Eternal havens

Last April,the leaders of the G-20 met and declared that the era of banking secrecy is over. The G-20 meets again in a few weeks; whats happened in the interim? On paper,it looks like a lot of movement: of 42 jurisdictions originally listed as offenders,only 17 remain,and those are mostly small islands in the Caribbean or the Pacific. Certified as healthy (by the OECD): Monaco,Singapore,Switzerland,even Luxembourg thanks to a series of agreements they signed with various countries on how to exchange tax information.

India,as a member of the G-20,is also supposed to move against tax havens. Indeed,our domestic politics made of it,in the interim,something of an issue. The importance of cleaning up shadowy corners of the international financial system and of broadening the scope of regulation are two of the most crucial lessons from the financial crisis of 2008. But any progress has stayed largely on paper. For example,to get off the OECDs name-and-shame list a country has to sign 12 bilateral Tax Information Exchange Agreements or TIEAs. Indian diplomacy should have ensured that for serious offenders,one of those 12 should have been with India; but that hasnt panned out.

The finance ministry is working on rectifying that now. A panel has been looking at how to shoehorn anti-tax haven measures into the proposed Direct Tax Code. Part of that process: identifying the countries that dont share information with India,and analysing the reasons for that lack of sharing. Here is one reason: we havent signed treaties with them. Its easy for a Caribbean island to sign 12 TIEAs and get off the OECD list,for example,with other smaller countries which dont have any significant deposits in their banking system. While a domestic effort to finally get on board with the system defined last year is worthwhile,the real lesson the finance ministry must draw is that the system the G-20 suggested last year is too weak. The TIEAs must compulsorily include some with the worlds largest economies,particularly from the global South,which are most prone to capital flight. And,rather than requiring the provision of information on evasion on request,India must make a real push,diplomatically,for automatic exchanges of information. Anything less,and were still in the era of banking secrecy.