Tax havens likely to be target of G-20 nations

Matthew Saltmarsh
The New York Times

Nations like Switzerland and Luxembourg, long considered tax havens, are coming under increasing pressure by European officials to divulge more information on potential tax evaders.

The issue could be a major topic at a meeting in April of the Group of 20 leading developed and emerging economies.

The Organization for Economic Cooperation and Development has added Switzerland, Luxembourg, Austria, Singapore and Hong Kong to a list of uncooperative tax havens, which already includes such well-established havens as Andorra, Liechtenstein and Monaco.

Nicholas Bray, a spokesman for the OECD in Paris, confirmed that the organization had been preparing information on tax havens for the G-20 meeting in London on April 2 at the request of the French and German governments. The news was first reported by the French newspaper La Tribune on Wednesday.

Bank secrecy laws in Luxembourg, which is in the European Union, have come under intense scrutiny after some of the investment funds based in Luxembourg were engulfed in the fraud at Bernard L. Madoff Investment Securities, exposing holes in the country’s regulatory system.

“This is not an OECD blacklist,” Mr. Bray said. “It’s up to the G-20 to decide what to with it.”

The 30-member OECD sets standards for offshore centers, but has no policing powers.

A French official, who was not authorized to speak publicly on the matter, said the list, drawn up by the OECD, named “over 30 countries” that are uncooperative with the international tax authorities.

An international financial diplomat, who has been involved in formulating tax policy but is not authorized to speak publicly, said that the true targets of European interest were Switzerland and Luxembourg. “The pressure is really building to an almost irresistible level” on the two countries, the diplomat said. “They realize they won’t be able to carry on as they have been.”

Banking secrecy was enshrined in law in Switzerland in the 1930s. The government might have thought that it had put the issue to bed when it agreed several years ago to exchange banking information with the European Union in suspected cases of fraud. But those accords did not cover tax evasion, and the issue has re-emerged.

Last month, UBS of Switzerland, the largest manager of funds for the world’s wealthy, agreed to pay a fine of $780 million and disclose the identity of some clients after the authorities in the United States authorities accused it of helping wealthy Americans dodge taxes.

But not all the G-20 members are as focused on the issue as France, Germany and, recently, the United States.

Canada, and to an extent Britain, would prefer to use the G-20 meetings to improve financial architecture and to agree on steps to lift growth, according to officials from some other countries. Austria’s finance ministry said Wednesday that the G-20 was not the appropriate forum in which to deal with these issues.

For now, the Swiss government is holding the line on bank secrecy, but the question is for how much longer.

A survey released Wednesday by the Swiss Bankers Association showed that banking secrecy is supported by almost four-fifths of the Swiss population, which wants to preserve client confidentiality.

Heat rises for tax havens as G20 summit looms

Switzerland, Austria, Luxembourg and many offshore finance centers could face intensified pressure to reduce bank secrecy and shake the tax haven label as G20 leaders seek to reform the global financial system.

The Organization for Economic Co-operation and Development has supplied governments with a long list of places where bank secrecy rules are deemed undesirable, and those three countries plus others feature prominently in OECD records.

“We’ve made information available to the G20,” a spokesman for the Paris-based Organization for Economic Co-operation and Development said on Wednesday. “It’s up to the G20 to decide what to do with it now.”

He declined to name names but said most were well known and more or less public knowledge.

Leaders from the G20 group of old and new economic powers meet in London on April 2, seeking a collective response that could restore confidence in a shattered global financial system.

But they appear to be struggling to find issues where they can show they are no longer just rehashing previous pledges.

G20 finance ministers and central bankers meet near London on Friday and Saturday to prepare for the summit, just days after U.S. calls for more fiscal stimulus from other governments exposed a rift with mainland Europe, which says it is going as far as it can on anti-recession spending for now.

While relatively minor alongside attempts to fend off the world’s worst economic downturn in decades, many if not all G20 leaders could see uncooperative tax havens as an area where they could put on a show of collective action with the announcement of a crackdown at the London summit.

Though the OECD spokesman declined to give names, much of the details are in published reports on tax havens, notably by the OECD, which spearheaded a blacklisting campaign that once envisioned sanctions but was abandoned in 2005.

As pressure mounts for results from the G20 summit, reviving those efforts is an option, though it remains to be seen whether the G20 would publish a blacklist and couple it with a threat of specific sanctions.

One OECD recommendation is the imposition of a withholding tax on transactions with any financial centers deemed not to be open enough.

Assets of anything from $1.7 trillion to more than $11 trillion may be stored in tax havens, according to various estimates cited by the OECD.

In addition to Switzerland, Austria and Luxembourg, a 2008 report by the OECD also named Liechtenstein, Panama, Singapore and others as places where openness was sub-standard. It said many others had promised to rectify things but had yet to do so.

France and Germany, two G20 members, last week proposed new steps against non-cooperative tax centers and called for a revised set of criteria to draw up the new list.

One proposal was to make financial institutions spell out in their annual reports if they worked with non-cooperative financial centers. Another was to make supervisory authorities take this extra risk into account in the capital requirements for these institutions.

The U.S. tax authorities are trying to get data on tens of thousands of Americans with secret bank accounts in Switzerland, deemed to be the world’s biggest offshore financial center.

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