Expulsion from (Tax) haven

Roberto Bissio

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For too long, the very rich as well as companies have taken refuge in so-called tax havens around the world. Between US$1-1.6 trillion dollars each year, half of them from developing countries, escape tax collectors of the countries of origin. However, moves are afoot that might just change this cozy arrangement.

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In the Internet ‘visual thesaurus’ (www.visualthesaurus.com) which locates synonyms on a graphic map to better explain how ideas are related, the word haven appears half way between its meanings of ‘harbour’ and that of ‘oasis.’

Perhaps because of this latter meaning or because of the similarity with the word ‘heaven’, some absent-minded translators when the original in English said ‘tax haven,’ called it a ‘tax paradise’ in French and Spanish instead of for example ‘tax refuge.’

The incorrect translation caught on, so much so that in an unusual case of linguistic ricochet, it is now frequent to read ‘tax heaven’ in English instead of ‘tax haven,’ perhaps because, when competing for benefits, a heaven is much better than any harbour, however safe it may be.

Tax Collectors

These heavens or havens, with their banking secrecy, anonymous numbered accounts, facilities to establish ‘shelf’ companies and tax exemption for these companies, are a real hell to the tax collectors in the rest of the world.

Every year it is estimated that between one and 1.6 trillion dollars escape from their nets and, according to the World Bank, half of this amount comes from developing countries.

If this income were to pay a modest tax of say twenty-five per cent, the Governments would obtain an additional income between three and four times greater than the total foreign aid poor countries receive. It is twice the amount considered necessary to end extreme poverty in the world.

Electronic transactions

In spite of this drain on resources, facilitated and augmented over the past two decades by the opening up of international capital movement and electronic transactions, there has been scant echo to the demand by the affected countries to put a curb on these ‘pirate havens’ (a more suitable designation than that of ‘heavens’, as they protect tax evasion and other crimes, usually settle on islands and very many of them are to be found in the Caribbean).

All this could change after the closed-door meeting of the G-7 Finance Ministers (Canada, France, Germany, Italy, Japan, the United Kingdom and the US) in Rome on February 13 and 14, where the arcane issue of the ‘Global Legal Standard’ has been slipped into the agenda.

During his speech to the World Economic Forum held at the luxurious ski station of Davos in Switzerland, Angel Gurría, the Secretary General of the Organization for Economic Cooperation and Development (OECD) the ‘club’ of the richest nations in the world supported the proposal made by the Italian Minister Giulio Tremonti for a “global legal standard that would strengthen corporate governance and do more to struggle against the dark side of globalization, such as corruption and tax evasion.”

The following meeting of the presidents of G-8 (the G-7 plus Russia) will be held in Italy, safe from demonstrations on the isle of La Maddalena, to the North-East of Sardinia, thus giving Silvio Berlusconi the chairpersonship of the Group and a certain influence on the determination of the agenda.

The Prime Minister’s office has leaked out to NGOs that a possible regulation of tax havens and control of capital drain will be discussed at La Maddalena, within the section of the summit meeting on ‘development.’

Although both issues are of vital interest to developing countries, France and Germany have exerted pressure to have them included on the agenda because both countries are feeling their effects personally. Other countries, that the informer would not identify, considered the issue to be too sensitive to address it as their own problem but agreed to discuss it in the context of North-South relations.

With this displacement, only the Governments of poor countries are identified as inefficient tax collectors who are tolerant of capital drain, or accomplices of corruption.

This formula would seem to be acceptable to Canada and Japan and even to the United Kingdom that traditionally has been opposed to any international regulation of tax havens, many of which are or were British colonies (the Cayman Isles, the Bahamas, Hong Kong and Jersey and the Isle of Man, among others).

The “City in London is in fact the greatest tax haven and offshore banking centre in the world,” denounced John Christensen, founder of the Tax Justice Network last week at the World Social Forum held in Belem in the framework of a debate on the financial crisis organized by Social Watch.

However, with the whole British banking system going bankrupt or already nationalized and with the public demanding transparency regarding the use of its taxes, the Prime Minister Gordon Brown cannot refuse to enter this debate.

Even less so when the United Kingdom’s great partner on the other side of the Atlantic is presided by Barak Obama, who in 2008, while still a Senator, proposed passing a bill to limit banking secrecy in the United States.

Italian Treasury

All would seem to indicate that Berlusconi’s and Tremonti’s offices do not communicate on this issue, in spite of the fact that both are working on it.

For this reason it is possible that the common proposal by the Italian Treasury and the OECD may not be the same one as that of the Palazzo Chigi. However, both will agree on claiming a leading role for Italy and for the G-8, which will be chaired by Berlusconi for a year. And without saying so, they will seek the failure of the G-20 summit meeting (the twenty countries considered to be ‘systemically important’ - that is to say all the G-8 and various developing countries), to be held in London on April 2.

If there are no major agreements in London - for which Gordon Brown will claim merit - Berlusconi will launch at La Maddalena his proposal to transform the G-8 in G-13, by permanently incorporating the group of ‘the other five’: Brazil, China, Mexico and South Africa.

However, what has not been explained is how the G-8 or the G-13 will manage to discipline some thirty countries without their consent. Collaboration, adopted so far by the OECD has established some criteria for information exchange and consequently has reduced the list of what are officially called ‘un-cooperative Tax Havens’ to three: Andorra, Liechtenstein and Monaco. But these three mini-States are only a part of the offshore banking network scattered all over the world. It is only the UN that could have the legitimacy to discipline the Governments that harbour it.

This is why the German Chancellor, Angela Merkel is calling for an economic and social security council and that Father Miguel d’Escoto, Chairperson of the UN General Assembly wants to set the date of May 26 to discuss the financial crisis at a universal summit meeting (‘the G-192’ as he humorously called the total number of members of the UN).

That is to say that halfway between the G-20 and the G-8, the leaders will have the chance to resolve in New York the closing down of these havens that had, before the Wall Street fall, ten million clients with more than a million dollars each removed from any national jurisdiction and free from all taxation. A world where less than two out of every thousand people have access to a haven for their wealth, while the rest expose their poverty to the elements is far from being a heaven.

- Third World Network

(The writer is Executive director of the Third World Institute in Uruguay and coordinator of Social Watch, a network of civil society organizations in 50 countries, devoted to the analysis and debate of social policies.)