Imagine for a moment that the proposal in this year's Finance Bill whereby bank accounts could be accessed by the Revenue Commissioners, without a court order or prior notification to the taxpayer, applied to banks in all counties except, say, Offaly. Imagine that a law applied to Co Offaly only whereby all bank accounts there were secret and bank officials faced criminal sanction if they broke that secrecy. Imagine that for some reason the Government in Dublin was powerless to change the special provision applying to Offaly.
What would happen to bank accounts? Presumably, people who were minded to evade tax would open bank accounts in Co Offaly. Of course, large-scale tax evaders wouldn't rely solely on Co Offaly banking secrecy to make sure they didn't get caught.
You might find also that compliant tax payers who felt there was an issue of principle about privacy of bank accounts would decide to open accounts in Tullamore and Edenderry. The proposal in the Finance Bill would then seem rather hollow, of little effect against evaders, especially large-scale tax cheats, and offensive enough to some honest people to lead them to open Co Offaly accounts.
"Co Offaly" exists, and it is not some offshore haven. Within the EU, yes, within the euro zone, there are at least two such jurisdictions. Luxembourg and Austria have strong banking secrecy laws, and in Luxembourg's case, the full extent of EU antimoney laundering provisions are in effect, too. It is as compliant with best practice in the reporting of money laundering offences and the proceeds of crime as the Republic.
The nub is that evasion of tax in another jurisdiction doesn't count as a crime in Luxembourg. To the best of my knowledge, tax evasion in Luxembourg itself is not a crime. A German can drive across the borderless frontier between Germany and Luxembourg and within minutes go from the home jurisdiction where his or her bank account could be open to scrutiny for tax reasons, to one where there is absolute secrecy, except in relation to the proceeds of crime (mainly drugs trafficking and terrorism).
The same goes for an Irish person who can simply get a plane to Luxembourg. An account could probably be opened without having to turn up in person. It is not tax evasion to open a bank account in any jurisdiction; the evasion is to lie about it. The opening of a foreign account has to be reported to the Revenue by all taxpayers. The amount deposited and interest earned must also be declared. But you can do that and also be sure that the Revenue will not access your account. You, rather than your bank, could be obliged in the case of a Revenue audit to make foreign bank records available.
If you feel strongly about the principle of confidentiality, it is open to you to avoid the provisions of the Finance Bill without going outside the EU. With euro notes and coins to arrive in 2002, euro-zone banking will grow, even if EU clearing of cheques or direct debits is not possible. The fact of different EU banking secrecy laws is an obvious anomaly. The absence of information sharing on tax matters between EU revenue authorities is another fact. There is virtually no prospect of any change to either of these facts.
The German and Belgian authorities have complained about Luxembourg's banking secrecy. German banks have been raided to see if they operated a system to send customers up the road to their subsidiaries in Luxembourg. No offences have been found. Luxembourg has withstood enormous pressure not to dilute its banking secrecy to permit revenue access. Luxembourg will not change its stance, arguing that legitimately confidential accounts will simply leave the EU altogether and its industry will suffer.
Luxembourg mounts a good defence, but not Austria. It has recently been reprimanded by the Organisation for Economic Cooperation and Development (OECD)-based Financial Action Task Force on money-laundering for permitting anonymous savings accounts to Austrian residents and resident corporations. There are 25 million such accounts for a population of approximately eight million. Austria does not even operate "know-your-customer" rules. The task force has requested its members, including this State and Luxembourg, to persuade Austria to end its anonymous accounts, and to give special attention to bank cheques issued by Austrian banks.
This EU context, not even the offshore context, makes the type of proposal in the Finance Bill look very hollow. Monetary union underlines the anomalies within the euro zone. It is through such practical matters that EU monetary union drives greater political union, for good or for ill. It is also by virtue of such practical matters that political union could be stalled.
Oliver O'Connor is an investment funds specialist
