EKIP– Expert Club for Economics and Politics A Different Opinion
The law is very rarely – almost never – a reflection of reality. On the contrary – the law is a reflection of the will of the legislator regarding what reality should be. This is precisely why most attempts to shape human behavior through legislation are doomed to failure – their goal is to make people act in a way that they would not act if they were expressing only their own will.
This is the fundamental reason why most attempts to regulate various aspects of economic behavior fail. This is doubly true for banking, which is one of the foundations of the modern economy. Currently, there are several attempts underway to increase the regulatory burden and limit the freedom of action of banks – and not for the better.
At the end of October, the Organization for Economic Cooperation and Development (OECD), along with a number of other countries, including Switzerland and Luxembourg, announced that they would effectively abolish bank secrecy from 2017. This trend is not new – the US law FATCA, under which many European countries began sharing bank information with the US judiciary, has been in force since 2010.
Its introduction was followed by cases by the US prosecutor's office against some of the largest European banks - Credit Suisse, Barclays, Citigroup, with most of the cases being for violating economic sanctions (those against Iran, for example) or "manipulation" of markets. In other words, the banks suffered because of the state's distorted view of crimes, which today even includes limiting the circle of potential clients for political reasons. As a result of the legal prosecution against them, the reputation of institutions on whose fate many private depositors and companies depend was damaged, fines worth hundreds of millions of dollars were paid, and shareholders considered whether to withdraw.
The new regulation agreed by the OECD will have even more serious consequences, as it also affects countries that traditionally have very little regulation of banking activities and very strict bank secrecy - Liechtenstein, the Virgin Islands, the Cayman Islands and many others will lose (at least partially) their status as offshore zones, whose services are used by thousands of companies and individuals who want to avoid the enormous tax burden in the countries in which they operate. The need for modern economies for offshore zones is obvious - they allow companies to pay lower or no taxes, which in turn leaves more free resources for investment. Tax havens also serve as direct competition for the tax systems of most countries, which cannot afford to increase the tax burden indefinitely, as this would only lead to more people and companies turning to offshore zones.
A similar situation occurred in Ireland, where many companies chose to do business or at least locate their headquarters there because the country’s tax laws allowed them to pay significantly lower taxes than most other countries. However, the European Commission deemed that this tax law gave Ireland an “unfair advantage” [1] over other European countries and was forced to force Dublin to remove the rules that made the country attractive to companies.
However, the consequences of this will be borne mostly by Ireland itself. Inevitably, the flow of investment into the country will drop significantly, which in turn will reduce the country's economic growth, which until recently was among the highest in the EU. According to estimates by the government in Dublin, the changes in tax legislation threaten about 160,000 jobs, and news of the government's intentions led to the most massive street protests since the beginning of the economic crisis.
In Bulgaria, voices are also raised from time to time in defense of such regulations - around the crisis with CorpBank, many proposed direct nationalization and a sharp tightening of political control over the banking sector, and months ago there was talk of limiting the access of domestic companies to offshore zones. The government also adopted a law that limits the annual percentage rate of charge (APR) of loans, which is directly detrimental to credit institutions and especially to their clients. Fortunately, the example of fast loans, hit by the so-called "Kadiev law" remains rather an exception.
We can only be glad that agreements like this one banning bank secrecy do not cover the whole world – as long as offshore zones still exist, companies will use them, even if they are located on the other side of the world. However, such regulations are a sign of the direction in which Western countries are developing – their path leads to ever-increasing control, lack of security and personal information, and more state interference in the work of people and companies.
[1] It is somewhat reminiscent of that moment when the same EC considered that German production was "too competitive" and for this reason Berlin was threatened with fines and measures due to the country's "excessive exports".
