MONDAY
JULY 31
2000
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YOUR PAPERS, PLEASE ...
Bank privacy
bill 'dangerous'
Official calls proposed legislation
'Know Your Customer' in disguise
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By David M. Bresnahan
© 2000 WorldNetDaily.com
Even though an unprecedented public outcry stopped regulators in their tracks when they tried to enact invasive "Know Your Customer" banking regulations just over a year ago, Congress has found a back door way to accomplish the same goal -- and more -- according to one concerned congressman.
The "International Counter-Money Laundering and Foreign Anticorruption Act of 2000," H.R. 3886, was recently passed by the House Banking and Finance Committee, of which Rep. Ron Paul, R-Texas, is a member.
Rep. Ron Paul, R-Texas
Paul told WorldNetDaily that while the bill appears to be aimed only at international banking transactions, it also gives the secretary of the treasury the ability to expand those regulations to apply to all transactions without further approval from Congress. The bill is now being prepared for a final vote in the House this fall.
"I think they're limiting it to the international aspect because the average guy on the street isn't going to be affected and this is the way they set the precedent," explained Paul. There is an international effort to eliminate privacy from financial transactions, and this proposed change will affect Americans soon, he believes.
"Know Your Customer" -- although the wording is not used in the current bill -- refers to regulations that would require banks to obtain unprecedented amounts of information about customers, monitor all financial transactions and report transactions that do not fit set profiles established by those customers.
After WorldNetDaily broke the original "Know Your Customer" story, publicity resulted in a massive public response -- with over 300,000 individuals and banks protesting efforts to establish the regulation -- and "Know Your Customer" was withdrawn.
Paul led the earlier effort, and has again sounded the alarm. He told WorldNetDaily H.R. 3886 gives the treasury secretary essentially unlimited powers to change and make regulations without additional approval from Congress.
In fact, H.R. 3886 includes a section entitled: "GUIDANCE TO FINANCIAL INSTITUTIONS OPERATING IN THE UNITED STATES ON TRANSACTIONS BY OR ON BEHALF OF CORRUPT FOREIGN OFFICIALS." It states: "The Secretary of the Treasury, in consultation with the Attorney General of the United States and the Federal functional regulators (as defined in section 509(2) of the Gramm-Leach-Bliley Act), shall, before the end of the 180-day period beginning on the date of the enactment of this Act, issue guidance to financial institutions operating in the United States on appropriate practices and procedures to reduce the risk that such institutions may become depositories for, or transmitters of, the proceeds of corruption by or on behalf of senior foreign officials and their close associates."
Paul sees these new powers granted to the secretary of the treasury and the attorney general as extremely broad, and is concerned that they will be enabled by this legislation to establish any regulation they wish with no guidance or oversight from Congress.
"There are those who want to know what we're doing with all citizens' personal finances. They are determined and they haven't let up," he said. "They probably have calculated correctly that not as many American people will be riled up over this, but hopefully we can alert a lot of people to what's happening so that they are prepared and can object to this, even if it doesn't personally affect them yet."
The bill is part of a major push by the Treasury Department and banking regulators to eliminate "harmful tax practices" worldwide.
Treasury recently issued a news release announcing that six countries long known for the privacy protections they provide bank depositors -- Bermuda, the Cayman Islands, Cyprus, Malta, Mauritius and San Marino -- have agreed to change drastically the way they permit bank customers to conduct financial transactions. As a result, offshore banking with numbered accounts may soon be a thing of the past. All six countries have signed virtually identical letters promising to end those protections.
"The jurisdictions have pledged changes to help ensure that their financial sectors will meet international standards of fairness, transparency and disclosure, including the exchange of information in the context of criminal and civil tax matters," said Secretary of the Treasury Lawrence Summers in a prepared statement.
Summers has a great deal of experience dealing with international banking. He came to the Clinton administration from the World Bank where he served as vice president of development and chief economist. President Clinton first appointed him as undersecretary of the treasury for international affairs in 1993. He then moved on to deputy secretary of the treasury, and in July 1999 became secretary.
Treasure Secretary Lawrence Summers
Summers is a strong supporter of the Organization for Economic Co-operation and Development -- a 29-member-nation group that "provides governments a setting in which to discuss, develop and perfect economic and social policy, according to its website. Summers has worked closely with the OECD to bring about the current actions.
"In today's global economy, it is vital that we put an end to international tax practices that encourage tax evasion and improper tax avoidance and that distort capital flows. We encourage all jurisdictions that have not previously made commitments to eliminate harmful tax practices to do so," said Summers.
Based on the principles outlined in OECD's "report on Harmful Tax Practices," each of the six nearly identical letters state that the country involved "commits to refrain from:
"Introducing any new regime that would constitute a harmful tax practice under the OECD (Organization for Economic Cooperation and Development) Report;
"For any existing regime related to financial and other services that currently does not constitute a harmful tax practice under the OECD Report, modifying the regime in such a way that, after the modifications, it would constitute a harmful tax practice under the OECD Report; and
"Strengthening or extending the scope of any existing measure that currently constitutes a harmful tax practice under the OECD Report."
All six letters promise to provide information previously held in highly guarded confidence -- effectively ending offshore banking advantages of privacy in financial transactions. The change will take place no later than by the end of 2005, according to the promises in the letters.
The published goals of the OECD are "to build strong economies in its member countries, improve efficiency, hone market systems, expand free trade and contribute to development in industrialized as well as developing countries."
The six countries that signed the historic letters are well known as tax havens, where their unique tax laws help many shelter funds from their home country. So why would those six countries suddenly change their banking laws?
"I think they might be intimidated by the powerhouse -- the American Empire -- as it spreads its wings militarily and economically. We probably put tremendous pressures on them. Some of these tax havens are not dependent on foreign aid or things like this, but they must feel intimidated that they could be put off limits if they don't go along with our regulators," Paul told WorldNetDaily.
The Treasury Department has also created a list of 47 other countries known for banking privacy -- a list that will be used to institute sanctions and punitive actions to force those countries into compliance as well, according to Treasury Department reports. The list of 47 comes from a report prepared by the OECD and released in June.
"We encourage all jurisdictions that have not previously made commitments to eliminate harmful tax practices to do so," said Summers.
Tax evasion and tax avoidance have become so extensive that the tax revenues of many countries, including the United States, are now suffering, according to the OECD.
Donald J. Johnston, secretary general of the OECD
"I personally was a tax lawyer for many years and I know these definitions can be tricky. Tax evasion is easy -- it involves breaking the law. By 'tax avoidance' OECD means 'unacceptable avoidance' where the taxpayer has circumvented or even subverted the law in order to avoid paying taxes due. This can be contrasted with acceptable tax planning. What is critical is transparency," said Donald J. Johnston, secretary general of the OECD speaking to a high-level symposium on "Harmful Tax Competition" June 29.
Recently, the OECD has been "setting its analytical sights on those countries -- today nearly the whole world -- that embrace the market economy," according to OECD policy documents.
Johnston also pointed a finger at those countries openly advocating the avoidance of taxes and providing privacy for those who wish to do so. He called the practice "tax poaching" and said it undermines the revenue base of other countries.
"Every government or jurisdiction that is not engaged in harmful tax competition is threatened and must protect itself from those that do," Johnston said.
He warned that individual governments are helpless unless they join forces to stop the so-called "tax poachers."
"Cooperation among governments and jurisdictions is the prerequisite to managing this aspect of globalization -- just as it is the prerequisite for managing other aspects of globalization such as trade, investment, capital flows," said Johnston.
He also proposed an international enforcement agency to go after tax offenders.
"Tax authorities must develop global cooperative networks -- among themselves and with other law enforcement authorities such as those who fight money laundering, namely, the Financial Action Task Force (FATF), attached also to the OECD and supported by the Secretariat. Such co-operation can be reinforced if governments set minimum requirements for regulation, transparency, and co-operation with other jurisdictions," said Johnston.
Countries with a zero income tax are not the problem, according to Jeffrey Owens, OECD Financial, Fiscal and Enterprise Affairs Directorate. Countries that do not provide access to financial records for tax authorities are the target.
"We define harmful tax practices by any of three operative criteria: lack of effective exchange of information, lack of transparency, and attracting business with no substantial domestic activities where coupled with low or zero tax rates," explained Owens in a written statement.
He said the "tax problem" caused by the offending countries is growing bigger every day. "Over 1 trillion dollars (US) is invested in offshore funds, and that the number of funds has increased by more than 1,400 percent over the last 15 years," he said.
According to a report issued by the OECD, member countries are putting pressure on those countries currently providing offshore banking to come into compliance by the end of 2005. The pressure is being exerted through threats to change treaties in place and under negotiation, according to the OECD.
Member nations of the OECD have been told, "the harmful features of preferential regimes must be eliminated before the end of five years. The guidelines also provide that "the Forum should be used by Member countries to co-ordinate their national and treaty responses to harmful tax practices."
The OECD told member nations that the six nations that have signed compliance letters are expected to be joined by others soon in an effort to have all nations embrace "international tax standards for transparency, exchange of information, and fair tax competition."
What must the problem countries do to gain the approval of the OECD?
"The international standard means, for example: (1) The beneficial ownership of shares and trusts must be kept on records that can be accessed by governmental authorities. (2) There are audited or filed financial accounts. (3) There is an efficient administrative process to all the tax authorities of another state to obtain information needed to enforce its own revenue laws with regard to geographically mobile income. These are some examples of the international standards of transparency and disclosure that tax havens are being asked to meet. And let me emphasize that it is going to be the same standards for all member countries and non-member countries," explained Owens.
Owens acknowledged that many "tax havens" would be financially damaged if they were no longer able to offer privacy in banking. He said the OECD is studying ways to provide assistance, but he did not offer much sympathy for countries that may be hurt by the changes.
"Let's be clear. For decades some of these states have been eroding the tax base of not just OECD countries but those of developing countries as well. They have been assisting dishonest taxpayers to avoid paying their fair share of taxes in their countries of residence. And who has borne the burden of these activities? Honest taxpayers," said Owens.
Meanwhile, Paul has created a website to provide information and recommend action for those concerned, like he is, about the loss of domestic banking privacy rights.
Under the proposed law, insists Paul, banks would be forced to collect information on every depositor, including those who are not engaged in foreign transactions. Since every depositor has the potential to conduct an international banking transaction, banks will be asked to keep records and profiles on everyone.
"It leads eventually to the government knowing everything we do all the time," explained Paul. "It's very, very dangerous. We have to watch out."
"The regulations seem to affect the honest, law-abiding citizen," warned Paul. "It never gets to the criminal. I don't think all these regulations will catch the criminals, and it will take away some of our personal liberties and our personal privacy, which we in the Congress should be doing more to protect instead of carelessly undermining.
"When you're reported, your obligation is to prove yourself innocent," he said. "It isn't like you're being suspected and we have a search warrant with a judge's authorization. This is just surveying everybody and then if you look like you're out of line, you better explain yourself. I think it's just a horrible precedent. The idea that we are considered guilty of something and then the obligation's on us to prove that we're innocent I think is a bad sign," said Paul.
Does he really believe Summers will push the regulations to their limit, as the bill's wording allows?
"I think he can, and I think he will try. And the only thing that will stop him -- it won't be the courts, and it won't be the Congress -- it must come from the people when they just hear about it and do a bit of shouting," said Paul.
Editor's note: Readers who would like to express their views or ask a question of the White House, their congressional representative, or even their local media -- about this or any other issue -- may use WorldNetDaily's state-of-the-art Legislative Action Center.
Related articles:
Big brother banks?
Record response to 'Know Your Customer'
FDIC besieged with protests
FDIC flooded with e-mail
Opposition to Big Brother Banks
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David M. Bresnahan is an investigative journalist for WorldNetDaily.com
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