France, Germany lead charge against tax havens

October 21, 2008
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, PARIS, October 21 – France and Germany led an offensive on Tuesday to bring tax havens into line with world banking rules at a Paris meeting seen as a first attempt to put order in global finance.

But Switzerland and Liechtenstein, two non European Union countries often criticised for their opaque bank secrecy laws, decided to boycott the meeting organised by the Organisation for Economic Cooperation and Development (OECD).

The world\’s 40-odd tax havens such as the Cayman Islands and Jersey are known hideaways for undeclared revenue and play host to many non-regulated hedge funds that were partly blamed for the global financial crisis.

After US and European governments bailed out a number of banks, politicians began questioning why some of those same financial institutions were able to continue to operate in countries that encourage tax evasion.

"Is it normal that a bank to which we guarantee loans or allocate our own funds continues operating in tax havens? The answer is no," French President Nicolas Sarkozy said last week.

Prime Minister Francois Fillon has called for wiping out tax havens altogether as a pre-requisite for global finance reform.

"Black holes like offshore centres should no longer exist," Fillon told parliament last week. "Their disappearance must be a prelude to a reform of the international financial system."

Budget Minister Eric Woerth said a new blacklist of tax havens should be drawn up to put pressure on countries that manage money with little or no regulatory constraints.

"By mid-2009, we should have established a more realistic list of tax havens and this would be an indispensable step to go further," he told the French business daily La Tribune.

The OECD lists 38 countries that have adopted tight banking secrecy laws and are tax-free, or have very low taxation.

But only three of those — Andorra, Liechtenstein and Monaco – are on the OECD\’s black list for refusing to share any information on their finance sectors.

The new blacklist could contain about a dozen countries, said a French official.

"This would have an important stigmatising effect. Bankers don\’t like to be seen as delinquents," he said.

Some financial centres in Asia may find themselves on the list while others that were taken off a few years ago may once again be singled out for failing to follow through on pledges of more transparency, said the official.

Woerth was hosting the one-day meeting of 20 countries with German Finance Minister Peer Steinbrueck and the two were due to hold a news conference later in the day.

Transparency International France estimates that about 10 trillion dollars — four times France\’s gross domestic product — are stashed in secret offshore accounts away from the prying eyes of regulators or tax inspectors.

Switzerland and Liechtenstein refused to take part in the meeting because they disagreed with a draft statement in preparation, a French official said.

Germany brought the issue to European finance ministers earlier this year after it ran into a wall of secrecy during its high-profile probe into tax evasion fraud involving a Liechtenstein bank.

For Christian Chavagneux, author of a book on the subject, the offshore centres contributed to the financial meltdown by allowing banks such as Britain\’s Northern Rock or Bear Stearns to hide their losses.

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