Tuesday, September 23, 2008

From Norway: Welcome to a world without rules

The title of this blog, inspired by a recent Batman film, refers to a speech that TJN's director, John Christensen, gave today to the Norwegian Association of Tax Auditors and Accountants. (the speech refers to several charts, which you can find here.) It is a wide-ranging speech, but much of it follows the theme pursued by a number of recent blogs, which analyse the role that tax havens have played in the current global economic turmoil. A few excerpts help distil some of the points:

"Until now virtually no-one has made the link between the chaos on the global financial markets and tax havens. But it is important that we recognise that these links exist, and that tax havens - or secrecy jurisdictions as they are often called nowadays – are not just used for tax evasion, but have also played a key role in creating the turmoil on the globalised financial markets.

The core of my argument is that secrecy jurisdictions are corrupting agents operating in a clandestine fashion at the core of the global financial markets. They have played a wholly destructive role in allowing economic players to circumvent onshore regulation and evade financial oversight. By providing what academics call “secrecy space” they multiply market risks by facilitating the creation of complex and opaque corporate structures, for example Special Investment Vehicles used to hold assets off-balance sheet."

How does he know this? He used to be an offshore practitioner, and a senior adviser to the States of Jersey.

"From personal experience I have seen how companies festoon their financial affairs all around the world, slicing and dicing complex structures between multiples of jurisdictions, in response to offshore incentives. A company incorporated in the Isle of Man, might be owned by a trust established in Jersey, with trustees in Bermuda and a bank account in Luxembourg. Even if each tax haven’s claim that it is well regulated were true, the regulation falls between the stools: such transnational entities are regulated, in effect, nowhere, since each jurisdiction only accepts responsibility for what happens in its domain and none for the entity as a whole. This is deliberate.

. . . In practice secrecy jurisdictions only regulate transactions occurring within their territorial boundaries, and since almost by definition the majority of transactions booked within their jurisdiction occur elsewhere, the regulators feel under no obligation to regulate them. The outcome of this officially sanctioned game of smoke and mirrors is that a huge proportion of offshore transactions occur in a regulatory void which we can only describe as ‘Nowhere’. . .

Secrecy jurisdictions might appear as small and relatively insignificant places. They seldom feature in mainstream academic texts and most analysts and journalists either ignore them or treat them as externalities beyond the political economic mainstream."

But if you think that this is small beer, we've got news for you. Try these for size.
  • Over half of all international bank lending and approximately one-third of foreign direct investment is routed via secrecy jurisdictions;
  • Over 50 percent of global trade is routed on paper via secrecy jurisdictions even though they only account for some 3 percent of world GDP;
  • Personal wealth totalling US$11.5 trillion has been shifted offshore by the super-rich (known in banking circles as High-Net Worth Individuals, or Hen-Wees), evading taxes of over US$250 billion annually;
  • Over two million international business corporations and hundreds of thousands, possibly millions, of secretive trusts and foundations have been created in secrecy jurisdictions;"
And so on. John then asks the question: how do secrecy jurisdictions add value to the global economy?

"When I have put this question to bankers and officials in the secrecy jurisdictions, they speak vaguely about ‘oiling the wheels of the international markets’ or providing ‘regulatory certainty’, or promoting tax competition, by which countries keep offering tax incentives to attract mobile capital from other countries. I will deal with each of these in turn."

You will find the rest contained in his speech. Read it.


Anonymous College Term Papers said...

The core of my argument is that secrecy jurisdictions are corrupting agents operating in a clandestine fashion at the core of the global financial markets.

3:42 am  

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