Treasure Islands - Nicholas Shaxson [103]
The answer came in the form of one of the slyest offshore tricks ever devised.
The best way for countries to share information with each other is through so-called “automatic” exchange of information—where they tell each other about their taxpayers’ financial affairs as a matter of course. This happens routinely inside Europe and between a few other countries, and although the system is leaky—it needs shoring up to cover all sorts of loopholes—it works well enough. Privacy is not invaded: Tax authorities keep the information to themselves, just as doctors keep details of their patients’ hemorrhoids and venereal diseases confidential. Doctors and tax authorities need the information and can share it with others who need it, but they don’t publicize it.
But there is another way of sharing information, known as “on request”: A country will agree to hand over information about another country’s taxpayers—but only on a case-by-case basis, only when specifically asked, and only under very narrow conditions: You must be able to demonstrate exactly why you need the information. In other words, when you request the information you must already know, more or less, what it is. No “fishing expeditions,” or general trawls to find tax cheats, are allowed.
You can’t prove criminality until you get the information, and you can’t get the information until you can show the criminality. Catch–22’s Captain Yossarian would have appreciated the double bind. “On request” information exchange is a fig leaf. It lets tax havens claim they are transparent while continuing business as usual.
The “on request” model, of course, is the one that got the Bush administration’s endorsement. Instead of transparency, we got a very conditional transparency: only when there is permission to be transparent. The “on request” standard has become the OECD’s model too.
It is hard to know how much information is exchanged “on request” globally, but Geoff Cook, chief executive of Jersey Finance, confessed in March 2009 that in the seven years since Jersey signed a tax agreement with the United States, it exchanged information with American investigators on just “five or six” cases.38 Compare that to the million-plus U.S. offshore accounts and businesses Senator Levin identified, and clearly the system is a joke. Requests for information can take months or years to process—and the assets under investigation can be shifted elsewhere in hours or even minutes.
It gets worse. After the financial crisis struck in 2007, the OECD, by now at the mercy of the secrecy jurisdictions, set up another piece of sleight of hand to respond to public pressure. At the urging of G20 leaders the OECD set up a blacklist for tax havens, and the way to get off the blacklist was to sign 12 agreements to share information with other countries, using the OECD’s hopeless “on request” standard.
The OECD began to claim that a major crackdown was under way. “What we are witnessing is nothing short of a revolution,” boomed the OECD secretary-general, Angel Gurría. “By addressing the challenges posed by the dark side of the tax world, the campaign for global tax transparency is in full flow.” Newspaper articles ran headlines like “Bank Secrecy Is Dead,” and British prime minister Gordon Brown declared the aim of the blacklist was to “outlaw tax havens.”
As the new OECD push got under way, tax havens rushed to negotiate new agreements in order to sign the requisite 12 that would get them off the blacklist. At the latest count a third or so were with Nordic states, especially with such global economic giants as Greenland, San Marino, and the Faroe Islands—and another third or so were with other tax havens. The havens did sign a few with larger economies, though as usual, nobody