BakerPlatt, the UK-based law firm, has predicted that the current
investigation by the United States Senate into offshore banking will lead to
a more "onerous and rigorous environment" for financial institutions,
especially in the offshore arena.
"History suggests that aggressive measures introduced by the US revenue
authority one year are often copied by other jurisdictions in the following
years, and that ‘offshore’ financial institutions will be likely
to be key targets, irrespective of the conduct of their ‘offshore’
counterparts. This is particularly likely in an economic downturn," BakerPlatt
observed in a commentary on the investigation, entitled ‘Tax Haven Banks
and US Tax Compliance’, which is being carried out by the US Senate Subcommittee
on Investigations, part of the Committee on Homeland Security & Governmental
Affairs.
"The ramifications for all ‘offshore’ financial institutions
may, therefore, be significant, particularly in those jurisdictions which, like
Switzerland, have banking secrecy laws rather than the more widely accepted
rules on banking confidentiality. Without being able to ensure secrecy, banks
in ‘secrecy’ jurisdictions may lose one of their strongest selling
points," the firm added.
BakerPlatt also expressed alarm at the vehemence of the key lawmakers involved
in the hearing, including subcommittee chairman Carl Levin, who in his opening
remarks to the Senate hearing on the issue last month, accused the 50 'tax havens'
operating in the world today of engaging in "economic warfare" with
the United States. "Their twin hallmarks are secrecy and tax avoidance,"
Levin remarked.
It is said that the US Treasury loses in the order of USD100bn as a result
of offshore tax evasion, prompting Sen. Norm Coleman, the senior Republican
on the subcommittee, to use equally scathing language against some offshore
banks, describing them as "Al Capone safe houses for evading taxes."
A report published by the subcommittee prior to the hearing singled out the
activities of Swiss bank UBS, which is accused of helping US clients dodge taxes
by allowing some clients to flout US tax reporting rules, and Liechtenstein's
LGT bank, which stands at the centre of a global offshore tax evasion scandal
which ignited after a former employee sold confidential client data to the German
authorities.
The Committee has made a series of recommendations aimed at increasing disclosure
and strengthening enforcement, and, if implemented, BakerPlatt warns that they
could have "far reaching implications."
"The tone of the report is unfortunate in its sweeping condemnation of
offshore ‘tax havens,'" the firm noted.
"Many compliant institutions and jurisdictions will feel unwarranted pressure
as a result of some of the pugnacious comments aired in the report and by some
of its authors," the commentary warned.
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