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

One-percenters, pay your taxes

In recent years, business leaders at Davos, the World Economic Forum’s annual meeting, have ranked inequality as one of the greatest risks to the global economy. They have recognized that it is not just a moral issue but also an economic issue.

Of course, if ordinary citizens don’t have incomes with which to buy the products made by the world’s corporations, how can those corporations prosper? That’s consistent with the findings of the International Monetary Fund: that countries with less inequality perform better.

If a majority of citizens feel that they are not getting what they view as a fair share of the economic gains, they may turn against our economic and political system, or at least those parts of it that they blame. If a majority believes that globalization is hurting them, they may turn against globalization.

The outcomes of the election in the US and the result of the referendum on Britain’s membership in the European Union suggest that a rebellion may already be brewing. And this is understandable: in the US, the average income of the bottom 90% has stagnated for nearly a quarter of a century. According to the National Center for Health Statistics, average life expectancy declined last year for the first time in more than two decades.

In recent years, Oxfam has been keeping tabs on the growth in global inequality. In 2014, the anti-poverty organization painted a vivid image of a bus with the world’s 85 richest people — many of whom are in attendance at Davos, as it happens — who had as much wealth as the bottom half of the world’s population. Each year since, that bus has been shrinking. This year, Oxfam revealed that such a large form of transport was no longer needed: a minivan with just eight men (and they are all men) would do. They have as much wealth as the bottom 3.6 billion people.

Not surprisingly, the message has not been lost on these top executives meeting in Davos. For some, it is a moral issue; for all, it is an economic and political one. At stake is the future of the market economy as we know it. At session after session at Davos, executives have been grappling with the question: Is there anything that the world’s corporations can do about this scourge that threatens the political, social, and economic sustainability of our democratic market economies? The answer is yes.

It begins with a simple idea: pay your taxes. This is the first element of corporate responsibility. Don’t resort to shifting taxes to lower tax jurisdictions. Apple may feel that it has been unfairly singled out on this score; it only did a slightly better job at tax avoidance than others.

Don’t make use of the secrecy and tax havens, onshore or offshore, whether it’s Panama or the Cayman Islands in the Western hemisphere or Ireland or Luxembourg in Europe. Don’t encourage the countries in which you operate to engage in tax competition, a vicious race to the bottom where the real losers are the poor people and ordinary citizens around the world.

It’s shameful when the president-elect of a country appears to boast that he hasn’t paid certain taxes for nearly two decades — suggesting that smart people don’t — or when a company pays .005% of its profits in taxes, as Apple did. It’s not smart: it’s immoral.

Africa alone loses $14 billion in tax revenues due to the super-rich using tax havens, Oxfam has calculated, noting this would be enough to pay for health care that could save the lives of 4 million children and to employ enough teachers to get every African child into school.

A second idea is equally simple: Treat your workers decently. A full-time worker shouldn’t be living in poverty. In Scotland, 31% of households where one adult works full time are still in poverty.

Top executives in large US corporations now take home around 300 times what the same corporation’s median worker receives. That’s far more than in other countries or at other times — and the disparity can’t be explained simply by productivity differentials. In many cases, corporate CEOs take home so much simply because they can — doing so at the expense not only of their workers but of the long-term growth of the company. Henry Ford understood the idea about good pay, but his wisdom seems to have been lost on some of today’s corporate executives.

A third idea is equally simple but seems increasingly radical: Invest in the future of the company, in your employees, in your technology and in capital. Without such investment, there won’t be jobs in the future and inequality will only grow. Yet today, rather than investing profits back into the company, an ever-greater proportion is siphoned off to shareholders. In the UK, for example, 10% of profits were returned to shareholders in 1970; this figure is now 70%.

Historically, banks (and the financial sector) performed the important function of raising money from the household sector, to be used by the corporate sector to build factories and create jobs. In the US, corporate borrowing now primarily funds dividend payouts. Last year, the British retail magnate Philip Green was grilled before a committee of parliamentarians for under-investing in his company. He extracted great wealth for himself but led the company into bankruptcy and left a pension deficit of hundreds of millions of pounds, for which he apologized.

Though knighted, praised and paraded by successive governments as a beacon of British business, the description a committee of parliamentarians chose for him may be more apt: the “unacceptable face of capitalism.”

Corporations realize that how well they are doing is not just a product of the laws of economics. It is the result of the laws written in the capital of each country. That’s why corporations spend so much money lobbying. In the US, the banking sector lobbied for deregulation: they got what they wanted, and taxpayers had to pick up the tab for the consequences.

Over the past quarter of a century, in many countries, the rules of the market economy have been rewritten in ways that have enhanced market power and increased inequality. Many corporations have done far better in “rent seeking”— getting a larger share of the national wealth through the exertion of monopoly power or extracting favors from government — than in anything else. But when profits come from such rent seeking, the wealth of the nation is diminished.

Around the world, there are many corporations, led by enlightened leaders, who have long understood these maxims. They have understood that it is in their enlightened self-interest for there to be shared prosperity.

Rather than lobbying for policies that increase rent seeking — with their corporate gains coming at the expense of others — they have realized that the only sustainable prosperity is shared prosperity, and that in those countries afflicted with ever growing inequality, the rules will have to be rewritten to encourage long-term investment, faster growth and shared prosperity.

— source edition.cnn.com By Joseph Stiglitz

Britain as a tax haven? It already is

As Britain readies itself to trigger Article 50, it appears to have given up on seeking EU allies for the negotiations to come, threatening instead to turn itself into a full-blown tax haven. This is a worrying sign of the number of paddles with which Prime Minister Theresa May has equipped herself for the planned expedition up Brexit creek.

As many of those sitting across the table from the British prime minister know, turning the U.K. into a tax haven will cause more damage inside the country than it will across the Channel. Indeed, if the May government carries out its threat to be a bad neighbor, it is the remaining 27 EU countries that stand to benefit.

Tax havens share three broad characteristics: financial secrecy, which allows companies to hide their income and assets from those who might wish to tax them; loose tax rules and low tax rates, which provide incentives for companies to shift profits to the haven; and loose financial regulations, which provide mechanisms facilitating the laundering of funds.

By these measures, the U.K. is already well on its way to becoming a tax haven. Britain has long off-shored its secrecy to the Crown Dependencies and Overseas Territories, places like the Cayman Islands, Jersey and the Isle of Man, rinsing the funds of traces of their origins before they flow to the City of London. If this network of secrecy is considered as a single entity, it sits at the top of the Tax Justice Network’s financial secrecy index as the biggest threat to global financial transparency.

Similarly, when it comes to corporate taxes, successive U.K. governments have led the race to the bottom — seeking to turn the country into the most “tax competitive” major economy. This impetus has survived both government-funded and independent analyses demonstrating that the U.K. Treasury is a net loser from such policies.

Finally, the U.K. has long offered a deliberately soft touch on financial regulation. American authorities, for example, were dismayed, if not altogether surprised, to find that it was the London operations of a number of U.S. financial institutions that blew up during the financial crisis.

The European Union, by contrast, has led the way in the fight against tax havens. The EU’s savings directive set the global standard on automatic processes for exchanging banking information and took important steps in establishing public registers of the beneficial ownership of companies in its new anti-money laundering directive. State aid investigations spearheaded by the EU also challenge corporate tax abuses, as in the case of corporate giants such as Apple, Starbucks and Fiat.

The British government is correct to note that Brexit will provide the U.K. with greater liberty in its pursuit of becoming a tax haven. What it seems to have failed to take into account is that leaving the EU will also provide Brussels with more power in addressing that threat.

For example, British financial services companies will need so-called “passporting rights” if they are to operate on the Continent. The EU could make these conditional not only on meeting the bloc’s regulatory standards, but also on maintaining pace with its financial transparency rules. And with the U.K. absent in the legislation process, it is likely that these regulations will become more severe.

Similarly, the EU’s use of objectively verifiable criteria in blacklisting tax havens is likely to prove a potent antidote to British secrecy laws. And any pain the bloc would suffer from putting British financial services off limits would likely be small, when one takes into account the quick relocation of the financial sector’s jobs and taxable income from the U.K. to the Continent.

In the area of corporate profit-shifting, aggressive attempts by the Treasury to encourage corporations to shift their profits to the U.K. could provide the trigger for the EU to finally push through its Common Consolidated Corporate Tax Base, a policy it has attempted to get off the ground for years, often in the face of opposition from the U.K.

This policy would ensure that the EU’s share of multinational enterprises’ taxable profits corresponds with the real economic activity taking place within the bloc. It would seriously hinder the U.K.’s attempts to slash corporate taxes to attract European business by removing EU corporations’ ability to move their income elsewhere.

If the U.K. carries out its threat to become a tax haven, it will condemn itself to major economic costs — and to significant political damage. A tax and regulatory race to the bottom would undercut public services, exacerbate inequality and depress long-term growth.

The threat may be empty when it comes to the EU, but it remains very real when it comes to British citizens.

— source politico.eu By Alex Cobham

Swiss voters soundly reject corporate tax overhaul

Swiss voters clearly rejected plans to overhaul the corporate tax system, sending the government back to the drawing board as it tries to abolish ultra-low tax rates for thousands of multinational companies without triggering a mass exodus.

Most Swiss recognized the country needs reform to avoid being blacklisted as a low-tax pariah. But new measures proposed to help companies offset the loss of their special status breaks had created deep divisions

Switzerland has been in the firing line of the European Union and OECD club of rich countries for years over the special tax status that cantons give foreign companies. Some pay virtually no tax above an effective federal tax of 7.8 percent.

Switzerland agreed with the OECD in 2014 to abolish by 2019 the special status, which has been an attractive perk for around 24,000 multinationals looking to lower their tax bills. That provision will now remain in place past the original deadline.

— source reuters.com

Snowstorm – tax havens and organized crime today

Organised crime has had a long association with tax havens. As our own Nicholas Shaxson wrote in an article The truth about tax havens, the Bahamas was set up as a secrecy jurisdiction by Meyer Lansky, none other than Al Capone’s lawyer. When Lansky was thrown out he moved to nearby Caymans. It is easy to see the attraction, loose laws and financial secrecy make the laundering of the proceeds of crime much easier.

But how much do governments and police forces include tackling tax havens in their thinking of modern organised crime? Not much according to two experts on the issue Mary Young and Michael Woodwiwiss.

Currently the UK government spends a significant amount of its development aid in countering organised crime, but appears to have little scientific understanding about what exactly that is. There is also little transparency about where that aid money is going. Currently the issue is being considered by a UK Parliamentary committee, which often meets in secret, but even they are having difficulty getting to the bottom of the issue.

This article from Michael Woodiwiss and Mary Young discusses some of these issues and outlines the case they have been making on how to fight global organised crime more effectively. At the heart of their recommendations is the need to focus on tax evasion as form of organised crime, and for the UK to be doing much more to look at illicit flows of money passing though the biggest offshore centre of them all, London.

Snowstorm

By: Michael Woodiwiss and Mary Young

The authors are based in the Department of History and Bristol Law School at the University of the West of England. Their research encompasses the interdisciplinary exploration of the conceptualisation of organised crime and its impact within norm making at the national, regional and international levels.

The authors are happy to be contacted directly at Michael.Woodiwiss [@] uwe.ac.uk and Mary.Young [@] uwe.ac.uk

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

Spain’s Princess Cristina acquitted in tax fraud trial

Spain’s Princess Cristina, the sister of King Felipe VI, has been cleared of helping her husband evade taxes after a year-long trial that has further tarnished the image of the royal family and done little to allay public concern over the apparent ubiquity of corruption at the highest levels of Spanish society.

Her husband, Iñaki Urdangarin, was sentenced to six years and three months in prison and fined more than €500,000 after being found guilty of charges including embezzlement, fraud and tax evasion.

— source theguardian.com