Banking secrecy: A convenient scapegoat


Politicians and lobbies of all persuasions seem to have found a new 'public enemy number one': banking secrecy.

Politicians and their paid servants, the regulators, have failed miserably to prepare for the current global financial crisis. Despite the fact that institutions like the Bank of International Settlements has spent around ten years and produced a report of 1000 pages, the Basel II rules did nothing to prevent the debacle that has afflicted major banks around the world. The attacks on banking secrecy and particularly tax havens are nothing more than a desperate search for scapegoats. They are not the cause of the current crisis.

Not so long ago there was a time when anyone could walk into a bank in Austria and open a bank account without presenting any form of documentation. No one asked what his or her name or address was. You paid in your money and you received a bearer passbook that was the only document you needed to claim back your money. Was crime any higher as a consequence of lax banking regulation? Was corruption rampant? Not at all. Since the (US inspired) crusade against banking secrecy has gathered speed, both crime and corruption has - if anything - increased.

Ironically, much crime and corruption can be traced back to ill-conceived legislation: the war on drugs, arbitrary taxes (tobacco, alcohol), questionable regulations and subsidies (agriculture, trade tariffs), limits on prostitution. All these laws and regulations may be well intentioned but they provide a fertile field for criminal activity and usually are counterproductive as well as costly to the taxpayer.

If countries want to close down tax loopholes they can avail themselves of a solution that is easy to administer and leaves the precious privacy of all citizens untouched: Legislators can decide to impose taxes at source. If politicians are really only interested in reducing the amount of tax that in unpaid this solution should suffice. Their more intrusive tactics indicate that the authorities are more interested in invading the private sphere of the individual, increasing the control that the state already has over the lives of individuals.