Ethics and governance in the European Financial centers

To comment the recent tax agreement between the USA and Luxembourg, Le Temps interviewed a couple of Swiss professionals.

What they say admits that financial centers knowingly fool the OECD by accepting the agreement as the OECD framework is not relevant to counter tax evasion.

The agreement requires that the request shall be written, justified and personal, based on a suspicion against a specific person that is addressed to a bank or a precise branch. The circumstances of tax evasion must be described with accuracy.

This is the OECD tax Model for cooperation.

As I wrote, it is exactly as if a travel agency would sell tickets only for detailed requests (e.g. I want a ticket for the flight from X to Y at HH:MMabd) but would not provide information about a destination (Are there flights to go from X to Y, what are the schedules... ?) for  the client to get the ticket. Only a few tickets would be sold.

Professionals that support tax evasion confirm what I recently wrote to Angel Gurria :

According to Thomas Kalbermatten, bank Analyst at Credit Suisse, quoted by Le Temps, "Il sera, en pratique, très difficile pour les autorités fiscales étrangères qui appliquent les standards de l’OCDE de fournir ce degré de details" (free translation: “It will be, in practice, very difficult for the foreign tax authorities which apply the OECD standards to provide this degree of details”)

According to Didier de Montmollin, partner at Secretan Troyanov, quoted by Le Temps, "Si la Suisse va dans la même ligne que le Luxembourg, le résultat ne sera pas du tout si problématique pour la Suisse. Le secret bancaire sera relativement préservé, et le client restera maître de son éthique fiscale". (free translation: “If Switzerland goes in the same line as Luxembourg, the result will not be so problematic  at all  for Switzerland. Banking secrecy will be relatively preserved, and the client will keep his/her tax ethics under control”)

Which ethics?

The one that the LIGFI wants to promote?

As I explained the OECD framework to counter tax evasion is not relevant and jurisdictions that are used for tax evasion do not want the review of the criteria.

It is a general principle that citizens pay the taxes where they live to contribute to the financing to the public policies and in international law there are assistance rules, which implies in tax matters communication of data relating to foreign citizens.

The protection of private life is limited to the actual residents of a given jurisdiction: in other words, banking secrecy to protect private life is fine for Luxembourg (or Swiss or any other) residents living in Luxembourg (or Switzerland or any jurisdiction for its residents), but it is not opposable to the tax administration of foreign citizens living in their country.

Banking secrecy is actually a tool for tax evasion as in most cases queries from foreign tax administration will not be satisfied despite the OECD tax model that requires accurate queries.

That is the reason why some people advocate for the automatic exchange.

There is a pragmatic way to fix the issue: there are international standards against AML-CFT that are taken into account in the procedures and codes of conduct of firms, and especially KYC. Why not enacting and enforcing Anti Tax Evasion (ATE) standards with a criminal liability for bankers help help to commit evasion?

There is no need for an international agreement at the OECD for that purpose.

Even though the enforcement of AML-CFT laws and regulations is dubious in some jurisdictions (for example in Luxembourg, according to the US Department of State, the scarce number of financial criminal cases is of concern, particularly for a country that has such a large financial sector: but it is true that, according to the Luxembourg FIU, 60% of banks never report any suspicious transaction. There are as well little declarations of suspicion from auditors whose commercial relationship with their auditees is emphasized and personalized by the small size of the jurisdiction… This would be evidence of the good faith of politicians and professionals, when they state their jurisdiction is no a tax haven and that banking secrecy has nothing to do with tax evasion.

The AFP has reported that Liechtenstein and Luxembourg, which have both been criticised by world powers for their banking secrecy, are planning a tax treaty to fall into line with OECD rules.

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