Rudolf Elmer, the Cayman-based Swiss whistleblower who went to prison after spilling secrets relating to the Swiss bank Julius Baer, has long been victimised not only by the Swiss banking establishment, and Switzerland’s courts (which as we’ve extensively documented, seem to have played fast and loose with the law in order to nail him) – but also by much if not most of the Swiss media. In Switzerland he’s been demonised as a traitor and a criminal, and jailed too.
Such is the fate of the offshore whistleblower.
Finance Ministers from the G20 countries meet in China on July 23-24 – this weekend. Amid sessions that will focus heavily on Brexit-related issues, there will be an important tax component. At their previous meeting they mandated the OECD to “establish objective criteria . . . to identify non-cooperative jurisdictions with respect to tax transparency.”
A blacklist, in other words.
A month ago we wrote an article entitled Now Luxembourg, Switzerland are working to bolster Tax Haven USA. This concerns a global scheme to share banking information, the OECD-led Common Reporting Standard, (CRS, which starts up next year and complements separate schemes and campaigns to see public disclosure of the beneficial owners of entities and arrangements like trusts and companies.)
In a nutshell, under the CRS you are supposed to ‘look through’ certain investment entities to their beneficial owners, if that entity is not in a ‘participating jurisdiction’ – that is, participating in the CRS. The United States isn’t a participating jurisdiction: it has its own FATCA programme which is loosely and very imperfectly hooked up to the CRS: for more details see our Loophole USA blog.
The European Union, amid all the Brexit turmoil, has issued a proposal for a new Directive on money laundering and terrorist financing. Transparency, of course, is at the core of it. The Panama Papers scandal has given new urgency to the task of unmasking the corrupt, the crooks and other financial miscreants, and it’s clear that business supports us: in a survey of 2,800 senior executives in 62 countries, Ernst & Young found that 91% of respondents believe it is important to know the ultimate beneficial ownership of the entities with which they do business.
So how does the new Directive (an amendment to what is known as the Fourth Anti-Money Laundering Directive) look? In short, there are two main things.
Update: making clear that the Swiss text we cited is a provisional test.
As we’ve often said before, it is counterproductive (and an analytical error) to see the fight against tax havens in purely geographical terms. When the U.S. Justice Department started taking action against Swiss bankers, this was not a battle between Switzerland and the United States: it was a battle pitting wealthy, unaccountable élites against their own societies, which just happened to be played out on this particular U.S-Swiss terrain — just as it is played out on many other terrains, day after day.
Indeed, the U.S. has been fairly successful against the Swiss because it targeted Swiss banks, rather than Switzerland: the latter (geographical) approach would have been far less successful and would have resulted in the Swiss coming together in a defensive huddle to defend against Big Bully USA. For those keen on tackling tax havens, this is an important insight.
Anyway, this context is important if we want to understand Luxembourg’s latest gambit, apparently to support the cause of Tax Haven USA, which is continuing to emerge as a secrecy jurisdiction of extreme concern. More recently, Switzerland seems to be following Luxembourg and also collaborating with the U.S. secrecy machine.
Why would these mucky European tax havens want to support an apparent ‘competitor’ on secrecy? What’s happening now is an extremely worrying development, and the OECD needs to summon the courage to step in with an outbreak of honesty – and urgently.