G-20 leaders blacklist Malaysia as one of 4 tax havens.
Four nations were blacklisted as uncooperative tax havens after G-20 leaders declared the age of banking secrecy was over and said they would no longer tolerate shady havens draining away badly needed tax revenue.
At the request of the Group of 20 summit of rich and developing nations, the Organization for Economic Cooperation and Development named the Philippines, Uruguay, Costa Rica and the Malaysian territory of Labuan as the worst offenders, saying they had refused to adopt new rules on financial openness.
Leaders also said Thursday that nations that refuse to exchange tax information could in the future face tough sanctions – including the withdrawal of financing by the World Bank or International Monetary Fund.
“The time of banking secrecy has passed,” French President Nicholas Sarkozy said following the summit. “Everyone around the table wants an end to tax havens. Everyone knows we need sanctions.”
The announcement reflects mounting concern that banking secrecy in tax havens has helped to worsen the economic crisis by disguising the true value of some global assets.
Anti-poverty activists say such places provide corrupt officials places to stash illicit funds, often depriving poor nations of needed resources.
The OECD has divided countries into three categories: those who comply with rules on sharing tax information, those who say they will but have yet to act and nations which have not yet agreed to change banking secrecy practices.
Switzerland and Liechtenstein, which both have strong banking secrecy traditions, said last month they would adopt international rules on tax cooperation and were ready to comply with G-20 demands.
Liechtenstein, Switzerland’s tiny Alpine neighbor, said it has already met with British officials to prepare for the new standards. Monaco said earlier that it would be more transparent with foreign tax authorities.
In return they were spared the fate of being blacklisted but were left in a gray area of countries that still have to implement their commitment to accept new information-exchange standards. China supported the blacklisting, but would not agree to have two territories, Hong Kong and Macau, classified as uncooperative tax havens.
Potential sanctions for transgressors include extra audits of those who use tax havens and curbs on tax deductions claimed by businesses using the territories.
In their communique, leaders said they may consider further penalties in their bilateral relations with tax haven territories. German Chancellor Angela Merkel said Brown and President Barack Obama played a key role in pushing for a crackdown on tax havens.
At least 35 offshore tax havens, from Britain’s Channel Islands to the Cayman Islands in the Caribbean, are under increasing pressure to provide more information to international authorities to prevent people from evading taxes or hiding income by shifting money to such places.
Stephen Timms, financial secretary to the British Treasury, said a culture of banking secrecy had worsened global economic problems.
“That lack of transparency – that opaqueness – has contributed to the severity of the problems we are seeing in the world economy at the moment,” he said. – AP