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Tax-Haven Blacklist Stirs Nations
After G-20 Issues Mandate, Many Rush to Get Off Roll

By Anthony Faiola and Mary Jordan
Washington Post Staff Writers
Saturday, April 4, 2009

LONDON April 3 -- One day after world leaders threatened tax havens with sanctions, a host of countries on a freshly published "list of shame" scrambled to get off it even as questions surfaced over China's maneuvers to exclude Hong Kong and Macau.

The Group of 20 industrialized and developing nations at an economic summit here Thursday agreed to end "an era of banking secrecy," rooting out hundreds of billions of dollars estimated to be hidden from tax authorities in offshore banks. Faced with the prospect of penalties making it harder for their companies to do business overseas, Austria pledged to comply "without delay." The Philippines swore to take "the necessary steps" and Monaco promised to be off the list by "by the end of the year."

A more defiant Switzerland and Luxembourg flatly denied that they were tax havens, but suggested a willingness to follow through on recent pledges for more transparency. Tax advocacy groups, however, called the list incomplete and flawed, pointing to the fact that some alleged tax havens found among the 20 major countries at the summit did not appear on the list.

Most notably, Hong Kong and Macau were not on the list. The Chinese, sources familiar with the negotiations said, refused to endorse the move against tax havens if those two Chinese financial centers were named as rogues. The Chinese cities failed to make the list while other similarly secretive financial hubs including Singapore were named. Friday, the Chinese vigorously defended that decision.

"China actively supports the international community's efforts to tighten financial regulation, crack down on tax evasion and international cooperation to prevent tax evasion," Chinese Foreign Ministry spokesman Qin Gang told reporters in Beijing. But, he added, "it is groundless to label China's Special Administrative Regions of Hong Kong and Macau as tax havens, to which China expresses firm opposition."

In addition, tax watchdog groups criticized a decision not to list the British banking enclaves of the Isle of Man and Jersey. The list was based in part on the number of countries that each alleged tax haven has signed international treaties with to share banking information. According to London-based Tax Research, the Isle of Man has signed only a few more treaties than the Cayman Islands, which made the list, and some of those treaties are with minor territories and countries, including the Faroe Islands, Iceland and Greenland.

"It really is an incomplete list," said Matti Kohonen, projects coordinator with the Tax Justice Network in Paris, who blamed "political tactics" for the omissions.

The list, published by the Organization for Economic Cooperation and Development, a Paris-based group of wealthy nations, in coordination with the G-20, singled out four countries as the worst offenders: Costa Rica, Malaysia, the Philippines and Uruguay. Another 38 countries and territories, including the Cayman Islands, Panama, Bahamas and Liechtenstein, were listed as less serious offenders.

The leaders at the London summit, which included nations ranging from the United States, France and Great Britain to China, Argentina and Indonesia, agreed to develop a "toolbox of countermeasures" to pressure tax havens into compliance.

That included steps that would make it harder for nations on the list, such as Malaysia and the Philippines, to receive development aid. But some critics doubt the ability to force compliance. They note that a list of tax havens was published by the OECD in 2000, and no serious action was taken against published nations.

"I am afraid I am cynical. What are they going to do? Put a wire fence around Monaco and not let anybody out?" said Howard Davies, director of the London School of Economics and Britain's former top banking regulator.

Yet analysts say there are differences this time. For one, in contrast to the Bush administration, the Obama administration is supporting the move against tax havens. The current crisis also has made investors more nervous about risk, and authorities say the lack of transparency in tax havens is making foreigners more nervous about depositing their money there. As officials moved to draft the list in recent weeks, a rash of countries pledged to ease banking secrecy laws, most notably Switzerland.

"There will always be loopholes to be exploited," said Michael McMahon, who teaches economics at the University of Warwick in England. While he said it may not mark the "end of banking secrecy laws, it is not a bad first step."

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