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| Tension Mounts Over Tax Haven |
| Germany's 'tax espionage' in Liechtenstein sparks controversy |
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Alan Mota (al0021)  |
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Published 2008-02-27 07:09 (KST) |
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Liechtenstein, an alpine country pressed between Austria and Switzerland, never attracted much attention -- with only 33,000 inhabitants, there wasn't not much going on. As a tax haven, it can be said that one of the principality's main concerns has always been to keep things this way -- low profile, to the extreme.
One of the few things, if not the only one, that places Liechtenstein on the map is its vocation for secretive banking. The state is one of only three that remain on the blacklist of the Organization for Economic Cooperation and Development (OECD) for uncooperative tax havens -- the two other states are Monaco and Andorra, both located in Europe.
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FROM THE SECTION |
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| Liechtenstein's vocation led the country to become host to a number of financial firms that made it one of the richest countries in the world, when considering GDP per capita.
But the same vocation that awarded the principality so much money also angered many people and authorities, especially in nearby states, who watched many of the elite escape the infamous European fiscal burdens by sheltering their savings under the umbrella of banks in the tax haven. Recently, however, German authorities decided to play Liechtenstein's secretive game, launching an undercover operation.
Germany -- possibly the country most affected by Liechtenstein and its way-too-friendly tax system -- bought information stolen by an employee of one of Liechtenstein's main banks, LGT, which is owned in part by Liechtenstein's royal family. The whistleblower reportedly received between 4.2 and 5 million euros (between US$6.2 and 7.3 million) for giving out the information, which is being used by investigators to track down high income-earning Germans who evade their country's tax laws. The records, which were said by LGT to hold information on around 1,400 clients and only from the 2002 fiscal year, not only affect Germans but also other foreigners who enjoy the no-taxes-and-no-questions-asked policy of the small country.
In fact, the records are said to hold information on between 600 and 1,000 German nationals, while other countries such as England are also thoroughly represented in the files. Adding fuel to the fire, the British government announced that it too bought similar information, for 100,000 pounds (US$196,000), and it is investigating accounts belonging to around 100 of the country's richest families.
Meanwhile, the main target of all these under-the-counter investigative deals is not happy at all with the situation. The government of Liechtenstein, under the helm of prince regent Alois, who has much wider powers than the typical figurative heads of state elsewhere on the continent, voiced its outrage immediately after the declaration by the German authorities. The prince himself accused Germany of attacking his principality's sovereignty: "Germany has clearly failed to understand how one behaves toward a friendly state. We are a small country and we want good relations with our neighbors but we are also a sovereign state." He went on to say that Liechtenstein was "under bombardment from a great power."
But that didn't stop German authorities or even Prime Minister Angela Merkel from putting pressure on the tax haven: Last week the Finance Ministry of Germany threatened to tax all money transfers to Liechtenstein, while Merkel called on the prince to make a deal with Germany and other European countries on the same tune as the one it has with the United States, where banks are obliged to report to the American Internal Revenue Service (IRS) on investments made by U.S. citizens. "What is possible with the United States should be possible with the European Union," Merkel said.
As suspicious as the small alpine country is when it comes to covering up tax evasion and possibly worse forms of smuggling money, it's hard not to stand by Alois on the matter -- at least when it comes to violation of sovereignty. One of the basic aspects of international relations and diplomacy is to respect other countries' laws, as long as they don't violate international law and conventions. Even though most countries and organizations, including OECD, condemn Liechtenstein's banking laws, they're still their laws and not Germany's. By purchasing knowingly illegal information from a man who broke the law in a foreign country, the central European giant also broke a string of international laws, not to mention diplomatic protocol
On the other hand, the fact that other governments such as Britain also did the same -- a Senate investigative committee in the US also showed interest in probing national citizens with accounts on the country -- just prove that in politics, breaking laws can be fine depending on the power of who's being affected by it. The principality stood firmly in defense of its banking secrecy, vowing to maintain its laws regardless of pressure from the outside, even as Merkel threatened "to set an ultimatum," as she said after talks with the Liechtenstein's Prime Minister Ottmar Hassler.
However, one must also consider that nowadays, with all the focus on international tax evasion and money laundering and their connections with criminals much worse than rich German families dodging the taxman, fiscal havens as secretive as Liechtenstein and its OECD blacklist buddies should be a thing of the past already. It has been a while since Switzerland, the Cayman Islands and the like were known for holding and investing the profits of drug lords and corrupt Third-World leaders from around the planet. These countries, along with others such as Panama and lesser-known havens such as Nauru, are still extremely tax-friendly and keep a reasonable amount of banking information to themselves. They have just became a little more cooperative with foreign governments and international organizations hunting down those who use these countries as something more than just a place to host their companies away from more serious tax systems.
Until a couple of decades ago these arrangements didn't seem to bother international authorities that much, but post 9/11 investigations showed more recently how these havens and the under-the-counter transactions that happen in their banks can help finance all kinds of criminal activity, and the damages they can cause -- Osama bin Laden, for example, became notorious for his terrorist organization as well as for his extremely complex international web of money laundering and terrorist financing. Since then, the concept of tax haven changed almost completely, and became much more open to the law -- except for the three resisters on the old continent.
Depending on the pressure applied by international powers, this might be the long-awaited wake-up call for Liechtenstein and its secret banking partners in the Mediterranean and the Pyrenees. Before going too far, though, Germany should think twice before setting a bad example by breaking laws outside its territory to look for the ones who break laws inside its territory. Either way, what is certain about this situation is that right now the privileged ones of many countries, in and out of Europe, are biting their nails off in despair -- the taxmen are coming, and they're coming on strong.
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©2008 OhmyNews
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