Thursday, 10 December 2009

Tax Havens Spooked

The Spy drama "Spooks" yesterday focused on banks, and on money salted away in tax havens. Switzerland, with a fictitious "De Witts" bank became the main focus, but Monaco, Luxembourg, Lichtenstein, the Isle of Man, and Jersey also had a few mentions as places where unscrupulous people would stash cash to avoid paying income tax. Despite the efforts to "talk up" the Island with the IMF report, it would appear that popular culture still regards Jersey as a safe haven for illegality.

This may be more difficult after the UK budget. The Telegraph reports that:

Those who fail to declare cash kept in tax havens will face paying a fine of 200pc of the back-dated tax owed on the income, up from a 100pc fine, the Chancellor unveiled in the pre-Budget report. (1)

The article also mentioned the OECD's efforts against tax evasion, although it failed to mention that Jersey was on the "white list. The Bahamas are still on the grey list.

There are now 59 countries on the OECD's "white list" of jurisdictions that have implemented internationally agreed tax standards while 28 remain on the "grey list" having not fully implemented them.  The pre-Budget report said all new offshore bank accounts in these "high-risk" jurisdictions have to notify the Revenue or face fines. (2)

Returning to the reporting requirements, it is clear that while the signing of TIEAs initially seemed to have no effect, as argued by Richard Murphy, because details about accounts were needed before any request was made, this new change in the UK makes monitoring who has a bank account in an offshore jurisdiction a lot easier. Unfortunately, it doesn't mention onshore jurisdictions with banking secrecy, such as Luxembourg, Austria and Brussels, but it is starting to show that TIEAs can have teeth:

As part of the new measures to clamp down on tax avoidance, UK residents will also be obliged to tell the British tax authorities when they open certain foreign bank accounts. The new reporting requirement will apply to UK residents opening accounts in "certain" offshore jurisdictions, with heavy penalties of up to 200 per cent of unpaid tax for those who fail to comply...."Currently individuals are only required to report the interest from an offshore account at the end of the tax year," says Richard Proctor, partner with Grant Thornton. "But this new requirement means the Revenue will have information at the start of the process. It means tighter surveillance."

Accountants believe the new rule is likely to be applied in tax havens, such as the Channel Islands, a popular financial centre for UK residents.(4)

Elsewhere, one of the measures against tax havens is significantly like that deployed in "Spooks", where an ex-employee of a fictional Swiss bank stole hundreds of suspect account details. The Associated Press reports that:

The Germans and the French have brandished the threat of exposing tax cheats after securing their names and account numbers from rogue employees in Swiss and Liechtenstein banks.

On Wednesday HSBC confirmed that an ex-employee stole confidential data involving a small number of clients in its Geneva private banking branch. These names appear to have fallen into the hands of the French finance ministry, which nonetheless vigorously denied it had paid to secure them.

In August the French budget minister announced he had a list of 3,000 names of French citizens who had stashed money in Switzerland. He warned that they risked prosecution if they did not come clean under a government amnesty for tax evaders, due to expire at the end of this month. In 2006 Germany's secret services paid a rogue employee of Liechtenstein's LGT bank €4.2m for a list of several thousand big clients. (2)

And in America, President Obama is also making waves regarding foreign investment, but unfortunately not yet putting the same rules to Delaware when foreigners hide money there. Again reporting requirements makes TIEAs more effective:

The crackdown on tax havens would impose new reporting requirements on foreign financial institutions doing business in the United States and on American advisers who help U.S. residents make investments overseas. Foreign firms that don't comply would be hit with a 30 percent withholding tax on income from their U.S. assets.(3)

In "Spooks", the banker at the heart of the crooked deals was led off to prison, which was certainly an exercise in wish fulfilment! It also suggested that secret services like the CIA would stash funds in tax havens to pay criminal operatives and mercenaries to do contractual work for them, which is one of the uses of tax havens which surprisingly has not surfaced in Richard Murphy's blog!

It seemed very plausible, but it should be remembered that  "Spooks" is a work of fiction, which engages tangentially with the real world, and seems to provide Britain with a secret service of a mere half dozen agents, which would be extremely good value for money, if true!


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