OECD Anti-Privacy Blacklists

Anti-Privacy BLACKLISTS
Fiction or Folly?

Are the leaders of the 29 member OECD
bluffing or are they really insane?

John Gaver
September 8, 200

John Gaver For some time now the Organisation for Economic Cooperation and Development (OECD), the Financial Action Task Force (FATF) and the Financial Stability Forum (FSF) have been saber rattling and threatening to BLACKLIST low and no tax countries and countries that protect the privacy of financial transactions within their jurisdiction.

Then, a few weeks ago, those BLACKLISTS began to emerge. The countries on those BLACKLISTS are threatened with being cut off from the US banking system within five years and other unspecified sanctions.

This brings up a certain question about the OECD, the FATF and the FSF.

"Are they just bluffing or are they really insane?"

I want to believe that they can't possibly be that stupid. But then, greed and the lust for ever more power over others has been known to blind great men to the obvious. Think about it. If the OECD, the FATF and the FSF actually follow through with their threats, the ultimate effect will be the decimation of their member countries' own economies. That isn't such a far fetched notion either. Let's look at the facts.

Note: Although I refer to United States and the IRS in the following summation, the situation is similar in other high tax jurisdictions. Just substitute the high tax country of your choice and their taxing authority and the situation should be similar.

To begin with, let's look at conditions as they stand today.

The wealthy are already leaving the United States in record numbers, as a result of an increasingly intrusive and abusive IRS.
As tax laws become more punitive and property confiscation increases, more wealthy families are forced to consider expatriation as a last resort to protecting their hard earned wealth.
The wealthy are the people who pay the lion's share of the taxes (the top 1% paid 36.2% of the personal income tax collected in the USA in 1999 - the top 5% paid 55.5%).
There is little doubt that the 29 member OECD or the G-7 based FATF or FSF could bully all of the smaller nations into bending over for them if they follow through on their threats.

Next, consider that there are generally three reasons why someone invests offshore and three types of offshore investors. So, let's look at why people invest offshore and what type of people they tend to be:

The criminal money launderer. He probably has the most to lose, as he is actively involved with organized crime. He probably has the best tax attorneys that money can buy (I mean that literally). However, his offshore investments are probably only the last stage in a very complicated money laundering scheme and the principle is probably shielded by a battalion of underlings who are willing to take the fall in the event that they are caught doing something wrong. But, remember that organized crime has much better completely anonymous ways to launder money than through the traceable transactions of offshore banks. Such accounts are probably mostly for convenience, rather than a money laundering conduit. Exposing such transactions would probably have little effect upon the criminal money launderer. Besides, according to the US government's own research, of the nearly USD$5 trillion that is held in offshore financial services centers, only about USD$500 billion (roughly 10%) is derived from questionable sources (See MONEY LAUNDERING AND FINANCIAL CRIMES on the US State Department web site for these numbers, as well as the whole sordid story of government invasion of privacy and their weak excuses for their excesses).
The unscrupulous investor. He probably has the most to lose and is actively involved in offshore investments for the purpose of evading US taxes. He may or may not fill out his own tax return, but he at least takes advice from a good tax attorney. It is somewhat likely that his tax attorney may even be an offshore investment specialist. Although I don't intend to suggest that all of the wealthiest Americans are unscrupulous offshore investors, it is likely that the unscrupulous offshore investor is among the wealthiest of Americans.
The scrupulous investor. He too, probably has a lot to lose and shelters at least 50% of his wealth offshore to protect himself from frivolous litigation or the potential loss of all of his wealth to government confiscation of his property. He is not trying to evade US taxes, but he is probably very aggressive in pursuing every legitimate tax shelter available to him. It is most likely that he has a good tax attorney fill out his tax return. It is also likely that his tax attorney is not a specialist in offshore taxes and may not be aware of some of the important nuances of laws affecting offshore investment. The scrupulous investor is also likely to be among the wealthiest of Americans.
The casual investor. He probably read somewhere that he should have about half of his money invested offshore. Although he is not trying to avoid or evade US taxes, he does take advantage of the tax loopholes that he knows about. Sometimes his information may be incorrect or out of date. He most likely fills out his own tax return the best that he can and attempts to stay within the law. He probably does not employ an accountant or attorney who specializes in offshore investment and tax liabilities. He probably has a sizable income, but is also the person who can least afford to lose anything.

Next, consider that if the OECD, the FATF and the FSF should really follow through on their threats, it is a virtual certainty that every other nation on earth will bend over for them. So the real question is how will each of the above people be affected and what will be their likely response.

The criminal money launderer. These people are not a significant factor, as they are few in number and will likely not be affected by bank transparency. In the worst case, an insignificant stooge will take the fall for the real criminal boss. They will continue to do business as usual.
For the unscrupulous investor, the answer is simple. The unscrupulous investor will have no choice but to flee the jurisdiction of the IRS before the foreign banks open their books to the IRS and expose his crime. Furthermore, he will have no choice but to take all of his wealth with him when he leaves to prevent its confiscation by the IRS. Since most of this group are the people who pay most of the taxes (the top 1% of taxpayers paid 36.2% of all personal income tax in 1999) and whose US capital provides jobs for other Americans, you can expect to see a proportionate drop in employment and our tax base, leading to higher taxes for those who are left.
Because of the complexity of the tax code, the scrupulous investor, though he has tried to stay within the law, has probably made a few mistakes. These mistakes may not be enough to land him in jail, but back taxes and penalties could devastate him. Some of these investors will be blindsided by charges and their cases will make the news. The rest, hearing of this, will probably hire a good tax attorney very quickly to analyze their liability. Some will be clean or have limited liability. Others will not be so lucky. Those are the ones who will have to make a decision of whether to stay and take their punishment and then start over or flee the jurisdiction of the IRS. But, faced with the likelihood of higher taxes as a result of earlier capital flight (remember the unscrupulous investor?), his decision will probably be weighted toward expatriation.

The choice is simple. Stay and lose most or all of what you have gained over the past 10 or 20 years or escape to paradise. Certainly, some will stay and take their punishment. But, remember that those who leave will take all of their wealth with them, which will cause further unemployment and a further reduction in the tax base, with the resultant higher taxes. Remember that 5% of taxpayers pay over 55% of the taxes. Facing these higher taxes, even those who had managed to somehow stay completely legal might even consider leaving, in order to legally avoid such high taxes.

Is a picture beginning to develop here?
Remember that the casual investor, though he does not have as much to lose, is the person who can least afford to lose anything. He is also the person who is most likely to have been misinformed on the tax laws. As with the scrupulous investor, some of the casual investors will be blindsided by charges. Others will assess their liability and some of those will have to make the same choice that many of the scrupulous investors had to make - punishment or paradise. But, by the time the IRS works their way down the food chain to these people, they will already be paying much higher taxes as a result of the lost investment capital and tax base, caused by the expatriation of those in the first two groups.

Even those who have nothing to fear or who have never invested offshore should, by this time, begin to see the cycle of expatriation causing higher taxes, causing more expatriation, causing higher taxes, causing... Well, you get the picture. Such a trend should make expatriation even more attractive to those who face any kind of significant tax liability.

The whole point is that the OECD/FATF/FSF threat is one that cannot possibly succeed. The complete financial transparency that is their goal would cause massive native capital flight that would devastate the high tax countries. If they are aware of the damage that opening up all foreign banks to IRS scrutiny could do, then the only other possibility is that this whole BLACKLIST thing is a bluff. This could simply be a ruse to slow down or reverse the current high rate of native capital flight. On the other hand, greed could have gotten the best of them and they really are insane. Which is it?

I have laid out the facts. But, it is not my intention in this article to attempt to determine which case it is - bluff or insanity. That is for you to decide. I do wonder though, why three different organizations produced three different BLACKLISTS, so close in succession. Could it be that the OECD was really just thrown out as the sacrificial lamb, to take the heat off of the other two organization's BLACKLISTS? Could it be that they really are insane and really do hope to achieve total bank transparency? You decide.

You can find statistics about income tax collection in the article, "TICK-TICK-TICK - The Economy Bomb." Play with the numbers. Use your own assumptions. I promise that the result will be frightening.

The one thing that I do strongly suggest, is that regardless of whether you have some of your money invested offshore or not, you should have a second passport, just in case they really are insane. When taxes go up, more and more of the wealthy will flee and that will cause more unemployment and force even higher taxes. It is even possible that, faced with native capital flight on such a massive scale, the US government might even place severe restrictions upon monetary exchange. In that case, only those with a second passport will be able to take their own hard earned money out of the United States with them.

My point is that the people who are likely to be caught up in one or more of these scenarios are those who pay most of the taxes, fund most US business and can most easily afford to move to paradise. These are the people who have the money to overcome any minor inconveniences that may still remain in the offshore jurisdiction of their choice. Given the available choices, what would you do?

I ask you now, "If you had millions of dollars and were given the choice of losing most of your hard earned wealth and possibly going to jail or living in paradise, which would you choose?" Tough question, huh?. Let me see... Poor and jail or rich and paradise... Hmmmm...

I think I would take paradise.

The OECD/FATF/FSF BLACKLISTS are either an empty threat to tax haven countries or the most significant threat to our own economy that we have ever faced. Either way, these arrogant, autocratic organizations have no place in a civilized democratic society and the United States should certainly not be party to any of them. I urge you to contact your Congressman and tell him/her that you want the US to withdraw from the Organisation for Economic Cooperation and Development (OECD), the Financial Action Task Force (FATF) and the Financial Stability Forum (FSF). To be taken more seriously, be sure and use the correct European spelling of the word "Organisation" in your letter.

Furthermore, since all of this activity is prompted by the greed of governments and their desire to collect more income taxes, I suggest that you also encourage your Congressman to support abolishing the root cause of all of this government abuse by abolishing the Income Tax and IRS and replacing it with a National Retail Sales Tax (NRST). By changing the point of tax collection from where income is earned to where it is spent, the need to resort to such treachery to collect those taxes vanishes. Without an abusive IRS out there trying to trace sources of income, there is no need for US participation in despotic organizations like the OECD, the FATF, the FSF and, most importantly, any such future intrusive organizations. For the first time since 1913, Americans would be free to invest their own money as they see fit. Because of the offshore investment in the United States that this would generate, other countries would certainly follow our lead. In the end, everybody wins (except for the 115,000 IRS agents who will be out of work - all to gether now - "Awww.").

See related articles and supporting documents:

1986-2008 IRS Collections Data by Income Category
Obama agenda drives record expatriation
Tick - Tick - Tick / The Economy Bomb
Tax Freedom Day Builds Case for FairTax
US Tax Freedom Day Clock Web Widget
UK Tax Freedom Day Clock Web Widget
US Tax Freedom Day Clock
US Tax Freedom Day Clock Widget (for Mac)
UK Tax Freedom Day Clock Widget (for Mac)
The Privacy Factor
More Attacks on the Wealthy
US Taxpatriates List
2000 Statistical Yearbook of the Immigration & Naturalization Service (6.2mb PDF)
2003 World Wealth Report (Press Release)
American Citizens Residing Abroad (US Bureau of Consular Affairs)
Health Insurance Portability & Accountability Act of 1996 (26 USC 877(a)(1))
Immigration Reform and Immigrant Responsibility Act of 1996 (8 USC 1182(a)(10)(E))
Heroes Earnings Assistance & Relief Tax Act (Public Law 110-245) (8 USC 1182(a)(10)(E))
The Economic Impact of Replacing Federal Income Taxes
with a Sales Tax (CATO)
Fair Tax Act of 2011 (H.R. 25)
Americans for Fair Taxation
National Retail Sales Tax Alliance