Saturday 22 November 2008
by: Nathalie Guibert, Pascale Robert-Diard and Adrien de Tricornot, Le Monde
Olivier Pastre: (tax havens) "were selling opacity to two types of clientele: criminals, but also presumably respectable companies quoted on the New York Stock Exchange...." (Photo: Paul Ames / AP Photo)
Le Monde: The crisis has relaunched the debate over tax havens, which shelter two-thirds of hedge funds. Can they be regulated without attacking the offshore centers?
Renaud Van Ruymbeke: No. One can only be surprised that political leaders are suddenly realizing that offshore centers exist! We denounced them, as did other judges in 1996 when we launched the Geneva appeal against these lawless zones, for tax havens are also judicial havens. The judges are working on issues of criminal money, but it's not criminal money alone that transits through these offshore centers. Why have people waited so long to act? It is politically conceivable to remove all their nuisance ability.
Olivier Pastré: We agree on the diagnosis, but not necessarily the solutions. In 1999-2000, the role of tax havens had already been brought to light with the Enron scandal, a company that had indulged in financial and accounting turpitudes unimaginable up until then. The company had created 3,000 "special purpose vehicles" to hide its indebtedness - 1,000 of which were based in the Cayman Islands.... Then we discovered that countries were selling opacity to two types of clientele: criminals, but also presumably respectable companies quoted on the New York Stock Exchange. And nothing was done.... Our differences bear on the means and the timing. We must not be naive: we won't make tax havens disappear with the shake of a magic wand.
R.V.R.: And why is that?
O.P.: All humanity would have to agree for that to be settled. The question is fiscal competition. I don't believe that perfect world governance is likely. So let us be modest, yet still resolved.
R.V.R.: More and more money transits through tax havens: 50 percent of world financial flows. I don't say we have to eliminate them from one day to the next, but that should be an objective. We reproach Luxembourg with harboring untaxed assets. In France, the index of bank and similar accounts (Ficoba) centralizes all bank accounts for the tax authorities (DGI). Why doesn't Luxembourg do the same? That organization's data would be transmitted to the countries involved. It could be a simple rule within the European Community. Let's start by cleaning up our own house!
O.P.: If that proposal is applied, it will have one effect only: to impoverish Luxembourg while Liechtenstein and the Cayman Islands will be enriched by it....
R.V.R.: The same reasoning was upheld for corruption: "If you sanction French companies that bribe African leaders, American companies will take over the market." To escape from this system, a public authority that defends the collective interest is required. Globalization is economic and financial. On a political level, it's in retreat: states want to preserve their prerogatives. Regulation means they agree to delegate part of their sovereignty to an organization that can slap their hands, on the basis of transparency laws common to all.
A sort of financial UN?
R.V.R.: Yes, but not a UN that watches two armies fire on each other!
O.P.: The market economy is like a boxing match. The participants hit each other, but under the eyes of an arbiter and in a ring surrounded by ropes. Those ropes have been slackened. They have to be tightened up again. The crisis has shown that regulations can be useful: even the most die-hard capitalists acknowledge that.
R.V.R.: But there is no arbiter.
O. P.: Let's say that there is a myopic arbiter.... An enormous step would have been accomplished already if the major global financial establishments prohibited themselves from operating in certain tax havens. We must be ambitious, but realistic.
The OCDE has established a list of uncooperative tax havens. Only three tax havens - Andorra, Monaco and Liechtenstein - figure on that list, while thirty-five others are committed to cooperation. Is that truly the reality of the situation?
R.V.R.: The fact that we have only three acknowledged tax havens, when there are many more in fact, shows all the hypocrisy of the system. It's true that technically the problem is not a simple one to settle. But if, for example, Germany's political will with respect to Liechtenstein seems real to me (Germany infiltrated the banking system of the principality to discover its citizens' hidden assets), that's the first case of a government pounding its fist on the table of a neighboring micro-state. I would like someone to explain to me why we can make war on Iraq, but are incapable of setting a minimum number of rules applicable to little countries that have no military or political weight.
O.P.: We've taken a few nano-steps with respect to cooperation. I don't see tax havens disappearing in the short term because there's no American resolve to cooperate, including from Barack Obama. However, the opportunity to pose the problem is a historic one. Political leaders have discovered that a source of the current crisis was difficulty scoping out bank risks, for technical reasons, and because of their positioning in tax havens. Regulatory authorities will - at least so one hopes - look into this subject. No one could have said in February that Gordon Brown and George W. Bush would nationalize the banks. It's also not impossible that governments will condition their aid on banks making progress in these areas. Self-regulation may also come into play: it is not inconceivable that the biggest world banks should agree not to compete in the matter.
R.V.R.: So I am not the only Pollyanna.... But that would be a minimum. For it's shocking to see banks that benefited from the system be rescued, not by Liechtenstein, but by their own countries' taxpayers. There's a paradox: they condemn governments; they sidestep them, and the day when it all blows up they run home to them.
The obstacles financial magistrates encounter do not incline you to believe in self-regulation....
R.V.R.: When we investigate corruption, we run up against insurmountable obstacles. In twenty-four hours, the money may move from Singapore to Gibraltar, by way of Delaware, Monaco and Liechtenstein. Our investigations end up at the end of several years by hitting a short-circuit: suitcases of cash are withdrawn from one offshore account and deposited in another offshore account. It's an admission of failure.
Solutions come through transparency: to be able to identify the true owners of an account and the real shareholders of offshore companies. A company should have to have a business, a board of directors, officials. Today, I can go to Switzerland and for 5,000 Euros buy a Cayman Islands company with keys in hand and pilot the great oil tankers that circle the planet! Transparency exists inside each state. Control exists in the United States, apart from Delaware which is considered a tax haven by Americans. But at the supra-national level, it's the law of the jungle.
O.P.: Governments are interested in the disappearance of tax havens because they represent tax losses. But no reform has any meaning unless it is integrated in new rules of the game: better control of rating agencies, redefinition of accounting and prudential norms, reduction in the weight of unregulated markets, introduction of a form of hedge fund regulation, etc. That doesn't mean more regulation, but better regulation.
R.V.R.: I'm afraid that once the economy takes off again, regulation will no longer seem necessary. Has the shock been strong enough to induce a resolve for control?
Monaco has committed to make efforts to cooperate. Where is that country, and also Switzerland and London, with respect to those efforts?
R.V.R.: Monaco asserts transparency. But there, as elsewhere, investigations get bogged down when money circulates from one tax haven to another. In the end, it's impossible for us to determine the totality of hidden assets. Monaco remains a black hole of globalization. There's still money laundering going on there. In London, banking secrecy is very strong. It's almost as impossible to get information from the City as it is from Jersey. Switzerland, like Luxembourg, has fiduciary companies that supply financial engineering and organize the circulation of capital in such a way that it cannot be found.
O.P.: I would correct: Monaco is more of a "gray" hole. My own banking experience gives me the certitude that there is less questionable capital in Monaco. As for Switzerland, if a tax haven is a place where significant accounting and financial opacity exists, it's clear that it is one.
Must we abolish bank secrecy?
O.P.: I am, in principle, in favor of bank secrecy; it's a human right, a guarantee of democracy. It should not be upset except with the most extreme caution.
R.V.R.: I can't allow that to go by. If it's a human right, then only three countries in Europe assure that right: Liechtenstein, Luxembourg and Switzerland, since they allow those who are the subjects of banking investigations to contest them! With respect to public interest, there should be no banking secrecy.
Is regulation an issue of morality or of efficiency?
O.P.: If it were only a question of morality, one could be much more pessimistic ...
R.V.R.: On this point, we are in complete agreement!
--------
Translation: Truthout French language editor Leslie Thatcher.
1 comment:
Visit www.conservative.org for Live Streaming Commentary of all Votes and Hearings on Capitol Hill as Well as the Day’s Conservative News. WWW.CONSERVATIVE.ORG
Post a Comment