Indian ambassador to Luxembourg says banking secrecy laws attract illicit funds
Jaimini Bhagwati, the Indian Ambassador to the EU, Belgium and Luxembourg has written in the Indian Business Standard, saying:
Anti-money laundering efforts will not succeed unless banking secrecy laws are repealed.
The enabling role of tax havens and banking secrecy in the illegal transfer of funds across borders has been often debated. Supporters of tax havens distinguish between tax avoidance which is deemed legitimate and tax evasion which is accepted as illegal.
In stark contrast, banking secrecy legislation which has helped international banks headquartered in developed and island countries to attract enormous deposits from the kleptocratic elite in developing countries has received less attention. The IMF defines money laundering as a “process in which the illicit source of assets obtained or generated by criminal activity is concealed to obscure the link between the funds and the original criminal activity”. Since banking secrecy makes it difficult for tax and other investigation agencies to pinpoint the linkages between siphoned funds and illegal activities, it facilitates money laundering. Therefore, the role of banking secrecy laws in promoting flight of capital out of developing countries needs to be examined and addressed.
Which he then does, concluding:
The phrase “hypocrisy on steroids” was in the news recently to describe those remedies for the financial sector crisis which extravagantly favour bank shareholders and creditors at the expense of tax-payers. To summarise, the same expression could be used to describe the specious grounds on which banking secrecy laws are sought to be maintained when one of their objectives is to attract illicit funds.
He’s right, of course.
But what is now so important is that people like him are saying this in places like India. Now this has begun the time for real change has arrived.
And I can’t help but think he’d have remarkably little time for the Luxembourg Institute for Global Financial Integrity.