Thursday, August 21, 2008

Opportunity makes the thief

John Christensen, director of the TJN international secretariat, has been speaking at the high-level Alpbach Forum in the picturesque Austrian Tirol. (See the picture; his speech is here and his Power Point presentation here.)

He gave the key note speech at a panel discussion on Tax Havens and Tax Evasion, sharing the podium with Prinz Nikolaus von und zu Liechtenstein - widely addressed as Mr Liechtenstein by the German-speaking audience - and Michael Frank of Suddeutsche Zeitung. The large audience including a wide range of politicans, academics and other specialists, including Professor Vito Tanzi, formerly head of the IMF Fiscal Affairs department.

John's speech seems to have been well received: several audience members stressed that they had never heard anything like his critique of global finance, and Professor Tanzi commented that he had learnt much from it. The speech is well worth reading; so is an interview with him in the Alpbach News (scroll down to find the interview which is in English, despite the German text at the top. It also carries an interview with Mr. Liechtenstein, though this is published in German only).

Commenting from the perspective of a journalist with a general interest in the conflict that emerged earlier this year between Germany and Liechtenstein as a result of the LGT affair, Michael Frank suggested that German society has not yet developed "a spirituality of prosperity" and lamented that the management class generally "has bought into a culture that tax payments are a loss" rather than a distribution to society to compensate for the services they use. As far as tax havens are concerned, Michael felt that this is a clear case of "the opportunity making the thief", which perfectly captures TJN's analysis that bankers, lawyers, accountancy firms and secrecy jurisdictions provide an enabling environment for grand corruption.

Tax competition is a live issue in the upcoming elections in Austria, and there seems to be a consensus in that country that little can be done to resist this pressure. Other speakers at the Forum had advocated flat taxation, which we have addressed elsewhere, but John vigorously challenged the idea that tax competition serves the interest of anyone other than the business community: it certainly does not promote efficient public spending, and invariably switches the tax charge from business to consumers and the less well-off. Interestingly, no-one in the audience, not even Vito Tanzi, rose to challenge John on this issue. It's hardly surprising: there are no good arguments -- read more here.

The Prince himself made a rather interesting point, too: "People might call into question the overall context (of the current situation with Liechtenstein under the spotlight) - privacy is more protected in the USA." That may seem odd, given Liechtenstein's legendary bank secrecy, which is not matched in the US. But his statement is true. The USA - and notably its own dirty little secrecy jurisdiction of Delaware - simply uses different, more devious mechanisms to achieve exactly the same ends - such as by allowing companies easily to disguise who the real beneficial owners of an asset are. So there is certainly a measure of hypocrisy in the U.S. attacking bank secrecy, while Delaware provides an even more pernicious form. That said, that is simply no excuse for Liechtenstein's long-held stance. Two wrongs don't make a right: a plague on both their houses, we say.

The Prince also argued that a principal attraction of Liechtenstein is tax stability - "the tax system in Liechtenstein has not changed for many years", but conceded that banking secrecy was an important advantage, adding that "banking secrecy has increasingly been used for tax dodging purposes", and that "tax evasion is something that everybody tries to do: it is a sort of sport". But he emphatically rejected the suggestion that Liechtenstein supports tax evasion, arguing that bank codes of conduct mitigate against them, and cited the IMF report of March 2008 to support the argument that Liechtenstein is cooperative in anti money-laundering (AML) efforts. Nonsense. The IMF's Financial Action Task Force (FATF) and others that have exonerated Liechtenstein, as we recently argued in the pages of the Financial Times, have simply legitimised the illegitimate.

Banking secrecy plays a major part in Austrian banks' marketing strategies to promote private banking to high net-worth individuals in Eastern Europe (a major growth area for these services). Judging from the discussions at Alpbach, Austrian civil society is troubled by the culture of tax evasion, and putting these activities into the global context makes it simply impossible for the users of secrecy jurisdictions to mount a credible intellectual defence of their poisonous activities.

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