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10 | Letter from America
regulatory body that must be taken seriously.
This is particularly true for hedge funds and
expatriate investors, as the regulation of offshore Even after 2008’s meltdown, the
finance is one of the stated priorities of the
organization.
banks have written off less than half
The G20: Six Months Later
The manifesto from the April 2009 G20 meeting
was mostly lofty rhetoric with little real of the losses that they may eventually
substance, but there was one particular point
that sent a shock wave through the offshore
financial community: have to
The G20 pledged “…to take action against
non-cooperate jurisdictions, including tax
havens. We stand ready to deploy sanctions to
protect our public finances and financial systems. In spurring this round of treaty signing, the review.” While the idea of your country’s
The era of banking secrecy is over. We note that G20 and OECD have made progress toward their trading partners colluding to assess your trade
the OECD has today published a list of countries goal of ending banking privacy—much to the and financial policies may sound intrusive, it is
assessed by the Global Forum against the chagrin of those who cherish that privacy. Still, actually a sign of the G20’s weakness.
international standard for exchange of tax information on request may be a compromise Remember, the G20 has no enforcement
information.” that expatriates and offshore financiers are mechanism and no permanent bureaucracy.
This assessment led to the creation of the now willing to live with, so long as the intrusion stops The organization is essentially trying to govern
infamous black list of “Jurisdictions that have not there. Otherwise, the end result of this trend the world financial system with peer pressure
committed to the internationally agreed tax could be a race to the bottom in privacy and nagging. Even the harsher punitive actions
standard” and grey list of “Jurisdictions that have protections in which the standard of the most in the April annex, such as “withholding taxes
committed to the internationally agreed invasive country becomes the new global in respect of a wide variety of payments,” are
standard, but have not yet substantially standard by default. This has already happened nothing more than recommendations.
implemented.” In a separate annex, the G20 to some extent. Enforcement action would have to be taken by
leaders created a list of possible actions for states individual states — individual states that often
to take against these alleged wrongdoers Ironic intrusion have conflicting motives and seldom act as a
inc
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luding: The irony has not been lost on the Swiss that one group.
increased disclosure requirements on the part of the countries most involved in leading the An interesting case in point is China. The
of taxpayers and financial institutions to charge against banking privacy—the United Chinese government agreed to support the G20’s
report transactions involving non-cooperative States—has strict constitutional provisions that assault on the offshore financial industry — but
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jurisdictions; forbid the government from conducting searches only after the language was watered down and
withholding taxes in respect of a wide variety without a properly-obtained search warrant. Hong Kong and Macau were removed from the
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of payments; Somehow, the right to be free of unlawful list altogether.
denying deductions in respect of expense searches and seizures does not apply to banking. The UK too has been somewhat ambiguous in
payments to payees resident in a non- It is unfortunate, but rather than exporting its its intentions. At the close of the summit, Prime
circle6
cooperative jurisdiction; tradition of liberty and non-intrusive Minister Gordon Brown evaded direct questions
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reviewing tax treaty policy; government, the United States has chosen instead as to whether Britain would follow the G20’s
asking international institutions and regional to export the violation of those principles. recommendations or the recommendations of
development banks to review their investment At any rate, not wanting to rest on their any peer review. And given that the more
circle6
policies; and, laurels, the G20 leaders continued the charge in “offshore friendly” Tories are likely to be running
giving extra weight to the principles of tax the September Statement. Reiterating the points the country after the next election, Britain’s
transparency from April, they wrote: enforcement could be weakened substantially.
The strong wording and the determination We are committed to maintain the For better or worse, it is also highly unlikely
behind it was enough to scare virtually all of the momentum in dealing with tax havens, money that the United States would take peer review
non-compliant states and jurisdictions into laundering, proceeds of corruption, terrorist seriously. This means that while the country is
compliance. The four jurisdictions on the financing, and prudential standards…. We stand still busily applying pressure to offshore financial
original black list — Costa Rica, the Philippines, ready to use countermeasures against tax havens centers to eliminate privacy provisions, its own
Uruguay, and the Malaysian island of Labuan — from March 2010. We welcome the progress anonymous Nevada and Delaware LLCs will
have now been upgraded to the grey list by made by the Financial Action Task Force (FATF) likely remain an excellent tax and privacy haven
agreeing to adopt the standards. Meanwhile, in the fight against money laundering and for non-Americans.
Aruba, Austria, Bahrain, Belgium, Bermuda, the terrorist financing and call upon the FATF to With the world economy showing signs of
British Virgin Islands, the Cayman Islands, issue a public list of high risk jurisdictions by improvement, the G20 is losing the sense of crisis
Luxembourg, Monaco, the Netherlands Antilles, February 2010. We call on the FSB to report that acted as its primary impetus. With any luck,
San Marino, and Switzerland have all scrambled progress to address non-cooperative jurisdictions competition among its members will insure that
to sign the required 12 interjurisdictional with regards to international cooperation and the organization recedes into the background as
agreements needed to move from the grey list to information exchange in November 2009 and to a largely powerless talking shop. The G20 is still
the white. (The requirement is to have at least 12 initiate a peer review process by February 2010. a force to be reckoned with, but we believe and
treaties in place for the exchange of financial Though this statement sounds forceful, there hope that its assault on legitimate offshore
information on request; at this stage, full are several reasons to believe that it may be more finance may be already reaching its high-water
automatic exchange is not required.) bark than bite. The first is the issue of “peer mark.
November 2009 Investment International www.investmentinternational.com
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