Ethics and governance in the European Financial centers

The Associated Press has reported the top ten lenders to the USA:

$776.4 billion: The amount of Treasury securities held by China at the end of June

$711.8 billion: The amount held by Japan

$214 billion: The amount by the U.K.

$191 billion: The amount collectively held by Saudi Arabia, Venezuela and 13 other oil exporters

$189.7 billion: Held by the Caribbean banking centers

$139.8 billion: Held by Brazil

$119.9 billion: Held by Russia

$104.2 billion: Held by Luxembourg

$99.8 billion: Held by Hong Kong

$77 billion: Held by Taiwan

As Christopher S. Rugaber explained, the top ten list is telling. Many countries have large holdings because of their financial sectors.

The fifth-largest holder of Treasurys is a collection of Caribbean countries, including the Bahamas, Bermuda, and the Cayman Islands, with $189.7 billion. The Treasury Department collectively calls the group “Caribbean Banking Centers.”

The Cayman Islands, for example, has become a major financial center. It is home to 9,000 hedge funds and other investment vehicles, according to a report last year by the Government Accountability Office. Those funds likely hold some Treasury securities.

Many investment funds use the Cayman Islands as an offshore tax haven, according to the GAO report.

Luxembourg, meanwhile, is the eighth-largest holder of U.S. Treasury securities, with $104.2 billion, just behind Russia at $119.2 billion.

The small country of 460,000 has a healthy banking sector whose companies are among Europe’s leading asset managers, according to the Luxembourg embassy’s Web site. Its large holdings of Treasurys likely reflect that reality. A call and e-mail to the Luxembourg embassy seeking comment weren’t returned.

The Financial Times today states that "Havens may feel aggrieved at being bullied by the diplomatic gunboats of grander powers. But they have only made concessions when forced to do so. It is inconceivable that, without the pressure brought to bear following the April meeting of the G20.  London, six countries would have implemented the OECD’s tax standards. This pressure should not be lifted. Many of the new information-sharing agreements are weak. They do represent a step forward and will make tax evaders sleep less easily, but more openness is essential. The UK must make sure that its own overseas territories do not remain safe for tax evaders. Tax havens will find that even if they try, they cannot guarantee to keep clients’ wealth hidden if home countries continue wielding their weapons"

Two observations:

FT confirms that the agreement should not be considered as a substantial implementation of the internationally agreed tax standard

FT does not condone the issue of the UK overseas territories.

"Today the British Virgin Islands and the Cayman Islands take their place alongside other countries that have substantially implemented the internationally agreed tax standard," said Jeffrey Owens, head of the OECD's Center for Tax Policy and Administration.

"Six jurisdictions have moved into this category since April," he added.

How these jurisdictions may have substantially implemented the internationally agreed tax standard whereas no data have been exchanged yet?

Read OECD Press Release

Updated OECD list (14 August 2009)