Trusts – Weapons of Mass Injustice

It is a fact that the trust laws of some tax havens openly promote illegality. The reality that some tax havens will not enforce foreign laws (e.g. ensuring non-recognition of foreign laws and judgements that favoured legitimate heirs and former spouses) is even publicly advertised by some offshore service providers, not on the deep web like drugs and illegal weapons, but on the internet, accessed by a simple google search on tax or estate planning.

Despite this, there has been some reluctance from governments to take on the issue of trusts, and some difficulties posed for governments that have attempted to deal with some of their more problematic features. Today, a new paper called Trusts – Weapons of Mass Injustice from the Tax Justice Network attempts to reopen the debate on trusts, and argues that there is urgent need for effective measures to curtail their activities.

A controversial issue

Trusts create a lot of controversy. While many of them are taxable at the trust level, they may hold assets or engage in business just like companies, and not everybody fully agrees with the idea of registering all trusts, including some transparency campaigners. That’s either because of their complexity or because they believe in “cheaper” options, such as targeting only tax haven trusts.

We looked at some of these issues in a paper we published in November 2015, which made the case for trust registration. The paper describes trust’s secrecy risks and explains why available technology applied to registers of companies means that registering trusts’ beneficial owners is just as simple. Another crucial point is that incorporation of trusts (requiring them to incorporate or register in order for them to legally exist) is the only way to enforce trust registration. This idea currently applies to companies and other legal entities similar to trusts in their effects, like foundations.

Taking on the trusts

In May 2015 the European Union approved the 4th Anti-Money Laundering Directive, establishing central registries of beneficial owners[1] for companies and legal persons (in Art. 30) but leaving glaring loopholes when dealing with the beneficial owners of trusts (in Art. 31).

In response to this, we published a paper suggesting amendments both to the EU Directive but also to the FATF[2] Recommendations’ definitions of beneficial owners of trusts. In contrast to some countries’ regulations (e.g. the UK and the U.S.) that limit the definition of the beneficial owner of a trust to the trustee and anyone with control, we favour a definition that encompasses all related persons of the trust as beneficial owners (all settlors, protectors, trustees, beneficiaries, classes of beneficiaries, and any other person mentioned in the trust deed with control over the trust). This ought not be controversial: the OECD’s Common Reporting Standard (CRS) for automatic exchange of information already requires financial institutions in more than 100 countries to take this approach when identifying the beneficial owners of their trust clients.

In a set back for transparency, in July of 2016, the French Constitutional Court banned the newly introduced French public registry of trusts on the basis of an individual’s right to privacy. Our arguments, which can be found here, rely on a very basic principle: trusts should not be considered a private matter if they can be used and abused to commit financial crimes (e.g. tax evasion, money laundering) and also to defraud legitimate creditors. In essence, we propose a basic principle of responsibility: if you want your trust provisions to be binding on third persons (e.g. a personal creditor to whom you owe money), then a trust must be registered and its beneficial owners publicly disclosed. You don’t need to register anything else that can have no effect on people not related to the trust arrangement.

But, back to the beginning: the problem with trusts goes way beyond their sophisticated secrecy that allows so many crimes to be committed. This new paper explores trusts as creatures of history. While they had good reasons to exist centuries ago (e.g. to protect the family of knights joining the crusades in the Middle Ages), trusts have been used across time to evade and avoid taxes and restrictions placed on asset ownership or transfer by governments.

More recently, new types of trusts and provisions, such as spendthrift provisions and discretionary trusts (available not only in traditional tax havens but some of them also in the U.S. or the UK), allow trusts to be used as asset protection vehicles. This effectively shields assets from legitimate creditors of settlors and beneficiaries, such as tax authorities, former spouses or victims of damages (e.g. mala praxis). Such schemes are being offered instead of an insurance (after all, why pay an insurance premium as a medical doctor if your personal wealth can be protected by placing it in an asset protection trust?).

The results for society can be devastating: in the case of malpractice by a doctor, the claimant will be unable to reach the doctor’s assets for compensation even after trial, while the doctor can avoid liability and financial responsibility for (gross) negligence. Trusts also allow wealth to be accumulated for centuries (reducing or avoiding inheritance tax in the meantime), and inequality inevitably deepens.

To make matters worse, traditional trust rules that did ensure a certain level of good governance are being eroded, such as the rule against perpetuities (to limit the duration of trusts), limits to the settlor having control over the trust or being “a” or “the only” beneficiary of the trust, the requirement for trusts to have beneficiaries (e.g. purpose trusts) and even the very control and management by the trustee (e.g. the BVI Vista Trust).

Often, trusts’ asset protection (and secrecy) is justified by the need to protect vulnerable persons. Yet nothing in trust law requires trust beneficiaries to be vulnerable or minors. And – as our paper shows – specific exemptions could accommodate such concerns easily without creating uncontrollable risks or loopholes.

Trusts offer even more asset protection than an ordinary company. While both trusts and companies may achieve a similar separation of assets and limit liability, corporate shareholder’s personal creditors have one last resort if the shareholder doesn’t pay back: claim the shareholdings (and eventually reach corporate assets). Trusts, in contrast, have no shareholdings. Therefore, if the trust is structured so that beneficiaries have no vested interest (e.g. in a discretionary trust), personal creditors of the settlor and beneficiary have no access to trust assets.

For decades trust law has evolved without democratic scrutiny, and is frequently abused for nefarious purposes. We frankly doubt whether trust law would look as it does if society were aware of the potential harm that trusts can cause.

Our latest paper thus tries to start a new, more critical debate on trusts. Not only on the secrecy that they enjoy (and the fallacious arguments that prolong it), but a more profound discussion on whether society still needs all the current provisions available for trusts, given their huge potential for abuse.

[1] The natural persons who ultimately own, control or benefit from a company, trust or any type of entity or arrangement.

[2] Intergovernmental body in charge of setting up and reviewing Anti Money Laundering Recommendations

You can read the paper we’re releasing today Trusts – Weapons of Mass Injustice here. http://www.taxjustice.net/wp-content/uploads/2017/02/Trusts-Weapons-of-Mass-Injustice-Final-12-FEB-2017.pdf

— source taxjustice.net

Inside India’s domestic tax havens

Everything about B-8 too is fake, although it serves as the registered address of at least 75 companies. There are no employees, no assets and, in fact, no real business. It’s just a drop box address – one of 6,460 across Delhi that mask as the headquarters for 41,448 shell companies, official figures accessed by HT shows.

Shell companies, the backbone of any shadow economy, are back in focus after Prime Minister Narendra Modi pulled out 86% of the cash in circulation in an ambitious campaign to stamp out corruption and ‘black money’.

But many tax evaders avoided Modi’s dragnet using phantom businesses and converted slush funds into legal money, officials and experts said.

An HT investigation based on an analysis of 10.26-lakh entities with the Registrar of Companies (RoC) found at least 133,256 drop box companies from 16,634 drop box addresses in two cities alone—Kolkata and Delhi. A majority of these companies are registered in Kolkata.

The businesses incorporated are legitimate since they do not violate any law. Yet, shell companies, which are used as conduits to convert illicit money into legal cash, are the central piece of the country’s money laundering chain.

With new, stringent guidelines in place, the government had hoped that more than Rs 9-10 trillion would return to the banking system and the treasury would be able to wipe out Rs 5 trillion of illicit cash.

But that did not happen. Much of Rs 15 trillion taken out of circulation was returned to the formal banking channel.

Government officials and experts believe shell companies such as those listed at B8 Ansal Towers played a role in helping avoid detection of ‘black money’.

In the first case of organised money laundering registered after demonetisation against Axis Bank’s Kashmiri gate branch, the Enforcement Directorate (ED) found that “huge monies were transferred through RTGS transfers (online transfer) to some shell companies including a case where the director of such a firm was a ‘petty labourer’”.

Books of shell companies are well maintained. They have their accounts audited, tax returns filed regularly and a functioning bank account. In most cases, directors and shareholders are unrelated persons and often untraceable. Except their identities, they have no direct stake.

This brings in the element of deniability and anonymity, in case they are caught.

Absence of common data base of bank accounts, tax returns and company details make it easy for shell companies to comply with individual statutory agencies.

For instance, there is no violation of income tax act as long as they pay their tax dues. Unless there is a criminal case, there is no case of money laundering that ED can make out against them.

The utility of shell companies go beyond money laundering. They come in handy for skirting regulations, for big corporations in paying-off by covering their tracks and siphoning off loan.

In law enforcement circles, domestic shell companies have a nick name, “Kolkata companies”. The city still is the epicentre of the shell-company industry.

Adjoining West Bengal’s seat of power, the Writers Building, the narrow bylanes of the Lal Bazar area is a mini tax haven in itself. From here, 180 drop box addresses and 11,120 companies are functioning.

“In every scam, shell companies are used for pay-offs and inevitably it involves Kolkata-based shell companies,” a senior ED official said

— source hindustantimes.com

so what indians are happy to be in ATM queues.

Tax Dodging by the 1% Hurts Human Rights of the 99%

Ecuador presented its commitment to fighting against tax havens at the United Nations by underscoring how tax dodging by the elite profoundly affects the economy of the majority of the world population. Ecuadorean Foreign Affairs Minister Guillaume Long introduced a plan to “advance together in a global agenda for fiscal justice” at the U.N. Human Rights Council in Geneva on Monday.

On Feb. 19, Ecuador became the first nation in the world to pass a plebiscite to ban public officials from having assets or capital in tax havens, that Long described as a historical example in the fight against corruption. With the approval, all public servants and elected officials will have one year to bring offshore capital back to the country or they will be removed from office.

— source telesurtv.net

Getting to the core of Europe’s case against Apple and Ireland

Anti-Austerity Alliance-People Before Profit TD Richard Boyd Barrett found himself in unfamiliar territory this week as he took his turn to question European competition commissioner Margrethe Vestager at an Oireachtas committee meeting on the EU’s controversial decision last year that Apple received €13 billion of illegal state aid from Ireland.

“There is a very significant irony at play in this committee in that the political parties which were the most enthusiastic supporters of the European Union are most resistant to her findings on this matter, and those of us who are most critical of the European Union are the most enthusiastic about her findings, because some of us believe that there has been a facilitation of aggressive tax avoidance by multinationals operating in this jurisdiction,” said Boyd Barrett.

Vestager, a 48-year old Dane who is said to have been the inspiration behind the fictional prime minister in hit Scandi political drama Borgen, came under sustained critical questioning for almost two hours on Tuesday from Fine Gael and Fianna Fáil TDs on the Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach, as she sought to explain the commission’s rationale for imposing its largest state-aid ruling.

It’s a decision that has thrown the minority Fine Gael-led government and its underpinners in Fianna Fáil the difficult task of justifying why one of Europe’s most indebted states, still recovering from its worst-ever financial crisis, must turn down a sum equivalent to almost 7 per cent of the State’s national borrowings.
Encroaching on sovereignty

Minister for Finance Michael Noonan has cast the ruling, which the Government appealed in November, as encroaching on Ireland’s sovereignty and attacking its corporate tax regime and potential for foreign direct investment.

Vestager has characterised it as protecting a level-playing field under rules enshrined in the Treaty of Rome, which laid the foundations for the EU 60 years ago.

“The Government is very keen not to give an ammunition to claims that it operates anything other than a fair and transparent corporate tax system, albeit one that is attractive to multinational corporations by virtue of its low headline rate,” said Ronan Dunphy, an economist with Investec in Dublin.

“It also wants to avoid any perception that it is not in control of its own corporate tax policy and that the European Commission can amend Irish rules or policies on a retrospective basis.”

These issues are all the more pressing at the moment, according to Dunphy, “as the outlook for new foreign direct investment from the US becomes ever more clouded” under the new Trump administration, and as the State seeks to offset the negative impact on trade of Brexit by luring businesses based in the UK to move activities to this State.

The core of the commission’s decision is that the Revenue Commissioners gave Apple an unfair and select advantage in two “rulings”, in 1991 and 2007, by allowing the Mac and iPhone maker channel most of the income from European sales through “head office” divisions of two Apple subsidiaries in Ireland, which were non-resident here for tax purposes.

The Commission claims that had Revenue properly looked into these head offices, it would have found they didn’t have their own premises or any employees during the period under investigation, between 2003 and 2014, and that minutes of their board meetings do not show that directors performed active or critical roles in managing and controlling Apple intellectual property licences.

Far from frightening away foreign direct investment, Vestager said “fighting aggressive tax planning practices should make countries such as Ireland and others an even better place in which to invest”.
US operations

However, Apple and the Government argue that, because Apple’s products and services are created, designed and engineered in the US, the bulk of the profits of the two Irish-based units – Apple Sales International (ASI) and Apple Operations Europe (AOE) – are due in the US.

Noonan and the chairman of the Revenue Commissioners, Niall Cody, insisted to the Oireachtas committee on Thursday that the State was only allowed by Irish law to tax non-resident companies on “economic activities” that take place in Ireland.

Even though the Commission contends that all the income going through the two companies should be taxed in the Republic, it has also taken issue with the way that Apple has carved up the activities of the companies’ Irish “branches” and their “head offices”.

It has essentially ruled that Apple should have used its version of the so-called arms-length principle, as if two parts of the company were trading services as if they were operating in the open market.

The Government rejects this, saying that this principle is not in Irish or EU law and that the Commission is trying to rewrite Irish corporate tax rules.

It has said that, even if arms-length rules were legally relevant, its own expert evidence, provided to Brussels, is that the tax treatment of ASI and AOE was “consistent” with that principle.

Philip Andrews, head of competition at McCann Fitzgerald, says the Commission is relying on “quite novel arguments” in using the arms-length principle as a cornerstone of its case, relying on a single European Court judgment from 2006 to back it up.

“How analogous or reliable that case is to the Apple facts case is unclear,” he said.
State ‘rulings’

Asked on Thursday if he thought that Apple may ultimately have a case to turn around and sue the State for providing “rulings” – or as the Revenue Commissioners calls them, “advanced opinions” – that ultimately crumbled in the European courts, Noonan said “there’s no suggestion that they could and there’s no conversation” in that direction.

The August ruling essentially presents the case of the prosecution. Apple and the Government responded late last year and the commission has until mid-March to respond, though this could be extended.

The State has forked out €1.85 million to date on legal and tax advisers as it fights its corner.

The final bill is likely to be a multiple of that as the case winds its way through Europe, firstly through the General Court, followed, in all probability, by further appeals to the European Court of Justice.

For Boyd Barrett, there is no such ambiguity about where the wrong lies.

“To me, it is cut and dried,” he said. “I thank the Commissioner and commend her on her work.”

The case, however, will ultimately be decided on points of law, not fairness.
HOW THREE WORDS LANDED APPLE WITH A €13 BILLION BILL

Apple chief executive Tim Cook could be forgiven for turning down a chance to appear before an Oireachtas committee looking into the company’s tax affairs in Ireland. The last time he appeared before a parliamentary committee, it didn’t turn out so well.

In January, Cook drew criticism from a number of TDs, including Fianna Fáil finance spokesman Michael McGrath and his Sinn Féin counterpart, Pearse Doherty, as well as the Labour Party’s Seán Sherlock, for declining to appear on the basis of not wanting to “potentially prejudice future outcomes” of the case.

Cook may have a point. His testimony before lawmakers on the other side of the Atlantic four years ago about Apple’s taxes is what landed the technology giant, the State and a host of other multinationals in hot water with Brussels.

“Our investigation into the Irish tax rulings began in 2013, after Apple told a US Senate hearing about what it called a ‘tax incentive arrangement’ with Ireland,” Margrethe Vestager told the Oireachtas Committee on Finance, Public Expenditure and Reform and Taoiseach on Tuesday.

Those three words “gave reason to ask questions here in Europe and also started the Apple case”, she said. “Now our work on tax rulings has gone far beyond the Apple case and far beyond Ireland.”

The commission has since asked every member state for information on tax rulings – some 1,000 in total – and it has followed-up with in-depth investigations into what it views as the most serious cases.

Aside from ruling in August that Apple owes Ireland €13 billion in back taxes, Vestager’s team has decided that Starbucks received illegal state aid in the Netherlands, Fiat in Luxembourg, and a host of other companies in the Netherlands. Similar investigations are currently ongoing in relation to the tax affairs of McDonald’s, Amazon and French energy group Engie in Luxembourg.

Apple told the high-profile US Senate subcommittee hearing in May 2013 it had been paying a top tax rate of 2 per cent on the income of two Irish-based subsidiaries, Apple Sales International and Apple Operations Europe, over the previous three years.

Cook’s appearance prompted immediate denials from the Government and Revenue that Apple had cut special deals with Ireland.

Within a week, Cook had also backtracked, saying the company did not use “tax gimmicks”. But the damage had already been done.

It may be a decade from the time Cook appeared in front of the US Senate subcommittee before Apple and Ireland are through the European court appeals process with the European Commission.

LOOKING UNDER THE BONNET OF APPLE’S 26% TAX RATE

Apple appealed the European Commission’s €13 billion tax ruling six weeks ago, highlighting that it is the largest taxpayer in Ireland, the United States and the world, with a global income-tax rate of about 26 per cent.

However, as is the case with most large US corporations with operations overseas, a significant amount of that sum isn’t actually paid to tax authorities in as timely a fashion as the headline figure would suggest.

Apple’s latest annual report, for the year to September 24th last, shows that it is sitting on net deferred tax liabilities of $21.9 billion (€20 billion), up from $16.2 billion for the year-earlier period. That is money Apple has sitting on its balance sheet as a provision in anticipation that it will be required to pay taxes as earnings are repatriated to the US.

Tim Cook said in September that Apple will use “several billion dollars” of these provisions, most likely this year, as it sends home 2014 European income that was routed through Ireland.

Indeed, a key part of Apple’s defence against the commission’s ruling is that Brussels is conveniently ignoring the fact that most of the tax on its European operations is due ultimately in the US because its products and services are created, designed and engineered in Cupertino, California.

However, the annual report also shows that, as of the end of September, Apple had not set aside any US tax provisions for a total of $109.8 billion of international earnings generated by subsidiaries based in Ireland. It categorises this money as “undistributed international earnings to be indefinitely reinvested in operations outside the US”.

The difference between that Irish tax on the profits, set at a headline rate of 12.5 per cent, and what Apple would have to pay US authorities if it repatriated the money to the US is $35.9 billion – a figure that the group refers to as an “unrecognised deferred tax liability”.

Apple is far from alone. London-headquartered research consultancy Capital Economics estimates that US companies are hoarding $2.5 trillion of cash overseas as they seek to avoid the 35 per cent US corporate tax rate.

US president Donald Trump has set his sights on sucking most of that back to the US to be invested in an effort to create jobs by offering a tax amnesty, where a one-off charge of just 10 per cent would apply to money sent home, as well as by cutting the country’s headline corporation tax rate to 15 per cent.

When Washington allowed companies to repatriate foreign earnings at a 5.25 per cent tax rate in 2005, they brought home more than $300 billion of foreign profits that year, five times the normal amount, according to an arm of the US Department of Commerce.

The trouble is, most of that money went to the companies’ shareholders in the form of dividends and share buybacks.

— source irishtimes.com By Joe Brennan

If Apple won’t pay tax what hope is there for civilisation?

Brussels has been accused of “bending the rules” in its pursuit of Apple for €13 billion in taxes it says should have been paid in Ireland. But in truth it is the multinationals and their corporate lawyers and accountants who have twisted the rules on taxation almost out of existence.

The tax system had been “captured” by the tax avoidance industry. Multinationals were paying less and less tax and states were reduced to tax wars against each other in failing efforts to attract them.

The public needed a champion to restore some order on the chaos and it got it in Margrethe Vestager, the European commissioner for competition. Under her the directorate general for competition did what the directorate general for taxation and directorate general for economic and financial affairs were unwilling or unable to do.

I was a dissenting member of the government advisory group that recommended the low 12.5 per cent rate of corporation tax in the early 1990s. I dissented because I believed that the rate should only be reduced to 20 per cent from the 35 per cent nominal rate then prevailing. I believed if it was only 12.5 per cent after legitimate deductions, companies might only pay an effective rate of 6 or 7 per cent.

I was so naive. Today some companies pay nothing and too many pay very little. Apple paid a mere 0.005per cent on its European profits in 2014.

It is too easy for multinationals to pay what they like in taxes, aided by globalisation, technology, multitudes of subsidiary companies in different jurisdictions and none, armies of tax-avoiding lawyers and accountants and by regulatory capture,

In a recent article on Apple’s dispute with the European Commission, Liza Lovdhal-Gormsen (the director of the Competition Law Forum) draws on the quote by Judge Wendle Holmes: “I like to pay taxes. With them, I buy civilisation.”

Lovdhal-Gormsen argues that certainty of law is central to this contract, but if the world’s biggest and most profitable company is reluctant to pay taxes and aggressively uses an array of subsidiaries to avoid tax, what hope is there for civilisation?

Lovdhal-Gormsen is correct to say that people are losing faith in EU institutions, but we are also angry when profits are untaxed and when public services are failing. Indeed Vestager has restored some faith in the EU with her ruling regarding Apple.

Bending the rules

The EU is accused of the “aggressive use of state aid rules to pursue its corporation tax agenda”. But it is the multinationals who are bending the rules, because they can, in the globalised world. For them corporate social responsibility means their fiduciary duty is only to their shareholders and it excludes all others.

The commission did not apply these state aid rules to tax subsidies for many years. If it had, it may have lessened Ireland’s collapse because it might have stopped the many tax subsidies thrown at property investors by governments from the mid-1990s. Tax “incentives” are subsidies and are at last included in the determination of state aid.

The Apple tax case is not undermining the OECD efforts to bring order to the international tax system, but is complementing it. Lovdhal-Gormsen correctly says the corporate tax system needs reform. But she claims that state aid enforcement is not the appropriate tool. On the contrary, it has to be an integral part of the system. For example, suddenly giving a 100 per cent write-off in year one to a new hotel can wipe out existing hoteliers who did not have such a subsidy.

Tax competition or tax wars between countries is promoted as “good” by the tax industry and our Government. However, tax wars are won by tax-avoiding multinational corporations (MNCs) but are ultimately lost by sovereign states.

Indigenous industry

We do not know the truth of her prediction that “this ruling will make companies more wary of investing in Europe”, but is abundantly clear that Ireland also needs to seriously address indigenous industry.

In recent years, the proportion of sales MNCs make outside their home states is falling, as are their profits, and the flow of new multinational investment has been declining relative to GDP, according to the Economist (January 28th).

The issue is much bigger than the €13 billion tax to be paid by Apple under this ruling. Ireland has been one of the greatest beneficiaries of globalisation. MNCs have contributed much, but globalisation is under threat. One reason is that the little people are angry that big companies are not paying their fair share of tax. What is “fair” is debatable, but paying virtually zero on big profits is not fair.

Apple makes wonderful products, employs many in Ireland (unlike some big tax avoiders). However, its bosses see tax minimisation, which is easy in today’s world, as a core objective. They need to move back to the stakeholder model of corporate governance where companies owe responsibility to a wider group than its shareholders. Then civilisation will survive.

— source irishtimes.com By Paul Sweeney

Snowstorm

It may seem surprising but the last scientific and objective government sponsored inquiry into organised crime in any country was undertaken by the U.S.’ Wickersham Commission between 1929 and 1931. The commission concluded that, ‘[i]ntelligent action’, on organised crime, ‘requires knowledge – not, as in too many cases, a mere redoubling of effort in the absence of adequate information and a definite plan’. Its primary recommendation was, ‘for immediate, comprehensive, and scientific, nation-wide inquiry into organized crime’ to ‘make possible the development of an intelligent plan for its control’. Sadly no such inquiry took place and the concept of organized crime was captured by a succession of opportunist politicians most notably Presidents Richard Nixon (1969-1973) and Ronald Reagan (1980-1988). During Nixon’s administration, a flawed and so far unsuccessful crime control policy template was set in stone by the Organized Crime Control Act of 1970. This was built on by the Reagan administration and exported first to Britain during the Thatcher years and, with British support, to the rest of the international community through U.N. Conventions and other mechanisms in the years that have followed.

The latest manifestation of this process was apparent on Monday 28th November 2016 when three representatives of the UK government’s security community gave evidence to the National Security Strategy Committee on the Conflict, Security and Stability Fund (CSSF). Since 2015 the UK government has been spending in excess of £1 billion every year through the fund, in an attempt to tackle conflict and build stability overseas, especially in conflict affected ‘fragile’ regions. A large part of this funding is intended to tackle ‘organized crime’ or ‘transnational organized crime’. The writers of this article believe that British tax-payers’ money is perpetuating an unwise approach to organised crime that, as the Wickersham Commission warned, will amount to ‘a mere redoubling of effort in the absence of adequate information and a definite plan’. The authors of this article submitted evidence to the Committee on the disaster looming if their points were not taken into consideration: their evidence to the Committee is available at CSSF Fund Written Evidence Young & Woodiwiss.

The case the authors made to the Committee was as follows:

1) If the government is against organised crime it should make itself aware of what actually constitutes organised crime. Why, for example, is tax evasion excluded from the range of illicit activities listed by the government’s National Security Strategy Review? Tax evasion clearly represents an organised crime threat that involves a range of legitimate world actors such as lawyers, bankers, accountants and estate agents who act as enablers.

2) Since the National Crime Agency as well as other sources has made clear that vast amounts of criminal money continue to be ‘laundered’ through the City and the Crown Dependencies, shouldn’t the UK government clean up its own house before it attempts to clean up conflict-afflicted situations?

3) Given the amount of money being dispensed through the CSSF fund shouldn’t the processes involved be more transparent and accountable than they currently are.

The authors recommended that the fund should be frozen until responses were made to these points and that the government urgently needs to appoint a commission of inquiry into organized crime. There has never been such an inquiry although a succession of U.K. governments signed up to numerous international conventions that committed our police to the thankless and unending task of combatting a phenomenon that is only dimly understood by our policy makers.

The three representatives of the national security ‘team’ were Sir Mark Lyall-Grant, the government’s new ‘National Security Advisor’, Mr Robert Chatterton Dickenson, Director of Foreign Policy, National Security Secretariat (NSS), and Ms Melinda Simmons, Head of the NSS Joint Programme Hub. At the 28 November hearing, the Committee chose only to engage with a third of the points we made. Notably, Conservative MP, Dr Julian Lewis, pertinently emphasised the point about the lack of transparency involved with regard to the $1.3 billion a year fund. The Committee exists to provide parliamentary accountability for taxpayers’ money yet the hearing was evidence that they are rarely privy as to how the money from the CSSF is spent. Lewis issued an ultimatum, either the expenditure for this financial year be disclosed in full, ‘even if it has to sit in private’ or otherwise the Committee ‘should tear up the fiction that we are in anyway able to hold you to account as to how you’re spending this very large sum of money.’ Lyall-Grant replied that he was looking at ways to increase transparency.

Two years into the fund’s existence, it is clear, that there has so far been little of it. Worryingly, two out of the three panelists giving evidence were seemingly unaware of the details of the projects (including implementation and outcomes) that their CSSF bankrolls. Furthermore they were able to provide little insight into how exactly the fiscal decisions are made and by whom, with Lyall-Grant simply referring to ‘regional boards’ within Whitehall as ‘important’ for decision making. This laissez-faire attitude of Lyall-Grant towards transparency, accountability and general competency had overtones of Oliver Letwin’s earlier attempts at obfuscation when in May 2016, Letwin chaired a sub-committee of the National Security Council and gave evidence on the, ‘basis of guesswork rather than knowledge, because I have not gone into the innards of the £100 million that we are currently spending this year in Africa under the CSSF’.

There was also no discussion of the definitional issues of organised crime; a matter raised by the authors of this article in their written evidence. The CSSF’s spending decisions to combat the security threats identified as organized crime rest on undefined and opaque terminology that reflect only the influences and biases of whoever is using it at the time. There was reference at the hearing, to one of the few organised crime control success stories that could be told about the fund. Lyall-Grant noted that he was able to hold up the funding of a UK criminal justice advisers trip to East Africa and the consequent seizure of £512 million worth of cocaine in UK waters. He was not questioned, however, about the lack of impact this seizure made on the availability of cocaine for U.K. consumers, or about the ease with which successful cocaine traffickers can still launder their profits through British financial institutions. The assumption that the witnesses seemed to share with Committee members was that we British keep a clean house and can therefore intervene – usually covertly intervene – in the affairs of fragile and conflict affected regions around the world. Organised crime in other jurisdictions is thought to be a direct security threat to the U.K. while organised financial crime under our own jurisdiction remains something that is minimally tackled – despite the exaggerated rhetoric of increasing transparency, we know that ultimately nothing will be done to increase either the transparency of the CSSF’s spending decisions or the financial services industries operating in Britain’s secrecy havens.

Across the Atlantic, the record of American efforts to control organised crime is not impressive – despite most film and television accounts and the constant claims of the F.B.I. The Wickersham commission’s plea that intelligent action, on organized crime, ‘requires knowledge’ was once ignored again at the hearing yesterday, just as it has been for decades by American politicians, and the bureaucratic empire builders they ‘enabled’. We continue to experience, ‘a mere redoubling of effort in the absence of adequate information and a definite plan’. The Parliamentary Committee’s failure to engage with the failure of organised crime control in this country is another chance missed. The Committee is due to meet the government’s national security representatives next on 12 December in a ‘Private Meeting’. It seems likely that they will continue to provide a fig leaf of accountability and transparency for the billion dollar fund. To use Dr Lewis’ apt description, when things go wrong the Parliamentary Committee will be a useful ‘patsy’.

— source taxjustice.net By Michael Woodiwiss and Mary Young

The truth about tax havens

In 2009 I met a former private banker, Beth Krall, to explore a question that had been nagging me: how do bankers who shelter the wealth of gangsters and corrupt politicians justify what they do? We met one Sunday in Washington DC. She had left private banking and joined the non-governmental sector. Dressed in a striking black-and-white coat, she still looked very much the stylish international financier. Aged 47, and with nearly 24 years in the banking business, Krall (not her real name) was still coming to terms with her past life.

Krall’s last offshore posting was in the Bahamas, an island archipelago with over 300,000 residents that has been an important offshore centre since the golden age of American organised crime. A few months earlier, a practitioner in the Caymans had warned me to watch out for my personal safety if I went “asking all these questions” in the Bahamas. Krall said she was unsure what might happen to her if she went back, as she was partly breaking the private bankers’ code of silence. “I don’t want to have concrete shoes put on me,” she said without smiling. One reason for her fear was something that had angered her in the first place: so many of the people she dealt with were powerful members of society in their home countries.

Krall took her banking exams straight after school, and then worked for a number of banks before moving to Cititrust in the Bahamas, where she ran evaluations and accounting for their mutual funds business.

From this point, Krall declined to name her employer. She became a client relationship manager with the private banking arm of a well-known international bank in the Bahamas. They worked with what are euphemistically known as managed banks or shell banks, an offshore speciality. These have no real presence where they are incorporated, so they can escape supervision by regulators.

The terrorist attacks on 11 September 2001 prompted the US to legislate against shell banks. A bank in the Bahamas must now employ two senior bankers and keep its books and records there to be judged real enough to do business. “That means a bank maybe with a room or suite in a building, with two people in it – that’s a bank now,” Krall said. She directed me to the website of a Bahamas-based trust company that will provide you with exactly that: the appearance of being a real bank – including two staff members as directors and a place to keep the books. Such a setup can allow business almost as usual, yet still tick the regulators’ boxes.

Krall moved to a big European bank, again as a client relationship manager – in effect, someone who finds wealthy clients and keeps them happy. Trawling for business, she was routinely pointed towards Latin America, where she travelled frequently. “On the immigration form you would write that you were going for pleasure, though your suitcase would be full of business suits and portfolio evaluations, or marketing materials and presentations explaining the advantages of a trust in the Bahamas.” The client’s name didn’t appear on their portfolio evaluation: in fact, the bank would not even record it as the account name. It was nerve-racking, sometimes, going through airports, but she always got through unchallenged.

Despite her growing qualms, Krall ended up working for a boutique Swiss private bank in the Bahamas. This was no ordinary bank, and was the only one where she actually saw a suitcase full of cash. “My bank never once had a client walk through the door,” she said. “The bankers and their clients go on big-game hunting trips, or to the ballet in Budapest. That is where it happens.”

Her colleagues hailed from old European aristocratic circles. While Krall was perfectly good at her job and had close working relationships with top lawyers, asset managers and so on, a gap remained. “They went to parties with royalty, with ambassadors,” she said. “I wasn’t in their circle.”

At the time, laws in the Bahamas were being tightened a little, following a feeble global crackdown, and she moved sideways in the bank to work as a compliance officer. These days, offshore bankers make a big show of their know-your-customer rules to keep out the bad money. Depositors may have to supply a certified copy of a passport, for example, and divulge where their money came from. Jurisdictions such as the Bahamas and the Cayman Islands put these requirements into their statutes, and banks employ compliance officers such as Krall to enforce this. That, at least, is the theory. But there are many ways around the restrictions.

Krall was supposed to check for suspicious movements through the accounts – of which there were plenty. She raised many red flags. “They [her managers] would say, ‘This was a commission’.” Were these bribes? Commissions on what? “I went back, and never got an answer.” One Swiss-based trust company that had a relationship with her bank displayed almost nothing on its website, bar some photos of a nice fountain in Geneva. “The crap they brought to us was unbelievable. There is no way a responsible trustee should take this on. You would have no idea who the trust settlors were, what the assets were or where they came from. I objected strongly, but the bank took them on.”

There is something about island life that stifles dissent. In the island goldfish bowl, you cannot hide. The ability to sustain an establishment consensus and suppress troublemakers makes islands especially hospitable to offshore finance, reassuring international financiers that local establishments can be trusted not to allow democratic politics to interfere in the business of making money.

John Christensen, Jersey’s former economic adviser-turned-dissident, describes encountering extremist right-wing offshore attitudes when he returned to his native island in 1986 after working overseas as a development economist. It was the year of the City of London’s Big Bang of financial deregulation, and he found the tax haven amid a spectacular boom. Old houses, tourist gift shops and merchant stores in Jersey’s beautiful capital St Helier were being knocked down and replaced by banks, office blocks, car parks and wine bars. He went to an employment agency and they told him he could have any job he wanted. The following day he had three offers. In his work he soon became aware of practices such as reinvoicing, in which trading partners agree on a price for a deal, then record it officially at a different price in order to shift money secretly across borders.

As the river of money flowing into Jersey became a tide, he expressed unease about the origins of some of it, much of it from Africa, but he was brushed aside.

The concentration of extremist attitudes in Jersey was self-reinforcing, as Christensen explains. “Most liberal people like myself left,” he said. “My socially liberal friends from school, almost all of them left Jersey to go to university, and almost all of them didn’t go back. I can’t tell you how dark it felt.” He almost left, but was persuaded to stay by academic researcher Mark Hampton, who was putting together a framework for understanding tax havens and convinced him how important it was to understand the system from the inside. “I went undercover,” Christensen said, “not to dish the dirt on individuals and companies, but because I couldn’t understand it – and none of the academics I spoke to could either. There was no useful literature.”

Jersey is riddled with elite, secretive insider networks, typically linked to the financial sector. After being appointed economic adviser in 1987, Christensen found that many people who came to see him wanted him to join their Masonic lodge, and gave him the secret signal. “Their thinking is very much of the old-boy network – you are either one of us or you are against us,” he continued. “It means they can trust you to do the right thing without having to be told – an insidious meaning of the word ‘trust’.”

Unaccountable elites are always irresponsible, and I got my own flavour of Jersey’s mouldy governance on the first day of a visit in March 2009, when the Jersey Evening Post carried a front-page story headlined “States in shambles”, referring to the States Assembly, Jersey’s parliament. “The States resembled a school playground yesterday as foul language and personal insults flew across the chamber,” it said. Senator Stuart Syvret, a popular but controversial politician, had complained in the assembly that the health minister was whispering in his ear.

Syvret, the newspaper reported, stood up and said: “On a point of order, I am sorry to interrupt the minister. But the minister to my right, Senator Perchard, is saying in my ear: ‘You are full of fucking shit, why don’t you go and top yourself, you bastard.'” Senator Perchard responded by saying: “I absolutely refute that. I am just fed up with this man making allegations.” The BBC, which was broadcasting the sitting live, had to apologise for the language.

Syvret has been a regular victim of efforts to suppress dissent. “Any anti-establishment figure here is bugged,” said Syvret. “There is a climate of fear. Anyone who dares disagree is anti-Jersey, an enemy of Jersey. You are a traitor, disloyal. There is all this Stalinist propaganda.” A few weeks after my visit eight police officers arrested Syvret and held him for seven hours while they ransacked his home and personal files, including his computer.

In October 2009, having been accused of leaking a police report about the conduct of a nurse, Syvret fled to London and claimed asylum at the House of Commons, saying he could not get a fair trial in Jersey. British Liberal Democrat MP John Hemming put Syvret up in his flat, declaring that “we should not allow him to be extradited, to be prosecuted in a kangaroo court”. When Syvret returned in May 2010 to fight an election he was arrested at the airport. “This is a society with no checks and balances, run by an oligarchy,” Syvret said. “It is a one-party state, and it has been for centuries.”

At the Smugglers’ Inn on Jersey’s beautiful coast, I sat with John Heys, a tour guide at the world-famous Durrell zoo, and his friend Maurice Merhet, a retired printer and pig farmer. The two had spoken out – in letters to the Jersey Evening Post and in other forums – and have been decried, publicly and regularly, as traitors. Both described the same climate of fear that Syvret had: the dread of being squeezed out of a job, of never getting anywhere, of being blacklisted.

Heys showed me an email from a government minister to a dissident friend who had, in a cheeky Christmas message to the minister, pointed out the large sums stashed away in Jersey amid global poverty. The minister responded – mistakes included: “Hi Traitor, Please refrain from sending me your unsolicited garbage … I am surprised you still decide to live in this ‘tax haven’ island … ifs its so bad why do you not leave to live somewhere else … good riddance I would say … but perhaps NOT because you get a damm good living here, no doubt perhaps funded by banks and your morgage lender … in fact my family have lived in Jersey for several generations and I am so very proud of it but to listen to traiterous idiots like you makes me furious. I would not have the nerve to wish you a happy christmas in fact I hope you continue to live a miserable existence in your traiterous world.”

One night in 1996, towards the end of his time in Jersey, Christensen opened the books for a reporter from the Wall Street Journal, who was investigating an alleged fraud ring involving American investors and a Swiss bank operating out of Jersey. The story, headlined “Offshore hazard: Isle of Jersey proves less than a haven to currency investors”, ran on the front page several months later. Jersey’s finance industry and politicians went into spasm. This was one of the first times Jersey’s supposedly clean and well-regulated finance sector had been challenged in a serious global newspaper. The end of the article quoted a senior civil servant. Everyone in Jersey was sure it was Christensen. He knew that, in talking to the reporter, he had effectively resigned.

Finance can take advantage of insularity, timidity and moral shortsightedness, but the ethos of the Jersey establishment derives ultimately from the offshore industries and their onshore controllers, not from innate island character. Offshore repression can happen in larger jurisdictions, too. Rudolf Elmer, a Swiss banker who had worked for banks in several offshore centres before becoming a whistle-blower on some of the corruption he had seen, felt the pressure in Switzerland, a country of eight million people.

In 2004 Elmer noticed two men following him to work. Later, he saw them outside his daughter’s kindergarten, then from his kitchen window. His wife was followed in her car. The men offered his daughter chocolates in the street and late at night drove a car at high speed into the cul-de-sac where he lived. The stalking continued, on and off, for more than two years. The police said there was nothing they could do. In 2005, they searched his house using a prosecutor’s warrant, and he was imprisoned for 30 days, accused of violating Swiss bank secrecy, which is, as he put it, “an official violation, like murder”.

“I was thinking of suicide at this stage,” he said. “I would be looking out of the window at 2am. They intimidated my wife, children and neighbours. I was an outlaw. I was godfather to a child whose father is in finance. He said I have to stop – ‘you are a threat to the family’.” A relative was pressured at work to avoid contact with Elmer; after one warning he left the office in tears. “I was bloody naive to think that Swiss justice was different,” Elmer said. “I can see how they might control a population of 80,000 people in the Isle of Man, but eight million? How can a minority in the banking world manipulate the opinion of an entire country? What is this? The mafia? This is how it works. Jersey, the Cayman Islands, Switzerland: this whole bloody system is corrupt.”

theguardian.com part 1

The offshore world is all around us. More than half of world trade passes, at least on paper, through tax havens. More than half of all banking assets and a third of foreign direct investment by multinational corporations are routed offshore. An impression has been created in sections of the world’s media, since a series of stirring denunciations of tax havens by world leaders in 2008 and 2009, that the offshore system has been dismantled, or at least tamed. In fact quite the opposite has happened. The offshore system is in very rude health — and growing fast.

It is no coincidence that London, once the capital of the greatest empire the world has known, is the centre of the most important part of the global offshore system. The City’s offshore network has three main parts. Two inner rings – Britain’s crown dependencies of Jersey, Guernsey and the Isle of Man; and its overseas territories, such as the Cayman Islands – are substantially controlled by Britain, and combine futuristic offshore finance with medieval politics. The outer ring comprises a more diverse array of havens, such as Hong Kong, which are outside Britain’s direct control but have strong links.

This network of offshore satellites does several things. First, it gives the City a truly global reach. The British havens scattered all around the world’s time zones attract and catch mobile international capital flowing to and from nearby jurisdictions, just as a spider’s web catches passing insects. Much of the money attracted to these places, and the business of handling that money, is then funnelled through to London.

Second, this British spider’s web lets the City get involved in business that might be forbidden in Britain, providing sufficient distance to allow financiers in London plausible deniability of wrongdoing. Much (but not all) of the financial activity hosted in these places breaks laws and avoids regulation elsewhere.

The three crown dependencies in the inner ring are substantially controlled and supported by Britain but have enough independence to allow Britain to say “there is nothing we can do” when other countries complain of abuses run out of these havens. They channel very large amounts of finance up to the City of London: in the second quarter of 2009 the UK received net financing of $332.5bn (£215bn) just from its three crown dependencies. Jersey Finance promotional literature makes the point plainly. “Jersey,” it says, “represents an extension of the City of London.”

The 14 overseas territories, the next ring in the spider’s web, are the last surviving outposts of Britain’s formal empire. With just a quarter of a million inhabitants between them they include some of the world’s top secrecy jurisdictions: the Cayman Islands, Bermuda, the British Virgin Islands, the Turks and Caicos islands and Gibraltar.

Just like the crown dependencies, the overseas territories have close but ambiguous political relationships with Britain. In the Caymans the most powerful person is the governor, appointed by the Queen. The governor handles defence, internal security and foreign relations; he appoints the police commissioner, the complaints commissioner, the auditor general, the attorney general, the judiciary and other top officials. The final appeal court is the privy council in London.

It is the world’s fifth largest financial centre, hosting 80,000 registered companies, more than three-quarters of the world’s hedge funds, and $1.9tn (£1.2tn) on deposit – four times as much as in New York City banks.

The third, outer ring of the British spider’s web includes Hong Kong, Singapore, the Bahamas, Dubai and Ireland, which are fully independent though deeply connected to the City of London.

In the Caribbean, the modern offshore system traces its origins back to the time when organised crime took an interest in the US tax code.

When Al Capone was convicted of tax evasion in 1931, his associate Meyer Lansky became fascinated with developing schemes to get mob money out of the US in order to bring it back, drycleaned. A slick mafia operator, Lansky would beat every criminal charge against him until the day he died in 1983. Lansky began with Swiss banking in 1932, where he perfected the loan-back technique.

First he moved money out of the US in suitcases, diamonds, airline tickets, cashiers’ cheques, untraceable bearer shares or whatever. He would put the money in secret Swiss accounts, perhaps via a Liechtenstein Anstalt (an anonymous company with a single secret shareholder) for extra secrecy. The Swiss bank would then loan the money back to a mobster in the United States and the money would return home, clean.

By 1937 Lansky had started casino operations in Cuba, outside the reach of the US tax authorities, and he and his friends built up gambling, racetrack and drugs businesses there. It was, effectively, an offshore money-laundering centre for the mob.

Lansky then moved to Miami and plotted to find his next Cuba, small enough and corrupt enough to be able to buy the political leadership, and close enough to the United States for the gamblers to come and go at will.

The Bahamas, the old staging post for British gun-running to the southern US slave states of the Confederacy, was perfect. Lansky set about making this British colony, now dominated by an oligarchy of corrupt white merchants known as the Bay Street Boys, the top secrecy jurisdiction for north and south American dirty money.

A quaint memo from a Mr WG Hulland of the Colonial Office to a Bank of England official in 1961, just as Lansky began major operations there, illustrates the uneasy nature of this encounter between the British upper classes and American organised crime: “We feel that this [lack of provision of an effective regulatory system] might be a grave omission, since it is notorious that this particular territory, in common with Bermuda, attracts all sorts of financial wizards, some of whose activities we can well believe should be controlled in the public interest.”

London did nothing, and Lansky built his empire. Yet many locals were unhappy. In 1965 Lynden Pindling, a populist Bahamas politician, threw the ceremonial speaker’s mace out of a parliament window in a dramatic power-to-the-people gesture. He was elected prime minister in 1967 on a platform that included hostility to gambling, corruption and the Bay Street Boys’ mob connections.

Yet as it happened there was a reassuringly British place just next door, where the locals were far more friendly: the Cayman Islands.

Milton Grundy, an influential Caribbean offshore lawyer and author of several books on offshore finance, remembers first arriving in the Caymans. Cows wandered through the town centre, there was one bank, one paved road and no telephone system. In 1967 the Caymans published its first trust law, which Grundy drafted, and which a British Inland Revenue official subsequently said “blatantly seeks to frustrate our own law for dealing with our own taxpayers”. Within just a few months Grand Cayman was connected to the international phone network and the airport was expanded to take jet aircraft.

Some have argued that Britain set up the offshore networks simply out of a short-sighted desire to find a way for its overseas territories to pay their way in the world. After the second world war, an exhausted Britain found that its empire, once a source of great profits, was becoming more expensive and difficult to run, as locals began to agitate for independence. But the evidence points to a different, more troubling explanation for Britain’s decision to turn its semi-colonies into secrecy jurisdictions.

The archives tell a consistent story about how the tax havens grew: private sector operators working in a zone of extreme freedom began to call the shots, with little opposition from Britain and its inexperienced emissaries.

In the archives, two schools of opinion emerge within the British civil service. On one side sits the Treasury, and especially its tax collectors in the Inland Revenue, who virulently opposed tax havenry and found the Cayman Islands especially obnoxious. The US authorities were clearly highly vexed too, and the British Foreign Office broadly opposed havenry, though its position was more nuanced.

On the other side sits the Bank of England, the most vociferous cheerleader for the new arrangements, and its far less influential supporter, the British overseas development ministry, which seems unperturbed by the possibility that local tax haven activities might foster massive capital flight from developing countries elsewhere. Battle lines were drawn; the exchanges become vigorous and even acrimonious.

The Inland Revenue was especially alarmed, while their mandarin bosses in the Treasury showed some, but rather less, concern. They put together a working party, whose report in 1971 said Britain should, in effect, stop encouraging tax havenry in its overseas territories, which in the case of the Caymans had become, as one internal memo in London put it, “quite uncivilised”.

A letter marked secret from the Bank of England dated 11 April 1969 gives a better sense of the forces driving the changes in the Caribbean.

“We need to be quite sure that the possible proliferation of trust companies, banks, etc, which in most cases would be no more than brass plates manipulating assets outside the islands, does not get out of hand. There is of course no objection to their providing bolt holes for non-residents but we need to be sure that in so doing opportunities are not created for the transfer of UK capital to the non-sterling area outside UK rules.”

The Bank of England’s main concern at this time was that the new Caribbean centres were weak points: sources of financial leakage outside the sterling area. So in 1972 Britain shrank the area to Britain, Ireland and the crown dependencies, excluding the new havens.

The year the sterling area shrank, the British officials working against tax havens disappeared from the archive files. Their replacements seemed unaware of the 1971 report and only discovered it in 1977, sitting on the shelf, unimplemented. Again they expressed concerns – and again nothing was done. History repeated itself within and between the departments, all in less than 10 years. And, each time, the Bank of England fought the tax haven corner.

“This is no tropical paradise,” said Kenneth Crook, the newly arrived British governor of the Cayman Islands in 1972. “I could enlarge, in terms of a magnificent but mosquito-ridden beach; of a fairly new but rather ill-designed and sadly neglected house; of a pleasant but very untidy little town; of swamp clearance schemes which generate smells strong enough to kill a horse; of an office which will one day ere long collapse in a shower of termite-ridden dust.”

But on politics, and the strange relationship between Britain and its little quasi-colony, his tone hardens. “Caymanians don’t want independence,” Crook wrote. “They don’t want internal self-government either – they are very unwilling to trust each other with effective power … they quite well understand that the British connection gives them a status which they would otherwise not command.”

Nothing of substance seems to have changed, as a senior Caymanian politician, who asked not to be named, explained to me in 2009. “The UK wants to have a significant degree of control,” he said, “but at the same time it does not want to be seen to have that control. Like any boss, it wants influence without responsibility; they can turn around when things go wrong and say ‘it’s all your fault’ – but in the meantime they are pulling all the strings.”

This attitude of the locals towards Britain reassures investors, but the political bedrock underpinning the world’s fifth biggest financial centre is Britain’s role. If Caymanians gained full control, most of the money would flee.

While these changes were happening in the Caribbean, something similar was under way far closer to the City of London, in the crown dependencies. A constituent’s letter forwarded and endorsed by Tony Benn, then an MP, to the then chancellor, Denis Healey, about a tax conference in Jersey, gives a flavour: “I am somewhat surprised to see a Mr Gent from the Bank of England giving advice on how to avoid paying tax. I wonder if this is really part of the Bank of England’s duties? Mr Gent suggests that the Bank of England will not be prepared to pass on information required by the Inland Revenue! Does the UK Treasury have no control over the Bank of England? Surely Bank employees should not be working against government policy? And just what sort of arrangements and deals are made at these events ‘behind the scenes’?

“It really is just a bit too sordid to be true.”

As in the Caribbean, offshore banking blossomed here from the 1960s, when merchant banks such as Hambros and Hill Samuel opened for deposits.

Foreign travel was getting easier and more British expatriates opened accounts in Jersey, where the banks were reliable and comfortingly British, but where bank interest was untaxed and secret. Many did not declare their income to their countries of residence, often poverty-racked African nations, knowing they would not be caught.

Martyn Scriven, secretary to the Jersey Bankers’ Association, described how Jersey’s network grew. “The biggest business developer is client recommendation,” he said. “The client will say, ‘I’m happy, and I’d like to introduce you to my friend’ – and you build it up like that. You get some seriously interesting people … someone who goes abroad as a rigger 20 years ago for Shell may now be in charge of the company’s west Africa operations … We gather deposits from wealthy folk all around the world, and the bulk of those deposits are sent to London. Great dollops of money go into London from here.”

As in the Caymans, Jersey has carefully protected the ambiguous relationship with Britain. Jersey’s most senior public sector officials are appointed in London; its laws are all approved by the privy council in London, and Britain handles Jersey’s foreign relations and defence, and the lieutenant governor represents the Queen.

As in the Caymans, Britain goes to great lengths to hide its control. And, as with the Cayman Islands, the relationship with the mother country reassures the wealthy and the financial services industry that Britain will step in if needs be, to protect the tax haven from external attacks. Their money is safe in Jersey.

— source theguardian.com By Nicholas Shaxson