Tax Havens and Secrecy Jurisdictions: Not the Beginning of the End but, Perhaps, the End of the Beginning

Contrary to UK Prime Minister Gordon Brown’s statement today that provisions in the G20 Communiqué denote the “start of the end” of tax havens, Global Financial Integrity (GFI) believes the Action Plan agreed to in London today “is more likely just the end of the beginning” of the effort to curtail the activities of jurisdictions that hide financial transactions behind a veil of secrecy.

GFI Director Raymond Baker said today that while the efforts of the G20 nations to address the global financial crisis in general, and the activities of secrecy jurisdictions in particular, were laudable, “relying on weak OECD criteria for information exchange will not get the job done. The OECD only requires that countries provide tax information when it is requested by another government rather than an automatic exchange of information between tax authorities.” The U.S. currently has a strong automatic tax information exchange agreement with Canada.

“The white, grey and black list of nations that is likely to emerge from the G20 meeting is a good way to expose those jurisdictions that fail to meet even the anemic OECD standards,” Baker noted. He continued by saying that “sanctions will be an effective tool to bring the outliers into conformity. Once that is accomplished work can begin on making the exchange of tax information automatic.”

►That automatic exchange of information between tax and governmental authorities on income, gains and property received by non-resident individuals, corporations, and trusts, be made mandatory;
►That country-by-country reporting of sales profits and tax paid by multinational corporations be required in audited annual reports and tax returns;
►That the beneficial ownership, control and accounts of companies, trusts and foundations be readily available on public record to facilitate due diligence;
►That systems be put in place to curtail the practice of mispricing trade;
►That predicate offenses for a money laundering charge be harmonized and codified.

“The current economic crisis is due in large part to the culture of secrecy that enables money to be transferred across borders and, usually, into tax havens or secrecy jurisdictions,” said Baker. “This institutionalized opacity benefits the rich—corporations, wealthy individuals, criminals, even terrorists, shielding income and assets from accountability. It contributes to widening income disparity and undermines the rule of law, forestalling the spread of a well functioning democratic-capitalist system.”