Early in 2006, contact was made in the most elaborate spy novel manner between the BND, Germany intelligence service, and a dismissed employee of LGT, Liechtenstein's top bank that is fully owned by the princely family, chaired by the reigning prince's brother and managed by his second son. After what seem to have been difficult and very involved transactions, the BND paid 4.2 million euros to the employee for a list of about 1,400 clients of LGT holding accounts worth a total of between 4 and 5 billion euros. Some 600 of the clients were Germans, the rest French, British, Italian, Spanish and Swedish. The German authorities passed their names on to the respective countries' tax services, and started audits into the affairs of the German residents, going public with the whole matter in February 2008. Prosecution was started against the first 200 or so suspects, many confessed and threw themselves on the fisc's mercy in exchange for restitution of the funds that had escaped German tax. Some names were disclosed, the political repercussions were deafening, the Left marched triumphantly up the moral high ground, the Right was deeply embarrassed, and the German government threatened Liechtenstein with the most severe though unspecified retaliation for its complicity with immoral German tax fraudsters. There was also a loud chorus of demands from many governments and the media for redoubled efforts to do away with tax havens by forcing the guilty countries to lift bank secrecy and provide data on foreign holders of accounts. The OECD and the European Union had for many years exerted maximum pressure to this effect and it is not clear what more they could do short of bombarding Luxemburg, Vaduz and Vienna. But agitation is bound to continue. This is how matters stand or rather this is how they swirl, at present.
It may be noted in passing that when bullied to show more "transparency", banks in tax havens say that it is not part of their duty to assist the work of foreign tax collectors. The OECD replies that "transparency" is required for fighting money laundering, a criminal offence. The banks retort that they only accept new customers after exhaustive cross-examination (which is certainly the case of the reputable banks) and that they are ready to provide information on clients' affairs if there is presumption of criminal activity. It is also the case that as pressure on European tax havens is kept up, fugitive accounts tend to move to banks in the Caribbean, certain Pacific islands and (for really borderline customers) to the Ukraine and Russia. Nevertheless, as long as they exist, tax havens undoubtedly facilitate tax evasion, and this is where questions of morals arise. Some are simple, others are not.
Different societies pass different moral judgments on tax evasion. In Britain, it is still "not done," at least not by the "right sort" of people. On most of the Continent, it is widely done and freely admitted among close friends and relatives. In some circles, it counts as an exploit and in others an act of resistance against Leviathan. The main deterrent is, of course, the risk of being caught, although public education and the media try to inculcate the idea that paying one's taxes is a moral duty that springs from solidarity with others, and not paying them is free riding on those who do. Whether this is all that needs be said depends both on the uses the tax is put to, and the demand for tax made upon the individual taxpayer. The tax may be financing the reasonable provision of public goods and services that are arguably to the benefit of all, even if the benefit to each cannot be interpersonally compared. However, it may well happen that far too much public expenditure is skewed in favour of hare-brained schemes the individual taxpayer considers absurd (the Common Agricultural Policy or Galileo might rank high on the list of monstrosities he is furious to have to finance). It also may be that taxation is too blatantly redistributive, benefiting only one group or class while financed almost wholly by another. Finally, it may be that the "ability to pay" or the "we must take the money where we find it" principles of taxation are pushed too far for even the docile taxpayer to take them lying down.
We can only have subjective opinions on when, taxation is just (or whether it ever is) and when it is abusive. Most people are ready to tell the well-to-do that he must play by the democratic rules and submit to the tax laws of his country. It is in their manifest interest to say so. But it is not shocking that the well-to-do is left unimpressed by the argument that it is a moral duty for the minority to pay for the good ideas of the majority.
If tax evasion were unfeasible or impossibly risky, the majority could go further to exploit the minority. In that sense, facilities for tax evasion are safety valves against taxation becoming more abusive than it is at present. Tax havens are one such facility. This is not to say that their operations are just. But they do fulfil a useful function in tempering the democratic juggernaut.
It has always been a function of the state to protect the property of its subjects against all comers except against itself. Confiscation was a prerogative of the early state, though it usually had to practice it selectively. Among modern states, dictatorships felt free to carry on the practice, restrained only by what they deemed inopportune. Democratic states have forsworn confiscation; they expropriate or, more prettily still, "nationalise" and provide "due" and "fair" compensation for the owners. Arguably, it is an oxymoron to call a price "fair" if it is paid in a forced exchange. Legislation, including what passes for "international law" regulating how sovereign states must compensate expropriated owners, including foreign ones, is largely shaped by the expropriators themselves. Its caricature image would be a conference of thieves adopting rules regulating how fair thieving is to be conducted.
Musing about this leads again to tax havens. Tax havens are not just instruments that facilitate tax evasion. They are also safe havens, or believed to be such. Anyone who knows what happened to all noble and bourgeois property except personal chattels in Russia in 1917-19 and to peasant property a decade or so later, to all Jewish property in Nazi Germany after 1934 and in the Nazi satellites before and during World War II, to nearly all property in the Soviet satellite states after 1947 or to most large industrial and financial firms in Labour Britain after 1945 and in two waves under Presidents de Gaulle and Mitterrand in France, might go to some lengths to shift at least his mobile assets to some Liechtenstein or other. States, taken as a class, are morally in no position to accuse the Liechtensteins of this world of immorality and of not playing the game. They have asked for it, they are not trustworthy and have only themselves to blame. There have been too many black sheep among them, and new ones may well be born any day.