{"id":19801,"date":"2013-03-25T07:18:51","date_gmt":"2013-03-25T07:18:51","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=19801"},"modified":"2013-03-25T07:19:19","modified_gmt":"2013-03-25T07:19:19","slug":"the-challenge-of-post-tax-haven-cyprus","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2013\/03\/25\/the-challenge-of-post-tax-haven-cyprus\/","title":{"rendered":"The challenge of post tax haven Cyprus – and why, so far, the Troika has failed it"},"content":{"rendered":"

Cyprus is moving into unknown\u00a0territory\u00a0today<\/a>, if not wholly by choice. The deal\u00a0now\u00a0agreed to close Laiki Bank and massively restructure the Bank of Cyprus will mean substantial losses for depositors with more then \u00e2\u201a\u00ac100,000 in their accounts, but that's just the beginning of the tale.<\/p>\n

Despite claims by some on the web and Twitter that\u00a0Cyprus\u00a0has not been a tax haven that is just nonsense, as I have shown here<\/a>, and here<\/a>. It was not the most egregious tax haven: that's true, but it was a tax haven none the less. But note the past\u00a0tense; Cyprus is not a tax haven anymore.<\/p>\n

Tax havens sell their right to legislate and regulate. I define\u00a0secrecy jurisdictions as\u00a0\u00a0places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain. That regulation is designed to undermine the legislation or regulation of another jurisdiction. To facilitate its use secrecy jurisdictions also create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so. Cyprus fitted the bill pretty well: it did not offer a perfect\u00a0smokescreen\u00a0of secrecy like some, but it was\u00a0opaque\u00a0enough. But now three things are going to\u00a0happen.<\/p>\n

First, it clearly no longer has the right to\u00a0regulate\u00a0itself: the deal that has been imposed makes that clear.<\/p>\n

Second, its banks can no longer be trusted.<\/p>\n

Third, the secrecy will go.<\/p>\n

And with it goes Cyprus' tax haven status. The cash will follow in hours<\/a>, as the FT has noted. Capital controls will help,<\/a> but the pressure will be real.<\/p>\n

This is where the action of the Troika begins to come into doubt. Few can have done more to oppose tax haven activity than me, and I make no apology for that. But I am also an evolutionary, not a revolutionary and it's a revolution that is being imposed on Cyprus. Rather like Lehman was a disaster due to hasty thinking and a belief it was too small too matter, I fear that mistake is being made in Cyprus.<\/p>\n

First of all, blanket writing down of all balances in a bank seems extreme: wouldn't it have been much more useful to have examined the provenance of all accounts over \u00e2\u201a\u00ac100,000 and decide which might be foreit in full and which were valid claims\u00a0instead? That would have an immediate and acceptable\u00a0relevance, even if all\u00a0would\u00a0need to be frozen in the meantime. You can be sure those that\u00a0represented\u00a0honest\u00a0claims\u00a0could have been resolved remarkably quickly if a simple demand of full information\u00a0exchange with tax authorities was made a condition for making\u00a0claim \u00a0on the\u00a0balance. An\u00a0opportunity\u00a0to leave a clean banking sector has been lost it seems. Justice has gone by the wayside in the process.<\/p>\n

Second, like it or not there are\u00a0counter parties\u00a0to these banks: I hope\u00a0consideration as to how that fall out will be\u00a0managed\u00a0has been made. Just as, undoubtedly, Cyprus has suffered as a counter party to the Greek 'haircut' (because tax havens always act as conduits to their regional, larger, financing centre) there will now be those who suffer from the\u00a0failure\u00a0of Cypriot banks. If that cannot be managed quickly enough contagion follows, inevitably. I hope the scale has been estimated.<\/p>\n

But thirdly, and importantly, I am concerned for Cyprus. I and the\u00a0Tax Justice Network have always argued that any\u00a0tax\u00a0haven in transition to a new economy will need considerable financial assistance, and that providing it would be a price\u00a0worth\u00a0paying. There is no sign as yet that Cyprus is to get that assistance, and the result will be social chaos. That is a price Cyprus should not have to suffer. The\u00a0price\u00a0of saving the Euro cannot be\u00a0extreme\u00a0poverty as recession and mass unemployment hits Cyprus, but I fear it will be.<\/p>\n

This is no way to solve the tax haven problem and is an unfortunate\u00a0precedent\u00a0to set: aid, selective account and asset forfeiture based on refusal to information exchange and programmed restructuring of banking is what is needed to counter knee jerk reactions if a transition to new and sustainable economies\u00a0for tax havens is to happen. Cyprus is being used to set a bad precedent and one, that like\u00a0Lehman,\u00a0many will come to regret.<\/p>\n","protected":false},"excerpt":{"rendered":"

Cyprus is moving into unknown\u00a0territory\u00a0today, if not wholly by choice. The deal\u00a0now\u00a0agreed to close Laiki Bank and massively restructure the Bank of Cyprus will mean
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