The Winding Road to Transparency

At a recent gallery opening, the host turned to his companions: "Transparency is a good thing, but not always the truth. The truth is what we see." He wasn’t speaking about politics, of course, but about art. Still the statement resonated.

While the EU thinks that opening up all bank account information will be a game-changer in countering tax-evasion, Austrian experts suggest that that it is not as important as barring the anonymity of trust shareholder. That, they say, is where the waters really start to get foggy.

 

The problem of privacy

When deciding on measures to strengthen the fight against tax evasion, there is more to it than simply requiring income declaration. Like wiretapping, the idea of international information sharing rubs citizens the wrong way.

The New York Times took a strong stand after the recent scandal involving American federal authorities collecting data and phone conversations "regardless of whether they have any bearing on a counterterrorism investigation." This proves "the truism that the executive branch will use any power it is given and very likely abuse it."

In the case of Austria, people want to know what full disclosure – however helpful it may be for finding tax evaders – will mean for the average citizen.

Recently we learned of a German national who received a federal financial aid scholarship when he came to Austria to study. When he moved here, he closed an older savings account, collected the premium and used the €6,000 to pay for the move.

Three years into his studies, the German government sued him for fraud. With gläserne Konten (transparent accounts) the authorities thought the premium was interest, making the account allegedly worth over €30,000. If he lost he would have to pay back the scholarship money plus damages. He quit his studies, which he could no longer afford, without the sholarship and spent two more years and hundreds of euros to prove his innocence.

This is not useful transparency it is Gefährliches Halbwissen (dangerous half-knowledge) that makes the authorities, the banks and the citizens run in circles. And in this case, transparency muddled the situation. The government made a judgement based on interest calculations, and in part because the proof that Germany wanted from the Austrian bank was a breach of bank secrecy law, the authorities spent years on an invalid claim.

And it’s also a question of proportion: While having the capacity to track down major tax evasion is important, spending public funds on small offenders is probably wasteful. The EU hopes automatic sharing will help governments and banks work together to find the real criminals and make it harder to find places to hide.

The banking lobby

The EU is also concerned about the mountains of data and accompanying analysis, said Kurt Bayer of the Austrian Chapter of Transparency International over coffee in mid-June.

"Automatic information transfer within the EU certainly takes a tremendous logistical effort, and costs money." Finance Minister Maria Fekter fears a "graveyard of data" that no one would be able to work with. "But 25 European countries have been doing this for a year," Bayer continued, "and so far, no banks have had to close because they couldn’t afford the cost."

Still, banks have a strong lobby in Austria, Bayer said, eager to keep depositors and investors happy, they are very politically involved, in both the SPÖ and ÖVP. They don’t want the current rules to change because "they benefit from the fact that Schwarzgeld – criminal money – often comes to them." He added that banks are increasingly concerned for their reputations and may be becoming more willing to comply.

While Bayer is not sure about which banks are primarily involved in influencing Minister Fekter, "her resistance [to changing the law] definitely comes from pressure from the banking sector."

The more we spoke about the Austrian bank’s interest in keeping the status quo, the more it became clear that the transparency issues are not, on the whole, about the day-to-day banking of individuals, hiding money from the tax man, but about using the mechanisms of anonymity to hide the beneficiaries behind impenetrable ownership structures.

 

On a need to know basis

Austria’s reluctance to share foreigners’ account information has given them a bad reputation within the EU, Bayer explained. But a recent event at the Ministry of Finance, revealed that Austrians’ main argument was that "automatic information exchange is peanuts. The important thing is to disclose the beneficial owners of firms and trusts, because much more is hidden there" There are often 10 corporations registered at addresses "in places like the Virgin Islands".

Austria, for example, helped ensure that the Cypriots provided a Trust register as a condition for the Rescue Package, Bayer said, since so much Russian money flows through their banking system. In essence, the current mood has shifted from finger pointing to a rethinking of what can actually be hidden under current legislation.

"Finance ministers should not be in the business of protecting tax evaders," Bayer said. Certainly, this is something most can agree on. But deciding just how much we need to know is enough for Austria to keep automatic mechanisms off the table.

In Austria, unlike the U.S., the truism is that the executive branch will use any distraction it is given and do nothing, for fear of abusing the criminals.

 

Margaret Childs is managing editor of The Vienna Review and freelances for The Associated Press Vienna office. She holds a Magister in Philosophy from the University of Vienna, where her research focussed on theories of capitalist economics.