« What we are seeing today highlights the fact that the G20’s actions have been useless: the G20 has been a sham. »
Hello Gabriel Zucman. As a specialist in tax evasion issues, what is your view on the Cypriot crisis?
The case of Cyprus clearly illustrates the dangers of allowing countries to develop as offshore financial centers and the need to regulate such tax havens.
A country like Cyprus, with a banking system that is disproportionately large in relation to its economy, is very vulnerable to a banking crisis and can find itself in a very difficult fiscal situation if it has to bail out its banks.
Do you have a more precise idea than what we have heard about the amounts of foreign deposits in Cypriot banks?
No, it is very difficult to know who owns assets in Cyprus, whether deposits or other assets or securities portfolios, using the statistical apparatus currently available.
In light of the Cypriot crisis, it is clear that such tools need to be developed in order to manage crisis situations. This lack of information makes it impossible to seriously regulate tax havens and to manage crises such as the one that affected Cyprus in a rational and fair manner.
And yet, the G20 summit in August 2009 required all tax havens to commit to signing at least twelve bilateral information exchange treaties. In light of the Cypriot crisis, it would seem that this is not enough.
Cyprus is in full compliance with the recommendations made by the G20 at the London summit in April 2009. And what we are seeing today highlights the fact that the G20’s action has been useless: the G20 has been a sham.
Why is this, even though politicians were proclaiming the end of banking secrecy?
The fundamental problem with these treaties is that they were « on demand. » In order to obtain information, the country must first have a suspicion about one of its citizens. More specifically, a state must suspect that one of its citizens has undeclared assets in a specific bank. It is as if the country requesting information must already have the answer to its question!
Everything is handled on a case-by-case basis, which in practice has resulted in a ridiculously small number (a few hundred cases per year) of information exchanges.
Hence the results of your study with Niels Johannesen on the evaluation of this system [1]?
Yes, we sought to assess the impact of the G20 on funds deposited in tax havens. We found that it had only a very limited impact: the amounts decreased little, if at all, following the signing of these information treaties, which would suggest that people did not feel « threatened. »
However, we note that there has been a reallocation of assets from the tax havens that have signed the most treaties to those that have signed the fewest.
Do you have any idea what the new regulations will look like?
Recognizing the failure of the G20 on this point, international institutions, and the OECD in particular, are moving towards automatic information exchange agreements. This means that each year, banks domiciled in tax havens would send a comprehensive list of their clients and the amounts held to the relevant tax authorities. This would be a major step forward.
But it will take time to implement and we will need to be vigilant. An important point is to ensure that banks communicate data from the perspective of the ultimate beneficiary to avoid the problems of « shell companies. »
More generally, and in view of the budgetary difficulties facing eurozone countries, do you have an estimate of the tax revenue lost due to tax evasion?
It is extremely difficult to answer this question. In The Missing Wealth of Nations [2], I estimate that 8% of household financial assets, or €7 trillion, are held in tax havens, of which 40% (almost €3 trillion) belong to Europeans. This represents a considerable loss of tax revenue.
In this article, does your research on tax havens help you to revisit the myth that China owns the world?
Indeed, the key point is that a large part of the money held in tax havens belongs to American or European citizens. When these fortunes are taken into account, the international positions of developed countries are significantly better. In particular, we find that Europe is not nearly as indebted to the rest of the world as we think, but rather a creditor. China does not yet own the world…
Interview by Charles Boissel
Notes:
[1] Johannesen, Niels, and Gabriel Zucman. « The end of bank secrecy? An Evaluation of the G20 tax haven crackdown. » (2012).
[2] Zucman, Gabriel. « The missing wealth of nations: Are Europe and the US net debtors or net creditors? » (2012).
