Stirring up the havens

A story narrated by Sigmund Freud in ‘The Interpretation of Dreams’ is about a man who offered three arguments when accused by his neighbour of having returned a kettle in a damaged condition: That he had returned the kettle undamaged; that it was already damaged when he borrowed it; and that he had never borrowed it in the first place. The three arguments are inconsistent, and Freud notes that it would have been better if he had only used one, explains a Wikipedia page on the ‘Kettle logic.’

The arguments offered by tax havens are no different, say Ronen Palan, Richard Murphy, and Christian Chavagneux in ‘Tax Havens: How globalization really works’ ( >www.landmarkonthenet.com ). The arguments are: “They are not tax havens; it is not their fault that other parties use them as tax havens; they are doing their best to cooperate with other countries to root out abuse; and they are highly regulated economies.”

Intentional policy

The book offers evidence to show that many jurisdictions are indeed tax havens and that even if the phenomenon originated in a complex and sometimes haphazard manner, over time all tax havens became the product of intentional policy decisions. Importantly, the authors also show that the tax havens are very reluctant to cooperate, always dragging their feet, and that they change only in response to sustained pressure. “When they do change, they often develop new laws and policies to replace the very laws they have agreed to change with the aim of achieving the same effect as the regulation they have replaced.”

A chapter titled ‘What is a tax haven?’ defines tax havens as ‘legislative spaces,’ as jurisdictions that deliberately create legislation to ease transactions undertaken by people who are not resident in their domain. “Those international transactions are subject to little or no regulation, and the havens usually offer considerable, legally protected secrecy to ensure that they are not linked to those who are undertaking them.”

Opacity methods

A key trait of tax havens is opacity, achieved in three ways, the book informs. The first is through banking secrecy stipulations. Switzerland, one learns, is considered the originator of the legal concept of banking secrecy, enshrined in its 1934 banking laws. “The law makes it a criminal offence for any bank employee to disclose bank information for any reason whatsoever. The right of the government to obtain bank information is also severely limited.”

A recent article in >www.bloomberg.com traces that Switzerland’s bank secrecy laws and anonymous numbered accounts have a long and shameful history: “They have been used to help criminals conceal illicit gains, to deny Holocaust survivors their stolen inheritances and to help the world’s wealthy hide taxable income.”

The second method of creating opacity is to allow the establishment of entities whose ownership and purpose is difficult to identify, the book states. “Trusts are perhaps the best known and most popular mechanism for achieving this aim. Most jurisdictions do not require any registration of trusts, and even where registration is required it is not a matter of public record.”

And the third method of achieving opacity is a passive one, relying on inactivity or intentional negligence! How so? By not performing serious due diligence and thus perfecting the practice of purposeful looseness in regulations, the authors observe. “They have erected bureaucratic hurdles against information exchange with other countries, and their regulatory bodies have scant resources and ask no questions.”

Educative material on a topic of current focus across the world.

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>BookPeek.blogspot.com

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