Why Hollande’s plans on tax havens and dodgy politicians aren’t good enough

French President Francois Hollande, facing a major popularity crisis following two major tax scandals involving a minister tasked with cracking down on tax evasion, and very senior aide who was treasurer for his presidential campaign, announced Wednesday a number of measures to address tax dodging and the dodgy financial dealings of politicians.

But, as French left wing daily l’Humanite points out, they are ‘thoroughly inadequate’ given the scale of the economic and political issue in country where about 50 and 80 billion euros vanish into thin air annually.

Hollande has announced:

• First, French banks would have to publish annually a full list of their subsidiaries and activities worldwide to make it impossible ‘for a bank to hide transactions carried out in a tax haven’. Much of this is already included in a bill relating to banking reforms. But in addition to disclosing information such as revenue, workforce, and the nature of their activities in tax havens, now banks will also have to reveal profits, taxes paid and any state aid received by all foreign entities. Hollande also wants also wants this applied throughout the EU and extended to large companies. While clearly in the right direction, this measure risks being a mere signal of good intent, unless the law is changed to make tax optimization illegal, argues l’Humanite. It points to the Banque Populaire, which is France’s fourth largest banking network, has 90 subsidiaries in tax havens. Legal loopholes mean a French bank can create a subsidiary in a tax haven to do business in Asia and France never sees the money. The recent example of Jean-Jacques Augier is instructive.

• Second, France would establish a list of tax havens and ‘would not hesitate’ to label as a tax haven any country that did not co-operate fully on providing details of the income and wealth held abroad by French citizens.

• Third, Hollande pledged to set up an independent prosecutor to investigate corruption and tax fraud, backed up by a central office to fight dodgers and corruption. A new authority would also be created to monitor declarations of wealth to be required of ministers, members of parliament and senior public servants. Ministers have been given until Monday to publish a list of their assets.

• Fourth, François Hollande wants to promote the automatic exchange of information with foreign countries to determine the assets held by the French. This is strongest of all the measures; there are rules that have already been passed by the European Commission and began to enter into force on 1 January 2013, for savings and taxes. What it means is that  when a French citizen open a bank account in another EU country the information goes directly to the French tax authorities. In 2015 information will be automatically exchanged on the amount of income from work, retirement, life insurance and real estate. It will take until at least 2017 for the automatic transfer of information on capital income and other dividends. Austria is refusing to comply while Luxembourg has just agreed to it on Wednesday. Things could speed up under pressure from the United States, who are succeeding in imposing globally the FATCA agreement that requires in particular that accounts held by US taxpayers in foreign banks are automatically reported to the IRS. France, Germany, the United Kingdom, Italy and Spain are keen to follow suit.

What’s missing from Hollande’s plans

• Strengthening of the French tax authorities, who have lost 25,000 staff over the last ten years, to monitor all this new information

• Tackling tax ‘dumping’ practiced within the European Union, which allows many multinationals  to avoid pay taxes in the countries where they earn revenues (Apple and Google for example).

• Despite the pledge to plough new resources into fighting corruption and tax fraud, in fact courts specialized in the economic and financial crime, and their prosecution teams and judges, have existed for a number of years but have been woefully under-resourced

• More broadly, any restoration in the confidence in politicians and the political system that Hollande says he seeks must tackle that ‘revolving door’ between the world of politics and business, highlighted in a string of scandals linked mostly to right wing politicians, and guaranteed to continue in the future by the extra parliamentary activities of French MPs, a number of which are corporate lawyers, for example

Says communist leader Pierre Laurent.

”Of course we need more transparency in the financial affairs of politicians, but we must primarily focus on the conflict of interest between [politics and] the business world.

‘This is a much more serious matter. If we want to prevent the suspicion that all politicians are ‘rotten” and are poisoning the country’s public life, it is necessary to address the root of the power of money, clarifying the relationship between political power, which must originate from citizens, and the financial sector, which must not replace the general interest.

‘We must develop policies guided by the general interest and not by greed.’

Sources: Financial Times, l’Humanite