Friday, June 29, 2012

Offshore: the smoke-filled room, where gentleman arrange the world's affairs over cognac and cigars.

One of the themes that TJN keeps returning to is that tax havens, despite their name, aren't just about tax. They are, essentially, about escape: they are escape routes from the rules responsibilities of mainstream societies elsewhere. The entire proposition of these places is, by its very 'offshore' nature, profoundly anti-democratic, and we think that the term 'secrecy jurisdiction' can sometimes be a more appropriate term than 'tax haven'. Others prefer to use the term 'offshore,' which reflects this 'elsewhere' aspect.

The Guardian, in its ongoing Channel Islands series, has an editorial today about the Channel Islands, which it dubs "the Loophole Islands", with a short summary of a piece it just wrote, which describes one more escape route that people don't traditionally associate with tax havens.
"The fact that Guernsey has opted out of European standards on what claims can be made about vitamins and minerals means that it has effectively become the supplement capital of the continent, bustling with firms that for years have made unsubstantiated health claims for their wares. The number one market for these 21st-century super supplements is the UK."
Why are financiers and other sharp operators so very fond of places like Jersey? It's because of this 'elsewhere' concept: they are places where they can reap the benefits of (in this case British) society, while shaking off the responsibilities: the lines of accountability have been cut. A new blog from the Treasure Islands site, copied more or less wholesale (with permission), gives the idea quite clearly.

Yesterday I had coffee with a financial expert in Zurich, who is in the process of setting up a new financial product. The expert said to me:

"I have had laws changed to accomodate this proposition."

Me: "Where have these laws been changed.?"

"Offshore."

This reminded me straight away of a short section in a chapter of Treasure Islands.

" ‘Someone comes up with a new idea, but onshore regulation blocks it,’ said Robert Kirkby, technical director for Jersey Finance, echoing what Delaware’s insiders had boasted of. ‘You can lobby onshore, but there are lots of stakeholders, you have to get past them all, and it takes a long time. In Jersey, you can bash this thing through fast. We got the leading edge years ago. We can change our company laws and our regulations so much faster than you can in, say, the UK, France or Germany.’ "

It all sounds so 'efficient,' doesn't it? The analogy is of grit in the machine, with tax havens as the oil that makes the machine run more smoothly. But hang on a second. What, exactly, is that 'grit'? That grit is a small matter called 'stakeholders.' It is tax, it is financial regulation, it is disclosure rules, and so on.

All of those things are put in place for good reason. Adapting something I wrote elsewhere a little while ago:

"Jersey's secrecy, or its tax or financial loopholes, are designed to attract money not from locals, but from foreigners. ‘Elsewhere:’ hence the term ‘offshore.’ Offshore lawmakers are always separated from those affected by the laws they write, so there is never proper democratic consultation when these laws are written. This is not only deliberate – it is the whole point. These are laws by insiders, for insiders, without democratic accountability: they are private law-making machines. Offshore is, almost by definition, a smoke-filled room. The implications for the last financial crisis, and for the next ones, should be quite clear.

It's a point I can't stress strongly enough.

P.S. the rest of my conversation over coffee, just a few metres away from the grand old UBS headquarters (though my coffee companion was not from UBS), was fascinating too.

Offshore: the smoke-filled room, where gentleman arrange the world's affairs over cognac and cigars.

And the same Treasure Islands blogger had an article in yesterday's Guardian, unpicking Jersey's threats to declare independence if people put too much pressure on them.

1 Comments:

Blogger James said...

Two points perhaps worth making:

In Jersey, you can bash this thing through fast. We got the leading edge years ago. We can change our company laws and our regulations so much faster than you can in, say, the UK, France or Germany.

If you're a financier, yes. If you want legislation to give women equal rights (which Jersey still doesn't have), or other things that might benefit the local population - the average time from first request to enforced law is over a decade, and rising. We are still waiting for the promised enquiry into systemic child abuse at Haut de la Garenne when it was promised in 2008.

Offshore lawmakers are always separated from those affected by the laws they write, so there is never proper democratic consultation when these laws are written. This is not only deliberate – it is the whole point. These are laws by insiders, for insiders, without democratic accountability.

Offshore lawmakers are often entirely ignorant of the effects of the law they are debating - this is particularly the case with Jersey's parish constables (a quarter of the States), who are way out of their depth with this, and simply follow the herd.

1:45 am  

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