Bad Times for Tax Cheats

In the book I reviewed yesterday on tax heavens, one of the reasons the authors gave for writing the book in the first place was that this is a topic that never quite absent from the news and never goes out of fashion. Der Spiegel illustrates how true this is.

According to Der Spiegel, tax services from several countries are collaborating in this effort because there is so much money at stake (an estimated $6 trillion worlwide) and they all want a piece of that pie. Under a new OECD treaty, 19 countries are now cooperating in the global hunt for tax cheats.

This sudden international interest in global financial flows also has to do with tracking down the sources of terrorism financing, which have made large of offshore financial centers. Governments then kill two birds with one stone: recover the great sums of money lost to tax evasion and fraud, and try to clamp down on the sources of terror money.

As indicated in the book and illustrated here, multinational pressure is the best strategy and it has produced some results as Swiss Banks have been pressured to somewhat open their accounts to investigators. Banking secrecy is not as absolute as it seems. Other offshore centers have followed suit and signed limited disclosure agreements with tax services such as the IRS.

Now, it is still a cat and mouse game where money can be shuffled around from offshore center to offshore center, but there is now a clear pushback against tax cheats.

Case in point, Liechtenstein:

This is part of a larger investigation against tax evasion in Germany that involves over 200 individuals, including the CEO of Deutsche Porsche. These individual have already handed over $170 million back to the German government even before the trials started. However, the authorities suspect that approximately $5 billion have been hidden in Liechtenstein.

It remains to be seen whether this will change the inherent structure of offshire financial centers. As Chavagneux and Palan wrote, offshore centers are an integral part of the global financial system, so, will Western governments be willing to do any significant alterations to that system? Or will they just go after centers on a case by case basis and not change the system at all? To be continued, to be sure.

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