“The Era Of Banking Secrecy Is Over”
The Era Of Banking Secrecy Is Over. Those words were a part of the G20 communique from London this week. Those words are actually pretty scary.
While it is very reasonable to say that offshore jurisdictions have played their part in the financial crisis - by enabling traders, companies and funds to move money away from regulatory authorities - they didn’t actually make the bad trades and transfers themselves.
Your author recognises that the vast majority of the population of the planet does not have a bank account or corporation that is located in Andorra, Moldova, Switzerland, Cuba or wherever, but that isn’t really the point.
By stating that there is now a policy whereby the goal is that no person alive can have financial privacy from their government, the G20 leaders have moved all of us towards a global “big brother” environment. Who should not be worried by that?
Perhaps instead, these leaders are trying to use the ‘mother of all recessions’ to force through a related agenda that strengthens their power… How cynical am I? If you aren’t sure, go and read a copy of ‘The Shock Doctine’ by Naomi Klein and then tell me your thoughts.
The BBC reported on the story thus:
OECD names and shames tax havens.
It is worth noting that the countries named on that list are not the ones that you might have expected to see. Malaysia? You were expecting Nigeria, Liberia or the Cayman Islands.
While some countries choose to levy taxes at extraordinary rates - Sweden, Belgium and France spring to mind - there will always be a financial incentive to ‘go offshore’. (It ought to be noted that offshore is anywhere that is not your home residence. This means that if you are Canadian, the US can be offshore!)
If we presume that ending financial secrecy worldwide is required, will it solve the financial crisis? Will we be pulled out of a deep global recession?
The answers are probably not. This might help a little, but it is really tinkering aroud the edges of the problem.
One of the little secrets of the world is that there is much more money located offshore than onshore. Why? Because the superwealthy have the means and motivation to move their holdings to the most prudent location. This is one reason why there have been no major banking scandals in places like Jersey, Gibraltar or Bermuda. These tiny locations house most of the money whilst the major nations (G20 countries for example) house most of the debts.
The general public owes too much money in credit card debt, personal loans, mortgages etc. But the superwealthy own their private jets and yachts in offshore holding companies.
There has been much pressure over the past 15 or so years to ‘clean up’ and most of them have. Most genuinely offshore locations now require passports, utility bills and some form of proof of income before they will open an account or accept a transfer of funds.
This, therefore, is something of a powergrab by the big countries. They are starting to recognise that while they are borrowing trillions of dollars to bail companies out, someone will need to pay the bills.
The average person does not have this kind of money.
But tax havens do!
Will these measures help the stock market? That much is debateable. You see the UK, for example, is one the biggest tax havens in the world via the EuroDollar market. It also offers a very low cost ride to ‘non-doms’ with large incomes elsewhere. Belgium, for example, is tax free if you own a large property portfolio or live from capital gains. Ireland is low tax or no tax if you happen to have an international business. And on and on…
Those things will not change. The G20 are trying to change the rules in small nations that cannot effectively fight back - they will not be trying to change their own rules in a hurry.
This means that the game that has been played will continue. Shopping for the best deal in tax rates will be possible for the businesses with the means, determination and an international operation. Large corporations will continue to pay low rates of tax.
Individual savers, people with some extra money that they want to keep to themselves - for whatever reason, good or bad - will be the people impacted. That might just be you!
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This is hypocritical, as the USA has tax havens in Nevada and Delaware.
Costa Rican tax havens are not subject to G20 pressure.
I would argue that, despite the publicity raised over this issue at the G20 meeting, in reality ‘tax havens’ will be preserved for the truly rich. Consider the evidence that UBS elected to sell off every single US retail banking operation in order to extricate itself from US jurisdiction. This implies that there is more money to be made from ‘secret’ accounts in Switzerland than from ‘above board’ accounts throughout the entire USA.
IMHO the action actually being prompted by the G20 was to reduce or eliminate the practical availability of ‘tax havens’ for the upper middle class.
Thanks for the comments.
I agree in part that for the truly wealthy, tax havens will always be. In reality, unless every nation on earth harmonises the rates at which they levy taxes on everything, it will always be possible for the mobile and wealthy to ‘treaty shop’.
Because of this, a part of me wonders “why bother?” In addition, the idea that the world is a varied and unusual place is appealing. The idea that everything needs to be harmonised into one unified global tax code has absolutely no appeal.