Tax, finance and development
Last month, The Economist reported important progress in the battle against banking secrecy. There have been two large steps forward. First, more than 60 countries, including tax havens like Switzerland, Luxembourg, and Singapore, have committed to the new OECD standard for automatic exchange of tax data. Second, more than 80 countries have reached agreement with the US to implement the Foreign Account Tax Compliance Act (FATCA), which is not multilateral but – unlike the OECD standard – has teeth.
As The Economist notes, this is a breakthrough, because “for the Swiss, agreeing to swap client data systematically is the cultural equivalent of Americans giving up guns”. Indeed, such progress would have been unthinkable a few years ago. It may seem the end of banking secrecy is near.
But will these steps help developing countries too? Unfortunately, not really. Only countries that collect all required data can join the OECD system and receive information from others. That seems an impossible requirement for countries like Malawi or El Salvador, even though no one is concerned about offshore wealth hidden there.
That’s why I wrote a letter to The Economist pointing out that the new system won’t work for everyone. The OECD is currently creating double standards: automatic data exchange for its members and some emerging economies, banking secrecy for the rest.
In fact, even the US and other OECD countries will not win this battle unless they seriously step up their efforts. The US Senate found worrying loopholes in FATCA and just after the Economist article got published, Switzerland made clear it will implement the OECD standard via bilateral agreements, to be concluded with selected countries only. So the OECD standard, as it stands, is not quite the revolution it was thought to be.
But the OECD has made a first bold move towards automatic information exchange. That, too, may have been unthinkable a few years ago. So although the end of banking secrecy is still a long way from here, things have at least started to move along that road.