gotten the limelight during the wave of U.S. and European bank bailouts. Politicians began to wonder how American and European banks could continue to operate in some countries despite being on the brink of failure in their home markets. “Is it normal that a bank to which we guarantee loans or allocate our own funds continues operating in tax havens? The answer is no,” French President Nicolas Sarkozy was quoted as saying by Australian publication Business Day.

Background: The cost of tax havens

According to statistics cited by British paper The Daily Telegraph, the OECD puts the amount of funds held in secret offshore bank accounts between $5 trillion and $7 trillion. Particularly hit by the subsequently lost revenue is Western Europe, home to high tax rates and a mobile workforce.

One such example is Ireland, which is now in a recession. The country’s boom economy of the past two decades relied heavily on well-educated workers from Eastern Europe. Now that the economic situation looks more promising in their native countries, many have left Ireland to go home.

And with national coffers drying up, as Atlantic Monthly’s Megan McArdle pointed out in February, “Leaders muttering darkly about ‘harmful tax competition’ while glaring in Ireland’s direction are in no mood to suffer little Liechtenstein’s penchant for helping their wealthier citizens avoid the tax man.”

In addition to its push for greater oversight of the Swiss banking sector, Germany has also launched a tax offensive against that Alpine principality. German tax authorities reportedly paid $7.4 million to Heinrich Keiber, a disgruntled employee of financial institution LGT Group, many of whom are suspected of hiding their income from the German government. LGT is controlled by Liechtenstein’s Crown Prince Alois, who said that Keiber stole the data from the bank in 2002.

Britain is relaunching a 2006 offensive against the country’s top five banks, demanding more information on its offshore accounts. The investigations of two years ago garnered £400 million ($680 million) in unpaid taxes. Stephen Timms, the financial secretary to the U.K. Treasury, was quoted as saying by The Daily Telegraph that he is “pretty confident” this year’s operation “will yield at least as much.”

From 2002 to 2004, some 400,000 Americans tried to evade their taxes, according to statistics from the U.S. General Accounting Office. Some two-thirds of them attempted tax evasion by way of illegal offshore credit-cards. One of the biggest offenders listed in a 2004 Atlantic Monthly article was Anderson’s Ark & Associates, which hid funds of 1,500 taxpayers in offshore accounts, accessible via debit card and covered through falsified tax reporting. The scam cost the U.S. government an estimated $28 million.

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