Posted March. 20, 2009 09:25,
In the wake of the global financial crisis, countries are going after the worlds tax havens.
Under mounting pressure, many tax havens that have maintained financial confidentiality have pledged greater banking transparency.
As stronger tax regulations will be established at the Group of 20 Summit in London April 2, tax havens will likely fall under heavier scrutiny.
▽ Weakening bank secrecy
French Finance Minister Christine Lagarde said Wednesday that she signed an agreement on clamping down on bank secrecy and exchange of information with the British island of Jersey. France also plans to sign a similar kind of agreement with the Isle of Man, also known as a tax haven.
Germany has also signed an accord on exchange of tax information with the Isle of Man.
Liechtenstein and Andorra, Europes most well-known tax havens, announced last week that they will comply with standards on transparency and information exchange of the Organization for Economic Cooperation and Development.
Monaco also announced that it will give up its code of bank secrecy, with Austria, Luxembourg, Singapore and British Bermuda to do the same or disclose more banking data.
Many tax havens are yielding to such pressure due to the OECD blacklist of uncooperative tax havens to be suggested to the G20 summit.
The Financial Times said global tax havens rushed to announce their cooperation since nations on the blacklist could be put under strict regulation in global financial transactions. The blacklist has yet to be released but is known to include around 30 uncooperative tax havens.
Switzerland has long been criticized for its banking secrecy but has not been clearly categorized as a tax haven. Bern has made an all-out effort to avoid being put on the blacklist.
In a news conference in Paris Wednesday, Swiss Foreign Minister Michelin Calmy-Rey said, Switzerland will fully cooperate with the requests on tax evasion cases in the future. Switzerland will never be found on the blacklist.
Monaco also announced its acceptance of OECD standards last week, saying, We hope not to be on the list.
▽ Role of the financial crisis
The war against tax havens began when the global financial crisis emerged.
Many nations have spent tax money to boost their economy and faced the threats of deficit finance. London-based Oxfam, a humanitarian organization, said developing countries are missing out on up to 124 billion U.S. dollars per year from offshore assets held in tax havens.
Testifying before Congress, U.S. Treasury Secretary Timothy Geithner criticized global tax havens early this month, saying, Closing loopholes and hunting tax evaders are especially important at a time when the economy is deteriorating. Allowing companies and individuals to escape paying their share isnt fair, particularly given the scale of the fiscal challenges we inherited.
The Obama administration suggested a bill on treating Americans using offshore accounts in tax havens as tax evaders. Certain senators have also suggested a bill under which trade sanctions are imposed on European and Caribbean tax havens.
According to the Wall Street Journal, Switzerland is the worlds biggest offshore-banking haven with about two trillion dollars of foreign assets under management. As the nation effectively gives up its banking secrecy, any Swiss action is likely to echo across global tax havens.
Nevertheless, suspicion has followed the announcements by tax havens.
The German government said, We dont care what Liechtenstein or Andorra said; it is action that counts. Berlin also urged a much stronger reform of the banking industry, saying, We cant accept blind spots.
The U.K. Treasury also announced in a statement that it was further evidence that tax secrecy is becoming entirely unacceptable and emphasized the need for concrete steps.
The Wall Street Journal also said erosion of bank secrecy in Europe could benefit banking centers in Singapore, Hong Kong and Dubai.