Uncharacteristic Clarity on Banking Secrecy

"Unprecedented" and "historic" were just two of the many words used to describe the recent G20 summit in London.  In an interview with the Today programme, Chancellor Alistair Darling proclaimed that the G20 leaders had pledged to "support their economies and sort out the banking system".

In the context of a global recession led by that very banking system, this pledge hardly came as a surprise.  Seasoned summit watchers, familiar with high minded rhetoric swiftly dissolving into weak communiqués diluted by political compromise, see nothing exceptional in the outcome.  The $1.1 trillion programme of "additional" support for the world economy quickly turned out to contain little that had not already been promised, so its principal impact was a welcome but unquantifiable boost to confidence.

In some respects though, this summit has the potential, if not to break the mould but at least to crack it. On one topic, our world leaders were almost entirely united, that of, as Stephen Timms, the financial secretary to the Treasury, put it "the problem of tax havens". Even on this though, a last minute disagreement between the French and Chinese presidents threatened to scupper what unanimity there was.  Some deft footwork and a handshake brokered by U.S. President Obama appeared to bridge the gap.

Within hours of the summit’s conclusion the Organisation for Economic Cooperation and Development (OECD) was issuing a list of those countries who had failed in varying degrees to comply with its guidelines.

An interesting feature of the list is the ambiguous inclusion of Hong Kong and Macau, which are referenced only by a footnote.  Stemming from the French-Chinese dispute, this ambivalence allows both sides to claim victory – China's Special Administrative Regions can be argued to be both present and absent from the list.

Despite that wrinkle, the unanimity of the message and simplicity of the list yielded fast results.  The only four "black-listed" jurisdictions, who had not committed to the relevant tax standard, acquiesced five days later on April 7th, promising to propose legislation within the year.

Can we expect more to happen following this first burst of progress?  Quite possibly.  No longer bound by of the Bush administration’s policies towards tax competition and backed by a chorus of countries looking to bolster their coffers, a newly emboldened OECD seems more willing to tackle this thorny issue than ever before.

In a robust defence of the OECD’s stance on Switzerland for example, director-general Angel Gurría, stated "Switzerland does not yet have a single agreement on the exchange of tax information that conforms to the OECD standard." In a separate move, and as tax authorities in Washington step up their pressure on offshore centres, the Swiss press was reporting that Credit Suisse (with an alleged 2,500 and 5,000 US clients with Sfr3bn (£1.78bn) in accounts undeclared to the Internal Revenue Service) has offered those clients "a choice of moving their money to a subsidiary, CS Private Advisers, which would declare financial details to the US authorities. Alternatively, they will be sent a cheque for the balance of their funds." (guardian.co.uk)

Gordon Brown himself has appeared similarly robust in opening a new front in the assault, not only against tax evasion but in a letter to the OECD he implored them to "address urgently the issue of tax avoidance" a practice that may be costing the Treasury hundreds of millions of pounds a year.

So on one issue at least, the London summit has defied cynics by producing a clear resolution that has already resulted in significant moves towards compliance with international standards of transparency.  Whole countries and large banks built on foundations of secrecy are taking notice as never before.  Whether or not this heralds the end of banking secrecy has yet to be seen.

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