Inside Money: Clean money: the global tax laundry

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We're clean, the cleanest even, according to the Transparency International Corruption Perceptions Index.

That may or may not make New Zealand an attractive money-laundering venue the country is yet to be ranked on the Financial Secrecy Index (FSI), a list currently topped by Switzerland. (France, according to an FSI footnote, has commenced legal action disputing its, undisclosed, secrecy rating.)

But world authorities, including our own Financial Markets Authority (FMA), are working hard to flush whatever financial secrets remain out into the open. In one of its just-released Anti-Money Laundering and Countering Financing of Terrorism Act (AML) guidelines, the FMA has produced these handy tips to help identify any "high risk countries" you may be considering having financial relations with.

While admitting there is "no universally agreed definition of a high risk country", the FMA bullet-points several obvious indicators of dodginess:

* countries subject to sanctions, embargoes or similar measures;
* countries identified by credible sources, such as FATF, as lacking adequate AML/CFT systems/measures or controls;
* countries identified by credible sources as having supporters of terrorism or the financing of terrorism;
* countries identified by credible sources as having significant levels of corruption, for example, Transparency International's corruption perception index;
* countries identified by credible sources as being tax havens; and
* countries that are materially associated with production and/or transnational-shipment of illicit drugs.

Some of those bullets deserve clarification. According to the Ministry of Foreign Affairs and Trade (MFAT), the United Nations currently has sanctioned sanctions against:

* Al Qaida and the Taleban;
* Cote d'Ivoire;
* The Democratic People's Republic of Korea;
* Democratic Republic of the Congo;
* Eritrea;
* Iran;
* Iraq;
* Lebanon;
* Liberia;
* Libya;
* Sierra Leone;
* Somalia; and
* Sudan

The longer FATF (Financial Action Task Force) list of non-compliant potential money-launderers features many countries we go to experience cheap holidays or wars.

By contrast the Organisation for Economic Cooperation and Development (OECD) has a very short list of belligerent tax havens. Not so long ago the OECD list "uncooperative tax havens" included seven countries: Andorra, The Principality of Liechtenstein, Liberia, The Principality of Monaco, The Republic of the Marshall Islands, The Republic of Nauru and The Republic of Vanuatu.

After Andorra, Liechtenstein and Monaco came into line in 2009 "no jurisdiction is currently listed as an unco-operative tax haven by the [OECD] Committee on Fiscal Affairs".

In fact, the OECD claims great strides have been made in global tax cooperation in recent years. An OECD report published this June highlights the progress, and also the rationale for global tax monitoring.

"Financial crimes are growing in sophistication and increasingly operate across international boundaries," the report says. "Criminals accumulate significant sums of money through offences such as drug trafficking, investment fraud, extortion, corruption, embezzlement and tax crimes."

The report cites UN data that puts criminal economic activity at 3.6 per cent of global GDP "equivalent to US$2.1 trillion".

"Countering these activities requires greater transparency and improved efforts to harness the capacity of different government agencies to work together to deter, detect, prosecute and recover the proceeds from these crimes through a whole of government approach," the report says.

One way world governments have been attacking that problem has been to increase the exchange of tax information across borders, with many countries now doing this automatically and electronically.

"At a time when business uses advanced technology to securely transmit and use effectively large data sets, governments cannot stand behind," the OECD report says.

About 800 information exchange agreements have been signed, the OECD says, among the 35 countries currently part of the 'Global Forum on Transparency and Exchange of Information for Tax Purposes'.

The report shows New Zealand automatically sends its tax data to 35 countries (compared to the most communicative country, Denmark, which sends the tax info out to 70 nations) but receives similar information from only 16-17 countries in return.

The data-matching exercise has bought dividends for various governments, the report says. Studies in Denmark and Norway, for example, discovered non-compliance levels for its citizens with overseas assets of about 40 per cent and they're the clean countries.