February 18, 2008 6:53 pm
If it was a Robert Ludlum thriller it would be called The Liechtenstein Affair or The Zumwinkel Doctrine. Without a cold war to prosecute, Germany’s spies have turned on suspected tax evaders, paying at least €4m to a former employee of Liechtenstein’s biggest bank for a list of Germans with money in trust in the principality. There must be tight controls on the ability of governments to spy on their own citizens, but unco-operative tax havens deserve this kind of treatment.
The spies’ information led to a raid on the house of Klaus Zumwinkel, who resigned last week as chief executive of Deutsche Post, amid allegations he failed to pay €1m of tax due on a Liechtenstein trust. Liechtenstein’s laws on bank secrecy make those of neighbouring Switzerland look positively indiscreet. Since 2000, 35 unco-operative jurisdictions have been removed from an Organisation for Economic Co-operation and Development blacklist, including Jersey, Bermuda and the Cayman Islands. Liechtenstein is one of only three that remain.
There are circumstances in which banking secrecy laws are just. The rise of Switzerland and Liechtenstein as tax havens began in the 1930s, when their laws protected German Jews who sought to put their money beyond the reach of Nazi agents. But limited co-operation with tax authorities will hardly result in the persecution of modern-day Germans, and nor does it end their legitimate right to invest wealth offshore if they so choose.
Germany’s problem with evasion is partly the fault of its tax system. Although the abolition of wealth tax has improved matters, marginal income and inheritance tax rates for high earners approach 50 per cent. Tough enforcement will never stop evasion if taxes are punitive.
But governments are right to insist that those who live in a country, and benefit from public services, pay tax. That means they have to act against jurisdictions such as Liechtenstein that abet evaders.
In that context, a €4m bribe to a bank official is money well spent. The direct benefit – information on Germans suspected of tax evasion – is the least of it. Far more important is the blow struck against Liechtenstein’s refusal to co-operate, and the demonstration to future evaders that there is no such thing as guaranteed bank secrecy.
There must be safeguards. Civil authorities should insist that their security services have grounds to suspect tax evasion before turning them loose. Data that is not of use in criminal investigations must be destroyed. But the only answer to tax havens that do not co-operate may be to send in the spies.
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