Ethics and governance in the European Financial centers

The Tagesanzeiger has reported that OECD Secretary-General Angel Gurría provided a new list, on which financial centres with banking secrecy, such as Switzerland, Luxembourg and Austria, are optically separate from the tax havens.

According to the OECD, tax havens would be:
Andorra
Anguilla
Antigua and Barbuda
Aruba
Bahrain
Belize
Bermuda
BVI
Cayman Iceland
Cook Iceland
Dominica
Gibraltar
Grenada
Guernsey
Jersey
Liberia
Liechtenstein
Marshal Islands
Monaco
Montserrat
Nauru
Netherlands Antilles
Niue
Panama
Saint Lucia
Saint of cement and Nevis
Saint Vincent and Grenadinen
Samoa
San Marino
The Bahamas
Turks and Caicos Islands
Vanuatu

According to the OECD, Financial centers would be:
Austria
Belgium
Brunei
Chile
Costa Rica
Guatemala
Hong Kong, China
Luxembourg
Macao, China
Malaysia (lab SCN)
Singapore
Switzerland
The Philippines
Uruguay


The idea of splitting meets my idea of black list and grey list, but the way it was done raises a question of governance at the OECD:

As the Tagesanzeiger explained, the splitting was made under the pressure of representatives from Switzerland, Luxembourg and Austria that only said they will cooperate : but there a difference between announcements and actual implementation of the commitments.

This means that the three jurisdictions that represent less than 3% of the OECD budget would decide of the standards and policies of the OECD regarding harmful tax practices and other connected matters (corruption, or money laundering in the framework of the FATF that has the same contribution shares as the OECD).

There respective Contribution share in percentage is the following:
Switzerland: 1.5
Austria: 1.146
Luxembourg: 0.216

Total: 2.862 % of the OECD budget.


When looking carefully the lists, it appears that
- every OECD member is in the good list ; in other word no OECD member is a tax haven.
- there are many inconsistencies in the List: what about the Seychelles, Delaware... for the tax havens list? What about the City... for the financial centers list?

The Tagesanzeiger has published a fragment of the OECD of jurisdictions which have made insufficient progress in the implementation of international tax standards at 5 March 2009.

Many jurisdictions said last week they were to relax their banking secrecy.

But
- banking secrecy is only one criterion,
- and these jurisdictions cannot be trusted on press releases.

To be definitely removed from a list (grey or black with a strict monitoring and an update of lists regularly) they have to demonstrate that they actually complies with international tax standards.

The difference between enacting and enforcing/implementing.


Read

Last week, many jurisdictions that fear to be on the OECD black list said they are going to relax there their banking secrecy legislation.
As Senator Levin said (), “That is a very welcome development which is long overdue, and we look forward to effective implementation of the promised new policies. (…) The promised new limits on offshore secrecy will not only likely take years to implement, but even after taking effect, will not eliminate all offshore tax abuses”. That is the reason why he will proceed with legislation he introduced in the Senate last week.
As far as the G 20 is concerned, the experience of the Luxembourg financial center demonstrates the need for continuing the pressure. Luxembourg minister Luc Frieden said last Friday that Angel Gurria told him that Luxembourg is not a tax haven. I guess Angel Gurria will be happy to be to be evoked or rather called upon for a “satisfecit” of morality in business by a jurisdiction of 2500 Km2:

- that provided the FATF with a generous grant that was not quoted as a funding of the FATF while not implementing the OECD convention on corruption;

- where there is neither a balance sheets database nor the judiciary judgements available online;

- where many registered companies are scams (Shareholders from exotic jurisdictions that exist only in the Luxembourg Corporate Registration, Statutory auditors from exotic jurisdictions that exist only in the Luxembourg Corporate Registration…);

- where there are only a few “repressive” procedures;

- that finds the means for its promotion while not putting into place the necessary infrastructure i.e. all sufficient human and technical means and internal rules in order to carry out all the duties and tasks related to the role of a major financial center: for example, despite the large financial sector, the Luxembourg FIU (the CRF) is made up of two magistrates full-time, of a magistrate at half time, an financial analyst and a secretary . There is a very simple rule: If you don't put in place the relevant means to control, nothing can be found. It is like in a bus, if there are too little controllers for the bus network, most fraudsters will not be detected;

- and so on.

The small size emphasizes dysfunctions. I know that I have readers that are upset when I focus on Luxembourg. But the small size of the jurisdiction allows identifying these dysfunctions all the more than they are in public and official sources that are the visible part of the iceberg.




That is the reason why a couple of pragmatic decisions should be taken at the G 20:

Encourage the jurisdictions that said they are going to relax banking secrecy, including Luxembourg, by deciding a “grey list” to test the effective implementation. The black list and grey list would be updated every three months. Any jurisdiction that would not respect the international commitments would be blacklisted.

Ensure that the OECD has an integrated view of sensitive topics. Currently a jurisdiction like Liechtenstein is on the list of non cooperative countries, but it is no longer on the FATF list. There are links between corruption, harmful tax practices and money laundering. There should be one list taking into account all these parameters.

Build an International Tax Court, where would be filed the claims of the jurisdictions that are victims of jurisdictions that do not comply with international commitments regarding taxes.