31 Mar 2009

The end of the Bank secrecy











For many years, there has been a widespread belief in European bank secrecy. A client of a bank was assured that his bank would not routinely pass his banking records on request to an outsider, and in particular, not to the United States taxing authority.

With its worldwide tax regime, the United States has opposed such bank secrecy. It has pressed for international treaties and law enforcement agreements to compel foreign banks to turn client records over to U.S. Under the banner of anti-drug and money-laundering enforcement efforts, and not anti-terrorism, these agreements have increased in number and scope. Even the time-honored exception to compelled disclosure for “fiscal” crimes has been eroded through a definitional narrowing of the term.

Nonetheless, it was still a matter of dogma that a reputable “client-oriented” European bank would not turn over client banking records simply on request by the United States Internal Revenue Service. That government agency could only obtain such records through the formal international agreement structure, and only in very specific, limited situations.

In an effort to bypass this time-consuming, cumbersome, and limited method of obtaining records, the US and other countries are pressing Luxembourg, Switzerland and Austria to drop bank secrecy rules at a Group of 20 leaders meeting of the world's major economic powers in London on Thursday.

Luxembourg Prime Minister, Jean-Claude Juncker, said U.S. authorities had to end schemes set up in U.S. states including Wyoming, Nevada, Delaware and Florida if they wanted to tackle the global problem seriously.

"We know that right across the planet there are those who do not cooperate," said Juncker, who also leads regular economic talks between euro-zone nations.
He said British Prime Minister Gordon Brown, who will host the G-20 talks, "should ask Mr. Obama to put an end to the tax havens on his territory."

Juncker said it was unfair EU leaders and Obama had failed to address American havens earlier. The U.S. states have become a magnet for foreign capital thanks to their flexible incorporation laws and minimal reporting requirements.

"By April 3. we will know whether all of this is being said just for purposes of the public gallery or whether they really want to find a proper solution for a serious problem that exists in the United States as well," Juncker said.

The G-20 leaders are expected to renew commitments to fight tax havens during their talks to reap tax money to plug their swelling deficits.

European Commission President Jose Manuel Barroso said fighting tax havens worldwide was "one of the important concrete measures" the G-20 summit had to take.

"Giving credibility to the world financial system, we need to recover that credibility, that means introducing an ethical element to the system," he said.
Singapore promised some days ago to relax its strict bank secrecy laws in a sign of the escalating international pressure on tax evasion. In fact, Singapore will not make it a less attractive private banking and financial centre, say private bankers and tax experts. Except for tax evaders.

Hong Kong decided to bring its tax transparency up to international standards, and both moves advance the campaign against tax havens. The OECD praised recent concessions on tax evasion also by Andorra, the Isle of Man, Liechtenstein and the Cayman Islands.

Is this the end of the bank secrecy?.

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