Tax havens: Can promises to shut them down be believed?
G-20 nations pledge to address this subject at meeting in London next month. Analysts are skeptical.
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In that same vein of thinking, John Christensen had hoped the global financial crisis would lead to reforms reducing bank secrecy and closing many of the world's 90 or so tax havens. It was, after all, a lack of transparency in banking in the United States that allowed the creation of trillions of dollars of complex derivatives, which contributed to the damaging credit freeze.
But now, the director of Tax Justice Network in London is "feeling pessimistic" that leaders of the world's most powerful nations will tackle the issue seriously at the Group of 20 meeting in London April 2.
In recent days, many officials from various tax-haven nations have pledged to ease secrecy laws that enable citizens of the US and other nations to avoid paying taxes on their investments and savings. It's estimated the US alone loses $100 billion in tax revenues as a result of the flight of capital to tax havens.
To Mr. Christensen, "These initiatives are not worth the paper they are written on," though news of several pledges made the front page of the Wall Street Journal this month. "They are window-dressing," he adds.
Tax havens have existed for decades, and rich industrial nations have not taken stern measures to wipe them out. Reason: Banking industries "have very powerful lobbies," explains Christensen.
After World War II, Switzerland – famous for pocketknives and yodeling, as well as providing the world's largest tax haven – often noted that Jews and opponents of Hitler were able to hide assets safely in the mountainous nation. Christensen regards this as "a clever argument" because banking secrecy also helped Nazis, thieving African rulers, the Mafia, and others to hide their money. "This secrecy actually fosters criminality," he says.
If the G-20 fails to tackle bank secrecy, it could lead to another financial crisis in the years ahead, warns Raymond Baker, another anti-tax-haven activist and director of Global Financial Integrity in Washington. Last November, the G-20 put greater banking transparency on a par with banking regulation reform as necessary to deal with the financial crisis. Now, adds Mr. Baker, G-20 leaders appear to be backing off secrecy reform.