Monaco Growing Despite Attacks By France And The OECD

by Ulrika Lomas, Tax-News.com, Brussels

23 May 2001

In a supplement today, the Financial Times revisits the question of Monaco's relationship with France, and the extent to which the Principality can retain its tax privileges and its prized banking secrecy in the face of attacks from the OECD, the FATF and France itself.

Monaco wasn't in fact included in the FATF's list of un-cooperative jurisdictions, although its lack of transparency came in for criticism, but it was on the OECD's list of territories offering 'harmful tax competition'. Given what has happened since in the world to the OECD's initiative, and the steps that Monaco has taken to tighten up on precautionary measures against financial crime, it probably shouldn't be worrying too much about the international initiatives - its problems stem more from its close relationship with France, the leader in the pack of militant nations seeking to protect their tax-bases and prevent their citizens from squirreling away assets in dark corners.

In fact, the Monagesque banking sector has yet to show any weakness, with assets continuing to increase and new banks continuing to arrive; but as the Financial Times says, that may simply be due to the fact that all offshore centres are similarly threatened by the OECD's initiative.

Monaco's relationship with France has a long and tangled history, although between recent French attacks and a famous occasion in 1962 when a blockade by the French gendarmerie forced Monaco to accept that French taxes would apply to French nationals living in Monaco, there has been a long period of relative calm. Last year though Monaco was the target of one of a series of reports on 'tax havens' issued by a particularly rabid group of socialist deputies in the French National Assembly, and was later, and perhaps more seriously, attacked by the French Finance Ministry.

The Financial Times quotes Patrick Leclercq, the minister of state (the equivalent of prime minister) as saying that the report is distorted. "The truth is, Monaco is playing the game," he said. "There's lots of money here. We do not need dirty money."

In fact Monaco has increased the size of its financial supervisory team and has extended its laws covering the reporting of suspicious activity to many professions and business activities, including lawyers and estate agents.

Mr Leclercq is himself French, appointed under a system which allows France to propose candidates for the top jobs in the Principality. Even Mr Leclercq sees that this feudal relic is offensive to Monagesques, and it is one of a number of subjects being discussed in the ongoing negotiations between France and Monaco, which may see a reinforcement of Monaco's sovereignty being conceded by France in exchange for more control over its citizens' tax affairs when they live in Monaco.

What worries Monaco the most is the fear that the Feira agreement may lead to widespread information-sharing among European countries. If this happens, it says, it will choose to impose a withholding tax, as Switzerland already does, rather than breach banking secrecy.

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