Adonis Diaries

No more Caches for Fiscal Evaders (March 27, 2009)

The financial havoc has generated another capital consequence. All these tiny islands and tiny States that were the heavens of offshore companies where money were stashed away to avoid taxes are no longer safe heavens. The safe heavens were pressured to enact laws that permit any State government to investigate accounts that were immune under “banking secrecy regulations”. There are five main regions were these safe heavens concentrated their activities.

First, the Caribbean islands of about 14 of them, singly or set of smaller islands, are: Turks, Caicos, Anguilla, and Montserrat (controlled by Britain), then Virgin Islands (controlled by the USA, then Aruba and Antilles (controlled by the Netherlands, then the Bahamas, Caimans, Antigua and Barbuda, Dominic, Sainte Lucie, Saint Vincent and Grenadines, Saint Christopher and Nevis, Grenada, Panama City, and Belize.

Second, in Europe we got the city of Andorra, Austria, Belgium, Isle of Man, Isles of Guernsey and Jersey, Gibraltar, Monaco, Saint Marin, Liechtenstein, Luxemburg, Cyprus, and Switzerland.

Third, in the Far East we have: Tonga, Vanuatu, Cook Islands, Niue, Samoa, Nauru, Marshall Islands, Hong Kong, and Singapore.

Fourth, in the Arab Gulf we have: Dubai and Bahrain.

Fifth, in East Africa we have: Maurice, Seychelles Republic, Maldives, and then Liberia in West Africa.

For example, the Caribbean islands and particularly the Caimans has residency for 70% of hedge funds and manage about two trillion dollars or 2,000 billions; Jersey Island is the prime British offshore center and managing 300 billions; Liechtenstein with 165 billions; Switzerland with two trillions of offshore money or the third of the world’s caches and which generate a third of the State’s income. The safe heavens in the Virgin Islands are mostly invested in China.

Now most of these safe havens are in the process of regulating their financial activities because most States want the money of their citizens repatriated in order to be taxed. The problem is that the fiscal laws in most States are so exorbitant and complicated that it is not worth repatriating any money. People are just waiting for lenient and simple fiscal laws to be enacted before they get the courage to transfer their money to their home states. For example, taking into account penalties on bad faith (40%), interests in arrears, tax on revenue, social contribution and other rights and penalties a French citizen having one million dollars in Switzerland should expect to pay 1,300,000 dollars, far more than what he has saved in the safe heaven.

France has evaluated to 20 billions dollars of lost revenue is fiscal fraud, which amount to the total budget for the department of Research and higher Education. The case of Switzerland banking secrecy laws started in 1934. In 1932, France confiscated from the Commercial Bank of Bale ten books containing 2000 French clients; the socialist deputy Fabien Albertin divulged the names of the clients representing a wide spectrum of influential personalities from magistrates, to ministers, to deputies, and to bishops. The State of Switzerland reacted. Only in 1998 did the wall of banking secrecy fall in Switzerland when the US exercised pressures to recoup 1.25 billions dollars saved by Jewish families during the Nazi period.

There are four criteria to categorize a State a fiscal paradise: first, absence or lack of fiscal laws; second, lack of transparency; third, the economy cannot support that much funds (basically, a post office State); and fourth, refusal to exchange judicial and fiscal information.