Lots of news about Cyprus getting ready to tax bank deposits, not transactions, but deposits. Tax those who are prudently saving for their futures? Goes against the grain. Why tax those who are prudent? However, the actual fact seems to be that there is a lot of foreign money, especially from Russia, parked in Cypriot banks and the tax is aimed at these accounts.
So hot money is the target. Hiding funds in off shore accounts has been an interest of mine since while as a junior officer at our embassy in Panama I had to investigate a supposed case of hiding illegal funds in an off shore account. We received a cable telling us to look at the books of the Banco Panameno Suizo (The Panamanian-Swiss Bank), that had been closed down by the government, to find funds deposited in it by the Fifth Avenue Coach Company, a venerable old New York company. It seems the company had gone from running the busses up and down Fifth Avenue to holding large interests in vending machines, a traditional location for hiding illegal, in this case Mafia, money.
In those days the Panamanians did whatever we asked and I was allowed to read the books of the bank which were all written in pen and ink. I searched the books for several days and came up with two main conclusions. First, there was no record of funds held for the Fifth Avenue Coach Company. Second, the bank was solvent and should not have been closed down. Proof of my latter conclusion came soon after my report when the government reopened the bank and invited all depositors to claim their funds. If the bank had been insolvent it would not have been able to do this.
Since the bank was solvent on paper and there was not a clue about Fifth Avenue Coach funds there, I later speculated that the bank had been holding tons of money “off the books.” And these were “hot money” accounts. Proof for my speculation came about a year later when in the USA I read a newspaper article about a man found floating face up in a Swiss lake with a bullet hole between his eyes. The victim? The last president of the Banco Panameno Suizo. Those who had held “hot money” at the bank, but off the books, finally got their revenge on the bank.
Of course anyone looking today for “hot money” or funds being held off shore by tax evaders would be well advised to look at Dubai and Abu Dhabi. But that would be another blog.