As reported by the Straits Times - Germany, France, Britain and other high tax regimes, persuaded most of the world’s  offshore financial centres to abandon their banking confidentiality and the bank secrecy provisions which have made their jurisdictions so attractive to non-residents and holders of offshore bank accounts.

One after another, Monaco, Bermuda, Switzerland, and Singapore offshore banking announced that they will comply with new international rules which introduce more transparency and will govern the exchange of information with regards to money and depositors in their banks.

Banking secrecy, it is argued, should be removed.  Everyone should have to pay taxes, and people who have nothing to hide have nothing to fear.

Others call the EU’s offensive against offshore financial centres a “cheap populist measure” designed to deflect voters’ attention from the current financial crisis.

EU officials seem to have forgotten the reason for offshore financial centres. Switzerland, the biggest offshore financial centre for decades - thrived not by attracting money from crooks but, rather, by earning the confidence of law-abiding individuals.

When Europe was at war, and when private property was frequently nationalised or stolen, the Swiss offshore banks remained an oasis of stability, a place where one’s assets were secure.

The Swiss bank secrecy legislation was enacted during the 1930s, in order to prevent the Nazis from spying on people.

So, parking one’s money in offshore banking accounts is often a reflection of the political or financial uncertainty in one’s country of residence.

Banking secrecy is not merely a ruse to enable tax evasion. Confidentiality is a base principle for all banks.  People who have nothing to illegal to hide also want to keep their financial affairs to themselves.

Not all offshore financial centres are identical. Although many copied the Swiss offshore banking model, all operate in different legal jurisdictions.

The head of the OECD admits that Singapore and Hong Kong cannot be classified like UE  ‘tax havens’. However, all are threatened with unspecified sanctions if they do not comply lift their secrecy veil.

The US government produced a list of 52,000 American citizens who allegedly have bank accounts in Switzerland. Germany stole private banking records from Liechtenstein, a neighbouring country. Apparently, as long as offshore financial centres are small and vulnerable, their sovereignty is in question.

Of course, like everywhere throughout this controversy, hypocrisy is everywhere.  To wit, the biggest tax haven is actually the US itself.  The US has no dividend, interest or capital gains taxes on the earnings of foreign investors in America, thereby helping foreigners to escape those tax charges back home.

However, given the current economic crisis, most politicos have decided that scapegoating small offshore banking centres provides a useful diversion.

No doubt, the storm will pass. And the world’s rich will still find someone willing to accept their cash, in return for the discretion and predictability which most European countries are no longer capable of offering.

This entry was posted on Wednesday, March 25th, 2009 at 11:24 am and is filed under Offshore Banking. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.