Unfair Practices in Financial Services

1. Unfair Practices in Financial Services OAS March 2016

2. The Real Problem Is “Onshore” • Most developed nations have poorly designed welfare states and tax systems that penalize and discourage productive behavior. • When bad budgetary policy is combined with changing demographics (aging populations and falling birth rates), this means Greek-style fiscal chaos.

3. U.S. Population Pyramid

4. The Frantic Search for Taxes • Many politicians in OECD nations understand there’s a crisis, but most feel genuine reform is politically impossible. • So they hope to prop up their fiscal systems for a bit longer by finding a pot of gold at the end of the “offshore” rainbow.

5. Enforcing Bad Tax Policy • It is widely recognized by public finance economists that good tax systems should have a) low rates, b) no double taxation, c) no loopholes, and, d) territorial reach. • The attack on the “offshore” world only exists because “onshore” nations violate principles b and d.

6. Double Standards and… • The anti-offshore policies of high-tax nations and international bureaucracies are economically destructive. • They are also grotesquely hypocritical. • OECD nations became rich when they had small governments and no income taxes, but now they want to deny similar policies to developing nations.

7. More Double Standards • Perhaps most amazing, the U.S. government bullies other jurisdictions into acting as vassal tax collectors, yet the U.S. unquestionably is the world’s largest tax haven. • Both federal law (non-taxation and non-reporting) and state law (incorporations) make U.S. very attractive for NRAs.

9. Obama said in 2008 that there are more than 12,000 companies are registered at Ugland House in the Cayman Islands, making it “either the biggest building in the world or biggest tax scam in the world.” Obama’s Silly Demagoguery

10. Cayman Islands vs. Delaware

12. More Double Standards • Massive pressure on small jurisdictions to accept very costly and ineffective regulations on financial sector. • Easier rules for “onshore” institutions. • Professor Avinash Persaud: “…money launderers seek to hide their illicit earnings in large financial places like London, New York...”

13. …and Moving Goal Posts • The original OECD anti-tax competition scheme was based on information sharing upon request. • Now the high-tax nations, working through the G-20 want automatic and unlimited collection and sharing of information, even with corrupt, venal, and incompetent regimes.

14. More Moving Goal Posts • The original goal was bilateral tax treaties, with both parties gaining some benefits. • Now we have FATCA, CRS, and the OECD Multilateral Convention on Mutual Administrative Assistance. • Net result: Financial privacy is gutted and fiscal sovereignty destroyed.

15. More Moving Goal Posts • The original goal was for financial institution to have “know-your-customer” policies. • Now we have ineffective rules that impose very heavy costs on banks • Net result: Poor people go unbanked and small jurisdictions lose correspondent relationships because of “de-risking.”

16. Appeasement Doesn’t Work:Don’t Feed an Alligator

17. He’ll Want Another Meal Tomorrow…and Bring a Friend

18. Conclusion • Website: www.cato.org • Blog: www.danieljmitchell.wordpress.com • Policy videos: www.youtube.com/afq2007 • Twitter: @danieljmitchell