Luxembourg PM Calls For US 'Tax Havens' To Be Blacklisted

by Ulrika Lomas, Tax-News.com, Brussels

03 April 2009

Luxembourg Prime Minister Jean-Claude Juncker has suggested that US President Barack Obama should look to the 'tax havens' in his own back yard before telling the financial centres of Europe and elsewhere how they should be running their affairs.

In a speech to the European Parliament on March 31, Juncker implied that it was hypocritical of Obama and other world leaders such as UK Prime Minister Gordon Brown to moralise over banking secrecy laws in the likes of Luxembourg, Switzerland and Austria when it is still possible to set up companies in certain low- or no-tax US states and provide the minimum of information to the authorities about the ownership of the company.

Juncker argued that if countries like Luxembourg are facing the prospect of being 'blacklisted' for their privacy laws, then so should the United States.

"The G20 has no credibility as an undertaking if Delaware, Wyoming or Nevada or far-flung islands from the United States are not on the blacklist," he told MEPs, adding: "If there must be a blacklist then, America should have its place on it."

Juncker said that by the end of the G-20 conference in London on April 3, it will be possible to discern whether the US, the UK et al would have found a "real solution" to the problems of regulating that world's financial system - one which includes the United States - or whether Obama and Brown are merely posturing and playing to the "public gallery" with their anti-tax haven rhetoric.

Nearly two million corporations and limited liability companies are formed within the United states each year, but in many cases US states form these corporations without asking for the identity of the corporation’s beneficial owners, and this can make life difficult for law enforcement agencies when investigating allegations of financial and other crimes.

A recent bill introduced into the US Senate would require state authorities to obtain beneficial ownership information for the corporations formed under their laws and to provide access to this information to law enforcement bodies upon receipt of a subpoena or summons. A similar bill introduced last year was co-sponsored by President Obama when he was a member of the Senate.

Michigan Democrat Senator Carl Levin, who also supports the crackdown on offshore financial centres and has introduced a bill which attempts to neutralise banking secrecy, has been pursuing this issue since 2000, when a Government Accountability Office investigation found that just one individual had been able to set up over 2,000 Delaware companies and move USD1.4bn through company bank accounts.

The United states has drawn criticism from the Financial Action Task Force (FATF) for its failure to comply with certain standards on the reporting of beneficial ownership which the FATF warns could undermine attempts to thwart money laundering. It urged the United States to correct this deficiency by July 2008.

For its part, Luxembourg, in an attempt to ensure it is omitted from any blacklist, announced on March 13 that it intends to conclude more double tax treaties to the benchmarks set by the OECD, thereby increasing exchange of information channels in cases where fiscal crime is alleged to have taken place.

However, a government statement announcing the decision also pointed out that OECD rules do not cover banking secrecy, and therefore Luxembourg will maintain this "in order to maintain its depositors’ privacy.”

Luxembourg has already established a double tax treaty network covering more than 50 countries, all following the OECD Model Tax Convention, although the treaty with the US contains 'Savings' and 'Limitation of Benefits' clauses which can negate the purpose of the treaty in some circumstances.

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