After an intense investigation by the IRS, the United States Department of Justice (DOJ) pursued both criminal and civil charges against the giant Swiss bank. Federal prosecutors dropped criminal charges eighteen months later, however, after the bank admitted to fraud and conspiracy, paid a $780 million fine, and satisfied DOJ prosecutors that it had dismantled its offshore banking operations.

In August 2009, UBS agreed to a settlement with DOJ on the civil charges and as part of the deal, offered to hand over the names of 4,450 tax evading Americans to the IRS. For a moment, it looked like the Swiss government—in a grasping act of self-preservation—would step in and forbid UBS from handing over the names. But at the last minute, the two houses of Swiss Parliament agreed to stick to the deal.

The historic vote laid the groundwork for more legal action by the United States against several other Swiss banks—likely what the Swiss had feared.  These included Credit Suisse, Switzerland’s second largest bank, and HSBC, which is based in London, but has extensive Swiss operations under its Private Bank. There are now at least eleven Swiss banks under criminal investigation by the Justice Department’s tax division.

But DOJ’s approach and tone has shifted in recent months. Early last week, for the first time ever, “U.S. authorities have charged a bank rather than individuals with helping Americans evade taxes.” The bank was Wegelin & Co.; it is Switzerland’s oldest private bank.  According to the indictment filed last week, Wegelin helped Americans evade U.S. taxes on more than $1.2 billion in assets and after DOJ’s prosecution of UBS, “deliberately set out” to capture its counterpart’s lost cross-boarder illegal banking business.

Bryan Skarlatos, an attorney with Kostelanetz & Fink in New York, noted the indictment ”shows the [United States] is willing to go after Swiss banks themselves if they don’t turn over names of U.S. taxpayers who are account holders.” It also puts pressure on the Swiss government to agree to a settlement involving all Swiss banks.

In many ways, Swiss banks have born the largest share of DOJ scrutiny on tax evasion. The reason for that is relatively clear—Switzerland holds nearly one-third of the estimated $7 trillion in global wealth kept offshore.

But what about the other two-thirds? Switzerland is not the only place in the world to hide tax-evading money.  Some spooked depositors are sending it somewhere even more secretive, like Singapore, Hong Kong, and the United Arab Emirates. So should—and by extension—when should the DOJ pursue banks in other jurisdictions as aggressively as it has in Switzerland?

Prosecutors are already investigating banks in Asian jurisdictions. None have seen the level of DOJ involvement with Switzerland, but that doesn’t mean they’re safe. Nor should they be. As long as these banks continue to aid American citizens violate American laws, they should be held accountable. While Switzerland may hold a bulk of the world’s offshore tax-evading deposits, if DOJ pursues only the Swiss, they risk pushing the deposits to other, more secretive havens. So the answer is yes: DOJ should pursue tax evaders in other countries. And they should probably do it soon.

Indictment

The bankers, had helped American clients open accounts with their bank, many of these clients had fled UBS after an earlier US probe. The bankers told their clients that the bank was less at risk as it did not have offices outside Switzerland. However this proved to be untrue. This case alone covered some $1.2 billion in assets hidden from the US tax collectors. The bankers could be sentenced for up to five years if convicted. Contrast this, with Dave Harnett departing senior UK tax official’s statement, in August justifying the amnesty he had just initialled as part of Rubik, saying “I don’t think it does let fraudsters off, because we weren’t going to catch them anyway,”

Legality and efficacy of Rubik both questioned

The Rubik concept was drafted by the Association of Foreign Banks in Switzerland (AFBS) and by Swiss banks to protect banking secrecy against the international moves towards automatic tax information exchange, which followed the global financial crisis.
It has since been enthusiastically promoted by the Swiss finance ministry.

The European Commission has stated it will take Germany and Britain to court if they implement the Rubik treaties. However the EU accepts the amnesty for past tax evasion but is opposed to the anonymous return of tax in the future which contradicts the European Savings tax directive, which calls for automatic information exchange on relevant types of information, such as interest on savings. The EU argues that Germany and Britain have already handed authority to negotiate direct taxation treaties over to Brussels. The deals also contradict the directive by fixing different tax rates than those agreed by member states at EU level.

The EU has been planning to extend the scope of this directive. Without the final withholding tax element, intended to protect bank secrecy it appears Switzerland would have little incentive to proceed with the deals. An expert briefing argues the Rubik deals will not protect Swiss banking secrecy in the long term. This strongly suggests that all those involved should stop wasting their time and abandon these deals.

The other powerful statement to come out of the meeting in Cannes was from French President Nicholas Sarkozy, who had some very strong words for uncooperative low tax jurisdictions. Sarkozy intonated that a list of eleven uncooperative jurisdictions should be “excluded from the international community,” including: Barbados, Trinidad and Tobago, Antigua, Botswana, Brunei, Panama, Seychelles, Uruguay, Vanuatu, Switzerland and Liechtenstein. He added that a list of countries which do not conform to acceptable tax practices would be published at all future G20 summits. “We don’t want to have tax havens any more.” He said “Our message is very clear.”

Loud and clear, sir.

The countries on Sarkozy’s list have reacted with varying degrees of hostility, indigence, and feigned bewilderment. In Barbados, for instance, the Minister of Foreign Affairs and Foreign Trade Maxine McClean insisted that “Barbados is a low-tax jurisdiction…not a tax haven.” Well, sure, you can label it any way you want, but the fact remains that Barbados surrounds its banking sector with a shroud of obscurity and will not participate in automatic tax information exchange. And for the record, yes, it’s also a tax haven.

There were also reactions from some jurisdictions that did not appear on Sarkozy’s list. This included Isle of Man, a British Crown Dependency and a tax haven according to the OECD. Or if that’s not compelling enough evidence, see this eHow article, titled “How to Avoid Tax with an Isle of Man Bank Account.” That’s not a joke. Needless to say, Isle of Man felt a wash of relief when Sarkozy didn’t call its name. Chief Minister Alan Bell called the news a “major step forward,” noting the statement was “very good” for the Island’s reputation. Okay. Sure. It’s just not saying much when your definition of “very good” is “not being ostracized by the world community.”

It was Switzerland, however, that reacted the strongest and most indignant. A spokesman for the Swiss State Secretariat for International Financial Matters told the world that they “were very surprised and dissatisfied.” This year’s Swiss president, Micheline Calmy-Rey, called Sarkozy’s remarks “ungrounded” and hypothesized that Sarkozy must have “a problem with Switzerland.” Calmy-Rey added that she did not know what this problem could be.

Okay. What could that problem possibly be? Here’s a thought. Maybe it has something to do with your country helping citizens of other countries, like France, avoid and evade their taxes. But that’s just the first thought that sprung into my head. I guess it could be something else, too.

The global pressure on Switzerland to cede further concessions in a tax evasion row is showing no signs of relenting after comments last week at the G20 summit.

French President Nicolas Sarkozy called on Switzerland and ten other so-called tax havens to be “excluded from the international community” for refusing to sign up to an automatic exchange of information agreement.

Switzerland is currently playing a game of chess with various other countries in an effort to manoeuvre itself through a global minefield of criticism and clear its reputation as a responsible international financial centre.

What did Credit Suisse do today? They announced to U.S. clients suspected of tax evasion that they would be handing information over to the IRS. Clients must either voluntarily allow the information to be sent to the IRS or hire a Swiss layer and contest the action. It is a huge victory for the United States, and a major blow to Swiss banking secrecy. Credit Suisse is the second-largest bank in Switzerland.

I’m very happy that the IRS is going to be able to track tax evasion, recover tax dollars, and maybe even find some justice for U.S. taxpayers. International pressure works – who thought a few years ago that the Switzerland would force its banks to give this kind of information to the United States?

What we shouldn’t mistake this for is a major victory for the developing world, at least for now. It’s great that the largest and most powerful economy in the world can penetrate the legendary banking secrecy of Switzerland and recover a few dollars stashed away, but the rest of the world needs access to that information as well. The United States demonstrated that international pressure can work to open up secrecy juridictions, but we’re going to need a whole lot more international pressure to make a real dent in poverty and create an equitable international finance system for the developing world.

• Swiss-U.K. Tax Agreement May Be ‘Revenue-Negative,’ Group Says – Bloomberg
• Swiss tax deal could end up costing UK – Guardian
• ‘Fatal flaws’ in UK-Swiss tax deal attacked – Financial Times
• Revealed: Loopholes in Swiss tax deal mean £7bn windfall could be lost – Bureau of Investigative Journalism.
• Rubik agreements with Switzerland draw barrage of criticism - Europolitics
• EU-tax deals in danger 20 min (rough web translation here)
• EU tax chief flags up Swiss deals Swiss Info

We are told that we also got a good discussion on the BBC’s flagship Today programme yesterday.

Of course (of course!) we have had some predictably lame responses to it. The first thing we note is that nobody so far has picked any holes in it, technically speaking. It is early days, of course, and there’s not much space in a newspaper to do so, but we are confident in our analysis.

Let’s start with slipperiest attempt to rebut our story, from the Swiss Bankers’ Association. Here’s the first part:

“There is no legal way for a British person to remain entitled to his or her assets in Switzerland in any way while at the same time evading identification,” Sindy Schmiegel Werner, head of U.K. communications at the SBA, told Bloomberg News.

Now if ever there were weasel words, these are them. Tax evaders can get round this deal by escaping being a ‘beneficial owner’. They can find ways in which they are no longer legally entitled to the asset using the devious structures of offshore – discretionary trusts, insurance wrappers, foundations and so on – while in reality they still control the assets. And hey presto! you are outside the deal’s scope. See Sections 3.1 or 3.2 to get a better flavour of this. It can be difficult to get one’s head around it, at first.

In short, the SBA is deliberately missing the point. They know they are missing the point, but the shame is that many people who aren’t familiar with the devious world of offshore trusts and their like will fall for these words. The next thing the SBA says is even more laughable.

“Banks will not actively support their clients to withdraw their assets from Switzerland”

Right. Of course. We should trust them. And through that word ‘actively’ we will see a coach and horses drive, laden with British taxpayers’ money. We won’t actively support them. But we won’t, ahem, be averse to letting them do this, and we might on occasion whisper in their ears. Or something like that.

In short, this is a laughable set of responses from the SBA, and our study stands intact.

The next point comes from Vanessa Houlder of the FT.

“Much of the disagreement over the merits of the deal revolves around the likelihood of Switzerland ever providing automatic exchange of information.”

Absolutely false. It is important to understand this and get the message out there. First, our analysis is designed to compare like for like: i.e. looking at how Switzerland is currently applying a withholding tax, and drawing conclusions from that. We then write about the European Savings Tax Directive as an almost incidental point: things would be far better if the current proposed amendments – very beefy changes that are currently being undermined by the UK-Swiss and UK-German deals – came into force. But these amendments are most fundamentally about taxation, and less about automatic information exchange. The FT simply misunderstood the whole point.

Next, we have a response from the UK’s HMRC.

“Revenue insiders said the TJN analysis missed the point. If tax evaders chose to exploit loopholes in the deal, sources said, they would remain open to prosecution and huge penalties.”

And they didn’t face prosecution and huge penalties before? What has changed here? Let’s be clear about this. This is not a representative group of the UK taxpayer population. The assets that are in question are the assets of people who have already decided to break the law and evade tax. The fact that instead of facing a 20% withholding tax under the EU Savings Tax Directive – which is only a modest incentive to evade – this deal will face them with a super-massive 20-35% capital charge (see the report for more details) on the absolute value of their capital. The incentive to escape will be massively, massively higher under the UK-Swiss tax deal. Our calculations show beyond reasonable doubt that it is inconceivable that they will raise more than one billion pounds – most likely a small fraction of that. We think it’s unlikely the UK will receive anything beyond the £350 million (500 million Swiss Francs) that Switzerland is due to hand over to the UK in a few days’ time as a down-payment to protect their secrecy.

And if HMRC comes back and says ‘we have expanded co-operation with Switzerland and the possibility of making up to 500 requests per year- just remember than between 2004 and 2010 the UK made an average of less than three requests to Switzerland per year — and Switzerland has made an average of precisely zero spontaneous exchanges of information back to the UK.

Do leopards change their spots? Er, not that much. HMRC’s claims are laughable.

Next, we have had Bill Dodwell of Deloitte, a regular opponent of TJN, dismissing our study. We have just rung up Bill Dodwell but he didn’t answer. We want answers from him: what exactly is it that he objects to?

And if anyone wants to read more on the politics of all this, read this article in Europolitics (though we wouldn’t quite agree with all the technical analysis, the politics is very interesting.) The article starts like this – this is dynamite.

The European Commission is planning to attack the tax agreements concluded by Switzerland with Germany and the United Kingdom, on 25 October in Strasbourg. It finds that Berlin and London have encroached upon the Union’s powers by negotiating bilateral arrangements with Berne that interfere with savings taxation rules.
. . .
Commissioner Semeta plans to take a very hard line and to denounce an abuse of power by Germany and the UK.

Fiery stuff. This happens to confirm Section 4.4 of our analyis. These ‘Rubik’ agreements are a disaster from start to finish. HMRC should simply give in, and cancel them, to save further embarrassment.

Cross-posted with permission from the TJN Blog …

TJN

Financial Secrecy Index – the G20’s broken promise

October 4, 2011. Today we launch our 2011 Financial Secrecy Index, the biggest investigation of global financial secrecy in world history. It combines a secrecy score with a weighting to create a ranking of the countries that most aggressively provide secrecy in global finance.

The new FSI, which follows our inaugural index of 60 jurisdictions published in 2009, considers 73 jurisdictions to reveal a world where most of the biggest suppliers of secrecy are either OECD countries, EU members, or their dependencies. Britain plays an especially prominent role.

Secrecy is alive and well

World leaders at a G20 summit meeting in April 2009 promised that “the era of banking secrecy is over” and put the OECD, a club of rich countries, in charge of implementing its wishes. Many people hoped this marked the start of a serious crackdown on tax havens, or secrecy jurisdictions.

But they have let us down. The rhetoric is trillions of dollars away from reality. The Financial Secrecy Index (FSI) reveals that financial secrecy is as entrenched as ever.

Why are things still so bad?

Secrecy jurisdictions, popularly known as tax havens, have been frantically signing information-exchange agreements with other jurisdictions, to qualify for a ‘white list’ put together by the OECD. Nearly all are on the white list now, and each proclaims itself to be co-operative, respectable, transparent, clean and well-regulated. But the OECD’s standards are woefully inadequate. To squeeze information out of a secrecy jurisdiction, you must already know the information for before you ask for it! This is not effective information exchange. G20 leaders asked the OECD to drain a swamp – and the OECD has been handing out drinking straws.

Many jurisdictions, while merrily signing up to these information-exchange agreements, have quietly been adding stronger and more devious new secrecy facilities to their already ferocious offshore arsenals.

Moves by the likes of Jersey and Guernsey to allow the use of foundations, for instance, constitute just one of many areas of concern. Recent deals between Switzerland, on the one hand, and Germany and the UK on the other, that will entrench Swiss banking secrecy in exchange for highly uncertain (and probably very small) short-term tax revenues, demonstrate that politicians in all three countries are prepared to protect a secrecy industry that operates in the service of criminal elites. Hong Kong and Singapore have welcomed huge inflows of tax-evading and other criminal money as they cash in on those limited attempts in the United States and Europe to track down illicit funds. Luxembourg continues to play an especially pernicious and aggressive role undermining European efforts to promote financial transparency. The United Kingdom remains as committed as ever to its global network of secrecy jurisdictions that feed vast assets, and the business of handling those assets, through to the City of London.

Some bright spots

There have been occasional bright spots since 2009, though these are often less important than they appear.
• A path-breaking initiative in the United States to push forwards country-by-country reporting in the Dodd-Frank Act has reduced its secrecy score. The United States also deserves credit for seriously cracking down on tax evasion facilitated by Swiss banks. It remains a massive secrecy jurisdiction in its own right, however.
• There has been some penetration of Swiss banking secrecy – though only in very limited ways. Switzerland has adopted a ‘circle the wagons’ approach, making incremental concessions here and there, but keeping its core secrecy model firmly intact.
• Belgium, Guernsey and the Isle of Man improved their secrecy scores after they decided to adopt a model of automatic information exchange with the European Union: an approach that represents the basis for the gold standard of information exchange.
• Although the OECD’s model of information exchange does not effectively deter tax evasion and other crimes, the OECD’s Global Forum peer review process has, despite its political weaknesses, delivered some useful pressure on jurisdictions to shape up.
• Some jurisdictions, such as Denmark and Spain, stand out as being “moderately secretive” — the cleanest on our 2011 rankings – though even these are very far from being clean.
• More than anything, a general public mood amid economic crisis and austerity is changing the political culture for the better, across the world. Tax evasion, for instance, is far less tolerated than it was just a few years ago.


Why has my own country’s ranking changed since 2009?

The Financial Secrecy Index ranking is significantly different from the one we published in 2009. Several factors lie behind the changes, but two are dominant.

First, we have added 13 new jurisdictions, including some of the world’s biggest financial centres. Many people will be surprised to see the likes of Germany and Japan coming in the top 10 world secrecy jurisdictions, but this is where the analysis leads us. (See which countries we have added here.)

Second, we have changed the way we calculate the FSI. A jurisdiction’s ranking is built on two components: a secrecy score, based on the secrecy facilities it offers, and a weighting, based on the size of its financial sector. After long deliberation, we decided this year to mathematically enhance the importance of the secrecy score relative to the weighting. So jurisdictions with big financial centres such as the United States, United Kingdom and Ireland have moved down, while those with a high secrecy score, such as Switzerland, Cayman, Jersey and Panama, have moved up. We think this shift in emphasis helps focus attention where it is needed.

Now go to the Financial Secrecy Index.

Note on October 3 – not all of the links from this site are live yet. Some still point to reports from the 2009 Financial Secrecy Index, which will go live on October 4th. This includes the (massive) database behind the report, a separate project entitled Mapping Financial Secrecy, replacing the previous Mapping the Faultlines.

SPD Plans to Block Rubik Ratification in Germany

The SPD’s financial concept note published last Monday rejects the agreement with Switzerland. It is now quite likely that the deal will be rejected by the Upper Chamber, the Bundestat. North Rhine Westphalia’s Finance Minister Walter Borjans argued that effectively giving an amnesty to tax evaders was unconstitutional. Nicolotte Kressl and  SPD finance experts in the Bundestag said the deal should be halted as not to undermine EU efforts to secure automatic exchange of information with Switzerland.

EU to Look into Legality of the Deals

The European Commission is analyzing whether the final withholding tax deals are compatible with EU law. “We had many contacts with Germany and Great Britain, which assured us that their bilateral agreements would not infringe the European directive on savings taxation or the Union’s agreement with Switzerland. We’re going to check all that. It is clear that in the light of international law, the directive and the EU-Switzerland agreement take precedence over the bilateral agreements initialed in August,” EU Taxation Commissioner Algirdas Semeta said to reporters on 8 September. The European Council Working Party on Direct Taxation will meet on 22 September and the commission has requested that Germany and Britain present the full text of their agreements with Switzerland at this meeting.  However, it does not seem that the commission opposes the deals but rather that it might use them to win some small further concessions from Switzerland, either expanding the scope of information exchange on request or bringing in other types of investment.

Luxembourg and Austria did not want to take part in automatic exchange of information as part of the European Savings Tax Directive (EUSTD), so they won an opt-out allowing them to temporarily use a withholding tax method instead. Now Luxembourg is arguing for an extension of this arrangement in the light of the Rubik deals. The EC maintains that the original timetable must be adhered to.

If it wasn’t enough that Swiss banks have already begun to advise UK citizens to move their money to Singapore to avoid the withholding tax. There was another instance of the toothless or complicit approach of the UK authorities to tax dodging. Boilerplate concerns from business about ‘uncertainty’ were enough for the government to drop an evaluation of the UK’s double taxation treaties investigating the opportunities for tax avoidance these agreements often create. Accountants Ernst and Young cheered this saying “The Coalition pledged to take a more consultative approach to tax policy making and, from this volte face, they seem to be living up to their mantra,” i.e hastening regulatory capture and allowing companies to dictate tax policy appears to be an  official British policy.

France entered discussions with Switzerland on Rubik and rejected it for now. Some French officials reasserted their commitment to promote automatic information exchange, however other officials have hinted that the Swiss proposal might receive consideration at some point in the future. In Addition, Alfredo Gysi, head of the Association of Foreign Banks in Switzerland, one of the architects of the final witholding tax proposal, is clearly looking to tempt Italy into a similar deal. On top of vast amounts of flight capital from developing countries, it is estimated that, in total, European citizens hold roughly 700 billion Euros in Switzerland, it can be assumed much of this was never properly taxed.

The UK has initialed an agreement with Switzerland which we recently wrote up on the Task Force blog. In short, UK tax evaders using banks in Switzerland will have to start paying some tax – but the UK will allow those (criminal) tax evaders to avoid penalties and retain their anonymity. The UK will have to trust that Switzerland will keep its part of the bargain, even though it will be impossible to conduct any comprehensive checks. There are reasonable fears that this model may spread widely to other countries.

We at TJN think this is a thoroughly rotten and corrupt deal. For the following reasons.

• It sabotages European and other efforts to fight together for financial transparency. This has implications for countries, rich and poor, around the world.
• It lets proven tax-evading criminals off the hook.
• In colluding with criminality and puts wealthy tax evaders in a specially privileged position, above ordinary mortals. One set of rules for them, another for the rest of us. (See the UK uncut post linked to, below.)
• In creating lawlessness for the elites, while creating repression for the poor and weak, it not only distorts society, but also distorts and corrupts markets.
• At a time of national soul-searching, following the UK riots, and worries about a “moral collapse” in every corner of British society, to grant impunity and protection and secrecy to the wealthiest members of society sends an appalling message.
• From the information that’s available, it seems that although the deal will allow the UK to receive some (and we stress some) of the tax due to it, there is a gigantic loophole as regards inheritance taxes. From what we know so far, though not all details have been provided yet, no inheritance taxes will be levied. Why not?
• What are the ‘special rules’ for non-domiciled taxpayers? Non-doms already escape UK tax on their non-UK income. Does this mean they get a free and officially endorsed blanket of secrecy thrown over their Swiss affairs too?
• It contemptuously dismisses whistleblowers, an essential check on criminality and corruption in any society.
• It creates a ring-fenced fortress of secrecy for criminals to flourish in. Although there are supposedly safeguards to allow information-sharing in the case of certain classes of crimes, these safeguards are extremely weak, and are themselves subject to all sorts of caps and restrictions. If Switzerland is serious about tackling crime, why place severe caps on this?
• Many other vital details are still secret. How will the Swiss calculate marginal tax rates without having full disclosure of a taxpayer’s total tax affairs ? Is the UK therefore handing tax sovereignty to Switzerland?
• The UK should have followed the American example. They discovered that Swiss banks had been helping American commit tax crimes, and they went after them. During their probes, they put pressure on individuals caught out, obtained more information, and started bringing in more Swiss banks into the noose. They are in a far, far stronger position now to extract concessions out of the Swiss than the UK ever was. And the UK has been handed information on a plate about this. As Reuters notes: “British authorities are investigating hundreds of HSBC (HSBA.L) customers suspected of tax evasion after it obtained details of around 7,000 Swiss accounts at the bank from another tax authority, Why has the UK chosen to suddenly let all these people off the hook? The deal explicitly prevents the UK from acting on this data now.
• The Swiss government and Swiss banks have a long and shameful record in the past of outright lying to foreign tax authorities about their affairs, and breaking assurances. If you think lying is too strong a word, then read Tom Bower’s book Blood Money, about the efforts to hunt for justice for the victims of the Nazis. Your mind will be changed. The Swiss have a record that shows they cannot be trusted. And yet the UK has decided to take an awful lot on trust.
• In summary, this is a shabby, unprincipled and dangerous deal. It is a victory for Switzerland over the UK. If other countries (as well as Germany) are considering this, or if the UK is considering extending this corruption to other tax havens, then we need to fight it with everything we’ve got.

Patrick Odier, Chair of the Swiss Banking Association, is delighted: “overall, my assessment of the tax agreements is positive,” he told Swissinfo.ch. “They mark important milestones for the Swiss financial centre. As a banker, I am especially grateful that clients have been offered a fair solution for regularising their efforts.” You bet he’s grateful, and so are his clients.

Now here are a few headlines from elsewhere:

UK-Swiss tax deal ‘a disgrace’ warns Christian Aid – Christian Aid
The new tax deal between the UK and Switzerland amounts to collusion with criminality and will seriously damage poor countries’ attempts to collect the billions they lose to tax dodgers. See also Morality demands rethink of UK-Swiss tax deal, warns Christian Aid.

UK-Swiss tax deal: timid and anonymous – Financial Times
“As long as specific names and account details remain secret, determined tax evaders will have an edge over governments. So why have Germany and the UK been willing to settle for less than the standard set in this area in the European Savings Tax Directive, and for fewer concessions than the US received in 2009?”

David Prosser: Britain’s tawdry tax deal with Switzerland is a charter for tax evaders – The Independent.
How pleased should we be about the latest deal? About as pleased as we would be if someone had robbed a British bank, fled to Switzerland and then got away scot-free apart from the inconvenience of the local authorities handing back some of the proceeds.

La Tribune: London sells its fiscal soul for six billion Euros.
The headline puts it perfectly.

A series from Tax Research:

Let’s not get personal – this is a matter of right or wrong
This was a ‘Marmite’ issue – you’re either for or against it. You are either for or against letting tax criminals off; endorsing banking secrecy so that criminality may flourish; giving anonymity to who coldly plan and execute their crimes in organised fashion; encouraging an unlevel playing field for business so that the cheats get an unfair competitive advantage; H M Revenue & Customs not upholding the law; granting immunity to those banks and bankers who organised the handling of stolen property. It’s about ethics.

The friends of tax havens are delighted with the Swiss tax deal
The Sovereign Society, Swiss bankers, and many others, are delighted. Which says it all.

Labour shadow minister condemns Swiss tax deal
“The Government should ensure that all those who have broken the law face the full penalty. There is a significant risk that some who have taken part in criminal tax evasion will escape by paying less than if prosecuted – the Government should guarantee this will not happen.”

How can Dave Hartnett head HMRC when he utters nonsense like this?
The head of UK’s HMRC thinks this is a wonderful deal, and, bizarrely, is ‘fair’ for British taxpayers. Don’t talk rubbish, Dave.

Cameron and Osborne did the Swiss tax deal to support tax evasion – there’s no other explanation
The EU Savings Tax Directive, currently being beefed up, would have ensured we’d have got all the information we needed to demand all the tax due by those who have been criminally evading their tax bills. It would have applied to Jersey, Guernsey, the Isle of Man, Cayman and all other British tax havens that comprise the branch offices of the City of London tax haven. And it would also have extended information exchange to companies and trusts – which would have shattered the tax evasion industries in these British tax havens.I think the UK- Swiss tax deal has been deliberately engineered to scupper that.

Osborne’s just invited everyone to bank in Switzerland
the UK government has just handed a perpetual competitive advantage to Swiss banks over UK banks in the markets for savings in the UK. Think just how stupid that is.

How is it tax evasion’s no longer a crime but demonstrating about tax avoidance is?
The UK government is turning this deliberate blind eye to massive, large scale, organised looting of the UK’s tax system it is also bringing criminal charges against more than thirty young people who recently took part in a in a wholly peaceful UK Uncut demonstration against tax avoidance.
Astonishing.

The Swiss declare it’s a great day for tax evasion
The Swiss bankers love it.

In the words of TJN’s James Henry, author of the book, Blood Bankers, this is a bargain with the devil.

Imagine the horror of what would happen if this thinking spread. Tax haven secrecy would be entrenched. Criminality, impunity, corruption and a breakdown in trust would become entrenched.

This is an issue for all citizens of the world. Not only have other countries considered following the UK-German lead – but the UK appears to be considering extending this Swiss model to other countries. Take a look at this. Imagine it -  Swiss-style protection-for-secrecy deals spreading like a cancer around the world.

It is not too late to stop this in the UK. Let’s start to mobilise to get this stopped.

Credit: T.I.

If corruption, especially money laundering and bribery are to be tackled, we need to see action not only from developing countries, but also countries that are home to major financial centres.

Here in Africa there is wide recognition that poor governance is one of the biggest barriers to sustainable development, what is missing is recognition of the wide responsibility that parties beyond Africa have for this problem.

Some developing countries are tired of waiting for developed countries to act. While I hear a more and more African leaders who recognise that governance issues have been a major barrier to economic development, there is also frustration that global action to stop the corruption that undermines governance is so inconsistence with commitments.

It is telling, therefore, that the African Union Convention on Preventing and Combating Corruption goes actually goes further than the UN Anti-Corruption Convention in several ways, especially in private sector obligations. It tackles bribery between companies and calls on the private sector to participate in the fight against unfair competition and respect of tender procedures. It obliges governments to carry out research on the conduct of multinational companies in Africa.

Nigeria is showing that developing countries, not just developed ones, can tackle the supply side. Nigerian authorities have recently been among the most active in pursuing bribery cases against foreign companies. The resulting settlements have involved more than US$ 1.7 billion in fines and disgorgement[read more about this and other anti-bribery cases in our Anti-Bribery Progress Report here].

Here in Tanzania, the BAE case shows how bribery is becoming more sophisticated and harder to track. This should stop our efforts, but encourage us to make transparency run even deeper.

One trend we are seeing is for inducements to be offered via agents and subsidiaries, and there is also a practice of offering officials equity in their company or in subsidiaries located in offshore havens.

The African Convention also has harsher measures on illicit enrichment than the UN’s. Article 17 forbids governments from citing bank secrecy as an excuse for not providing legal assistance with investigation of suspicious assets.

In 2011 we have seen how deeply the international financial system is implicated in the stealing of assets by unpopular leaders or dictators.

Switzerland says it has frozen more than US$1 billion in assets from Libya, Tunisia and Egypt following the Arab Spring. 

How did they get there? Aren’t banks supposed to carry out enhanced due diligence on politically exposed persons? A recent report has shown that many UK banks are failing to meet this responsibility, a third of banks surveyed appeared willing to accept very high levels of money-laundering risk, half failed to apply due diligence. More worrying still, a third “ dismissed serious allegations about their customers without adequate review.” The report warns:

around three quarters of banks in our sample, including the majority of major banks, are not always managing high-risk customers and PEP relationships effectively and must do more to ensure they are not used for money laundering.

And also points out that the same failures allowed Nigerian dictator Sani Abacha to move around US$ 1.3 billion through UK based accounts during the 1990s.

What gets me is what happens to assets actually are frozen, given that they often end up in commercial banks that, according to these reports, do not do their moral homework.

Credit: dystopos/Flickr

Why should they stay with the banks who have failed in their due diligence, where governments cannot use it and where they will continue to accrue interest for the banks? They should rather be kept in escrow accounts run by international development banks, so that they can help the governments trying to help their countries recover from years of corruption, graft and misappropriation. Transparency International has called on the Group of 20 leading economies to make this happen.

If a bank has stolen assets, it is a handler of the ill-gotten gains of corruption.

This is an issue whose time has come. We saw great interest in the wealth of the deposed North African leaders, both in western countries and those involved. I hear it at meetings I attend where corruption and development are discussed, they invariably wind up on this issue.

Some countries have had success in recovering stolen assets, Nigeria from Switzerland, for example, but as the financial markets grow more complex, how many financial centres will developing countries have to deal with to recover assets if better international mechanisms are not put in place.

For all the good words we hear in international forums, what leaders trying to improve governance in their countries – and the citizens – want to see is a show of good faith.

Cross-posted with permission from the Space for Transparency blog.

LONDON – The new tax deal between the UK and Switzerland amounts to collusion with criminality and will seriously damage poor countries’ attempts to collect the billions they lose to tax dodgers, Christian Aid is warning.

‘This deal makes it much less likely that developing countries will ever be able to get the taxes owed to them from those hiding money in tax havens like Switzerland. It is a disgrace,’ said Christian Aid Director Loretta Minghella.

The UK-Swiss agreement will lead to Britons with secret Swiss bank accounts starting to pay tax on them, which the Swiss will pass on to the UK – but crucially, without revealing account holders’ identities.

Tax evaders will have the option of owning up to the UK authorities about their accounts, as an alternative to paying a one-off back tax of between 19 and 34 per cent on their hidden money.

However, Ms Minghella argued that by allowing people to keep their identities hidden, the UK Government is, in effect, colluding with criminality.

‘Why would anyone rather pay a back tax of 19 to 34 per cent on the money they have hidden in Switzerland than reveal their identity, unless they have done something seriously wrong? And why is the Government letting them get away so lightly?’ she asked.

‘The most likely reason is that they have evaded a whole lot more tax than that or been involved in other serious criminal behaviour.

‘This is a bad deal for honest British tax payers and for scores of poor countries around the world.’

Christian Aid believes the deal will seriously damage global efforts to curb tax dodging – a menace which it estimates costs poor countries $160 billion a year, far more than they receive in aid.

Germany is also reported to have initialled a similar deal with Switzerland.

Poor countries lack the political and economic clout to do such deals with Switzerland – but they too lose billions as a result of money being illegally hidden in tax havens.

And just like the UK, they need that money to fund vital public services such as schools, hospitals and care for the elderly.

Christian Aid is calling on the UK and other G20 Governments to use their November summit meeting in Cannes to bring about an end to the tax haven secrecy exemplified by Switzerland.

Specifically, the G20 should broker a new system of automatic information exchange between Governments – including those of poor countries – to help them to detect when citizens hide wealth offshore.

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Contact:

Rachel Baird
+44 0207 523 2446
+44 07545 501 749
rbaird@christian-aid.org

Notes to Editors:

1. Christian Aid works in some of the world’s poorest communities in nearly 50 countries. We act where the need is greatest, regardless of religion, helping people build the lives they deserve.

2. Christian Aid has a vision, an end to global poverty, and we believe that vision can become a reality. Our report, Poverty Over, explains what we believe needs to be done – and can be done – to end poverty.  Details athttp://www.christianaid.org.uk/Images/poverty-over-report.pdf

3.  Christian Aid is a member of the ACT Alliance, a global coalition of 100 churches and church-related organisations that work together inhumanitarian assistance and development.  Further details at http://www.actalliance.org

4. Follow Christian Aid’s newswire on Twitter: http://twitter.com/caid_newswire

5. For more information about the work of Christian Aid visit www.christianaid.org.uk