Thursday, March 27, 2008

Doha, and a perfect storm of tipping points

The UN General Assembly has mandated that a conference on Financing for Development (FFD) is to take place on November 29-December 2 this year in Doha, Qatar. TJN is one of the groups involved in some of the preparations for this, notably around a theme of helping developing nations mobilise domestic resources for development. As TJN noted in a recent FT comment piece: "Tax, not aid, is the most sustainable source of finance for development." (We are not against aid, but we believe that an obsessive focus with it can distract from these potentially even more important, issues of international taxation.) In the coming days, TJN will be publishing its latest edition of our quarterly newsletter Tax Justice Focus (TJF), which will focus on the road to Doha.

The U.S. government submission to the FFD process makes some interesting points, but pretty much ignores the issue of international taxation. The NGOs' talking points, by contrast, contain recommendations such as "Reform tax policy to close tax havens, revise tax treaties and use revenue-raising tariffs more productively" - a very, very different approach. The U.S. will be fielding a formidable team at Doha which we believe may (though we would be delighted to be wrong on this) push hard against the tax justice agenda. Some NGO partners have indicated they are pessimistic about the possibility of pushing for change on international taxation - simply because to some it seems impossible to counter the truly staggering size and power of the vested interests that oppose TJN.

There is no need at all to be daunted. First, the power of ideas should never be underestimated - and the vested interests that oppose us have never been able to mount a solid, coherent intellectual defence against TJN's agenda. Second, we see the process of preparing for the Doha conference as being at least as important as the outcomes - it is a fantastic opportunity to raise awareness in a number of new constituencies, whether or not vested interests succeed in derailing beneficial outcomes on tax. Third, and perhaps more importantly, dramatic changes are now well underway in the world which will put an almighty wind in the sails of the tax justice agenda. Several crucial "tipping points" have recently been, or are being, reached - and the world will never be the same.

We recently wrote about the appearance of one tipping point, referring to the Liechtenstein scandal and how it appears to have led to a change of mood and what TJN's Richard Murphy describes in a blog

I think that we have passed a tipping point; the occasion when the momentum for change becomes unstoppable.

A new story in the New York Times illustrates how worried Switzerland is, or should be, containing this quote from a Swiss banker:

“It is obvious,” said Mr. Borer, now a lobbyist, “the government and the banks, really, are heavily underestimating the impact of this scandal.” “There may be an avalanche coming, and we are not ready,” he added

One seasoned observer went as far as to suggest, only partly in jest, that we should no longer define time using "B.C." and "A.D" but as "B.L." (before Liechtenstein) and "A.L." Well, we will have to see a lot more deep reform before we can go that far.

But other tipping points are now crowding in. The FT's chief economics commentator Martin Wolf identifies what is likely to be an even bigger and more important one:

Remember Friday March 14 2008: it was the day the dream of global free- market capitalism died. For three decades we have moved towards market-driven financial systems. By its decision to rescue Bear Stearns, the Federal Reserve, the institution responsible for monetary policy in the US, chief protagonist of free-market capitalism, declared this era over. It showed in deeds its agreement with the remark by Josef Ackermann, chief executive of Deutsche Bank, that “I no longer believe in the market’s self-healing power”. Deregulation has reached its limits.

He is not alone: the lead article in the latest edition of The Economist had a similar tone:

Something important happened on Wall Street this week. It was not just the demise of a firm that traded through the Depression. Financiers discovered that they had created a series of risks that the market could not cope with.

As we have argued recently, regulation is intrinsically tied up with the tax justice agenda. What is more, the current credit crisis marks the end of a long-term transformation in the global political climate which was first driven forwards by powerful ideologues such as former U.S. President Ronald Reagan and former British Prime Minister Margaret Thatcher. This long historical tide is now receding fast, and the tax justice agenda will undoubtedly benefit.

Yet other powerful transformations are underway. At long last, development institutions are beginning to wake up to what has curiously been ignored for far too long in the debates about aid and development: the role that taxation plays in fostering political accountability and more effective government. We have already explored this in detail on the TJN website, and we recently recommended a new book about these crucial issues. Last month, the OECD published a short briefing paper very much along the same lines. To quote a few excerpts:

Taxation systems can contribute significantly to shaping accountability relationships and strengthening state capacities. This remains true and becomes more of a concern when countries receive large volumes of external assistance.

The negative proposition—that governments which do not need to tax their citizens have little incentive to be accountable, responsive or efficient—is equally well supported.

(Aid) has some of the same effects on the incentives of governments, freeing them from the imperative of raising taxes from a wide range of economic agents and from the scrutiny of tax-paying ordinary citizens and thus from an important kind of pressure to improve general economic and social conditions. Donors’ preoccupations with pro-poor expenditure may also take attention away from the longer term challenge of domestic resource mobilisation.

A recent speech by South Africa's finance minister Trevor Manuel clearly illustrates how developing countries are now waking up to the all-important role for taxation in the development process. Meanwhile, behind the scenes for now, NGOs have been contacting TJN in increasing numbers to get involved with these campaigns. In a fascinating article in the forthcoming edition of TJF, we will be looking at some of the reasons why so many NGOs have taken so long to engage in the tax justice agenda, and why they are starting to engage now. About ten years ago NGOs "woke up" to debt campaigning, and we hope and believe that a similar tipping point is now being reached on taxation.


Friday, March 21, 2008

Big trouble on treasure island

Does being a tax haven make you rich? We have already blogged about this. But don't ask us. Jon Henley of Britain's Guardian newspaper has been there recently, and written a long and thoughtful article about what it really means to live in a tax haven.

He quotes one anonymous Jerseyman:

The island has been sold into prostitution. The financial services guys are like the pimps." Like many, he prefers not to be named; there is a "nasty climate here of attacking dissent and insulting critics. If you're not with Jersey plc, you're against it - you're the enemy. It can get very personal, and it's not pretty.

And the article contains some comments and statistics which are reminiscent of oil-dependent countries troubled by the so-called "Resource Curse" (whereby huge inflows of money to an economy can cause misery for many people who don't get access to the windfall)

"There is a vast gap between the rich and the poor on Jersey. Twenty-five per cent of the workforce are employed in the financial services industry, which generates more than £100,000 profit per employee per year. That has dragged the average wage up to a level significantly higher than on the mainland. But it hides real poverty. A lot of people find it hard to make ends meet."
. . .
Jersey's cost of living is now one of the highest in the world, while wages for semi-skilled and unskilled workers are terrible (adjusted for cost of living, its minimum wage is the lowest of all 27 EU member states).

The article also liberally quotes TJN's John Christensen, himself a son of Jersey (and a former economic adviser to the state,) who says, among other things, this:

Some on the island feel that day may be drawing nearer. "Jersey is what we call a captured state," says Christensen, who returned to the island in his 30s after working for Oxfam and a range of development agencies but left again, disillusioned, in 1998. He argues that as the financial services money has flooded in and costs have climbed, other industries have simply been squeezed out for lack of resources. "The dominant industry had long been tourism, but that's now fallen to 3% of gross national income," he says.

"Dozens of hotels have closed, simply because their owners could make a lot more selling up to banks and developers who will turn their premises into luxury apartments for finance workers. Agriculture is now down to just 1% of the economic base. Financial services are completely dominant, and that affects everything. Jersey is like a living experiment in conspicuous consumption, an island nine miles by five miles with a maximum speed limit of 40mph, but just try counting the Porsches and the Aston Martins. And, of course, that dominance affects government attitudes. The big players can simply go to see selected politicians and say what they'd like in the way of legislation."

The article is highly recommended. Read it.


Thursday, March 20, 2008

Wikileaks and Wall Street

TJN has been finding the "uncensorable" internet publication Wikileaks rather interesting of late. Not so long ago, the Swiss-based Julius Baer bank and its Cayman-registered subsidiary Julius Baer Bank & Trust Co. tried to shut down Wikileaks in a court order after the site had made a number of allegations against it, but ultimately dropped the case. (As an aside, look at this correspondence to see how nasty a bank's lawyers can be.)

Now a new and interesting Wiki leak has emerged. It starts like this:

A confidential memo obtained by Wikileaks shows that not only has the U.S. Securities and Exchange Commission created an insider trading loophole big enough to drive a truck through, but that Wall Street is taking full advantage of it, establishing 'how-to' programs and even client service divisions to help well-heeled clients circumvent insider trading regulations.

Take a look. TJN cannot confirm the details of what is in here - this is the first we've heard of it (well, we're a network so it's possible other network members have, though this is the first time this blogger has come across it) but we are pleased to be credited as a general source of information at the bottom of the page, and we think this crime- and corruption-busting site looks like a very good thing for the world.


On hedge funds and the taxpayer

Hedge funds are in the news. Some of them are starting to go bust. Carlyle Capital, linked to some of the most formidable names in global politics and based in the tax haven of Guernsey, is a recent casualty. Worse, this sector seems to be just the latest domino to falling across the global financial system. Anecdotal evidence is building up that this global crisis is rather more frightening than other ones in living memory. Try this recent headline, for example: “World trade decelerates almost to standstill.” It all seems to be going in waves: if you want to be really frightened, try this analysis by one of the world’s most respected economists. Hedge funds will be an important part of this evolving tale.

The Tax Justice Network has a couple of problems with hedge funds. As a general principle, we're not opposed to people getting rich (although income and wealth inequality are political problems which worry us too). But we do worry when the tax system subsidises wealth. How does this happen? In a couple of ways. First, hedge funds, like private equity funds, use leverage (borrowing) to generate artificial costs that can be offset against tax. (There are other loopholes that they exploit too.) We have blogged about this kind of thing before.

But there is another way that these companies are subsidised by our tax systems: through the way they take risks with other people's money. Bear with us.

Let's start with another penetrating article by the FT's Martin Wolf (whom we wrote about recently.) It's entitled "Why today's hedge fund industry may not survive." In it, he exposes the hedge fund industry's model for making money. Here is the key section:

Imagine that we set up a hedge fund with $100m from investors on the normal terms of 2 per cent management fees and 20 per cent of the return above a benchmark. We put our $100m in Treasury bills yielding 4 per cent. We also sell 100m covered options on the event, which nets us $10m. We put this $10m, too, in Treasury bills, which allows us to sell another 10m options. This nets another $1m. Then we go on holiday.

There is a 90 per cent chance that this bet will pay off in the first year. The fund then grosses $11m on the sale of the options, plus 4 per cent interest on the $110m in Treasury bills, for a handsome 15.4 per cent return. Our investors are delighted. Assume our benchmark was 4 per cent. We then earn $2m in management fees, plus 20 per cent of $11.4m, which amounts to over $4m gross. Whatever subsequently happens, we need never give this money back.

The chances are nearly 60 per cent that the bad event will not occur over five years. Since the fund is compounding at a rate of 11.4 per cent a year after fees, we will make well over $20m even if no new money is attracted into this apparently stellar enterprise. In the long run, however, the bad event is highly likely to occur. Since we have made huge profits, our investors have paid us handsomely for the near certainty of losing them money.

The first part of the above scenario, or at least parallel versions of it, are what these funds have been doing for the last few years. The last part, "the bad event" that we have highlighted in bold, is what seems to be happening now. Wolf finishes:

If these unfavourable events – stock market crashes, mortgage failures, liquidity freezes – come in stampeding herds (because so many managers copy one another), they will say: “Nobody could have expected this, but, now that it has happened to all of us the government must come to the rescue.” The more one believes this is how an unregulated financial system operates, the more worried one has to become.

In the above case, the funds are taking risks through the sale of insurance in the good times - and when things turn sour they default on that insurance. Elsewhere, they take risks through borrowing - leverage - which magnifies the effects of market movements. Not only does this enable them to earn the unjustified tax subsidies, but it rewards them handsomely when markets are rising. But when markets turn, calamity strikes, and they clamour for - and because of the scale of the systemic risks in the financial system they unfortunately might get - bailouts. In other words, the hedge funds have been playing with risks, which reward them with the upside when times are good - and when the game ends, it is the taxpayer who rescues them. It is our concern for the taxpayer that makes it an issue for TJN to address. This helps illustrate why the Tax Justice Network, while ostensibly focused on tax, needs to consider regulation as an inherent part of its approach.

As a long aside - this is not quite so close to TJN's core concerns but is worth remarking on because it is so fascinating - here is an excerpt from another FT article, comparing the hedge fund model (they take from investors a 2 percent management fee plus 20 percent of any gains over a benchmark) with the model used by Warren Buffett, the world's richest investor, worth an estimated $62 billion:

During Mr Buffett’s tenure at Berkshire Hathaway, the S&P 500 index has produced an average total return of 10 per cent. That return reinvested over 42 years will multiply your stake 67 times. But if your investments yield twice as much as that – as Mr Buffett’s have done – your wealth increases not by twice 67, but 67 squared, a factor of 4,500. That arithmetic makes Mr Buffett the richest man in the world. The calculation illustrates a more subtle point. Mr Buffett’s fortune has come not through growing an investment management business, but from his own share in the value of the funds he manages. Suppose he had adopted a more conventional investment management structure, charging the 2 per cent management fee and 20 per cent of performance common in private equity and hedge funds. How much of that $62bn wealth would have been the property of Buffett the manager – Buffett Investment Management – and Buffett the investor – the Buffett Foundation?

The answer is astonishing. At “2 and 20”, the split is $57bn for Buffett Investment Management and $5bn to the Buffett Foundation. The effect of compounding at 14 per cent, rather than at 20 per cent, is to reduce the accumulated pot by over 90 per cent.

That really is quite remarkable (and, as another aside, if you want more insight into how Buffett got so rich, read this article which concludes that "Mr Buffett’s success demonstrates the weakness of one economic theory, the efficient market hypothesis, and the strength of another – the central role that the pursuit and defence of economic rents plays in modern corporate life.")

The above arithmetic on the "2 and 20" formula is equally skewed whether the hedge funds outperform, match, or underperform the markets. Not only are they fleecing the taxpayer, they seem to be gouging their investors too.

This blog is not going to provide a set of recommendations for how to reform the hedge funds industry. Plenty of people have been aware of the problem for years - and now that there is an economic crisis to sharpen people's minds, at least some appropriate action is likely to be taken. This blog is going to make one simple recommendation, only: that civil society in rich countries and poor ones pays more attention to high finance. This will affect us all, in the real world. And bear in mind that while on the surface it may seem that the hedge funds industry is all about the private sector only - it is not. Approach these kinds of issues from the perspective of tax, and the interests of the taxpayer, and you will find that this is usually one of the best ways to get to the heart of the matter.


Monday, March 17, 2008

Tax Havens: a challenge to Christian values?

We have remarked on several occasions about how the media in many tax havens is "captured" by the political forces of the financial services industry, and how its practitioners rarely, if ever, speak out. But in any society there are always brave voices who don't like what they see and ask difficult questions. One such voice has just spoken out on the Cayman Islands. The author, Andre Iton, was writing about recent news about the tax avoidance tricks by the British retailer Tesco:

To suggest, as many self-interested parties repeatedly do, that the “tax efficiency” machinations of the wealthy and the mega-corporations is, at worst, benign to the social wellbeing of the average citizens (of the offended country) in the face of such opportunity losses as identified in this single occurrence is indeed a stretch. As the facilitating jurisdiction, it is essential that we use such incidents, which inevitably attract the opprobrium of large segments of the global community, as moments for serious introspection and honest self assessment.

Spot on, Iton. And he goes further - to make a fundamentally important point.

There is nothing short of unanimity amongst the people of these islands that these are communities rooted in Christian values. As we reflect we would do well to remember Jesus’ response to those who sought to query him on the matter of obligation to the state. He advised them very clearly that what was due to Caesar should be rendered unto Caesar.

Do we truly believe that it is consistent with our value system to provide succour to the greedy, the gluttonous and, on occasion, the malfeasant who would not render unto his/her Caesar what is rightfully due to him? At the level of our domestic society our Government consistently ensures that those of us who reside here, render unto our Caesar, all that is due to him. Every fee, every licence that is required of each of us is rigorously pursued, collected and enforced.

This is what tax havens do: they tax their own citizens, but allow the citizens of other countries to escape their taxes. And, correctly, he pits Cayman's meagre rewards against the welfare losses elsewhere:

Based on the current costs of establishing offshore entities in this jurisdiction, it is unlikely that the direct revenue earned by our public purse for the pleasure of hosting these transactions that brought us mainly negative international press, would be sufficient to cover the costs of our next official delegation to London, whilst it saved the perpetrators a cool $2 billion! Can our moral compass be maintained in the face of such fundamental contradictions for so little returns? Is this where and how we wish to position the economy for the next generation?

John Christensen, director of the Tax Justice Network and a former economic adviser to the state of Jersey, read today's Cayman story and highlighted the corruption of the media in one of Britain's foremost tax havens:

In all these years I have never seen a single article in the Jersey media which properly raises any of the issues he raises here. When faced with criticism, they take the ostritch approach - and deny that the outside world has any right to intervene.


The Taxpayers' Alliance

A story has appeared in The Guardian this morning, which starts like this:

The TaxPayers' Alliance, which claims to be "Britain's independent grassroots campaign for lower taxes", has popped up in our papers more than three times every day this year. This is rather more than the five mentions this year of the Tax Justice Network, an independent coalition of researchers who focus on tax avoidance and tax havens. Last month they were 100 stories ahead of the next most mentioned charity/pressure group. So far, journalists have yet to tire of the TPA's "this is a slap in the face for taxpayers" refrain.

It is nice to be mentioned once again - although we have of course been mentioned many more times than that (we're not offended, honest!) TJN and the Taxpayers' Alliance share some common ground: simplicity on tax is one shared objective, for example. But much of what they say makes them look like a lobby group for those advocating tax loopholes. They defend the private equity industry ("we felt the need to come to their defence"), whose bread and butter is to use financial engineering to escape taxation. They support the repeal of the inheritance tax (which Andrew Carnegie described like this: "Of all forms of taxes this seems the wisest;") The Taxpayers' Alliance are vigorously opposed to co-operation with Europe on tax matters - a stance that pits them against the world's most effective body fighting the global tax haven scandal - and they have precious little sensible to say on the subject of domicile. TJN has no particular problem with tax-cutting - as long as it does not go too far, and as long as the wealthier sections of society pay their share - which they manifestly don't in Britain. The Taxpayers' Alliance claims to be supporting ordinary, hardworking taxpayers - but the fact that they say little about tax havens, domicile, or corporate tax avoidance makes us wonder: which taxpayers are they really supporting: the taxpayers or the non-taxpayers? It looks rather like the latter.

And what is the secret of their success? The Guardian continues:

Their real success is media coverage. As well as providing comment, says Elliott, the TPA uses freedom of information laws to compile headline-grabbing reports, always giving an obvious "top line". "One journalist told me the TPA now does the work newspapers used to when journalists had the time to do investigations," he says. If the TPA gets a free ride in the press, it is only because it's made things so easy for hard-pressed/lazy (take your pick) reporters. "We are always available 24 hours a day," says Elliott. "We put the work in so we get good coverage."

Is this true of British journalists? TJN knows a number of hardworking, high quality and dedicated British journalists. There are many of them, and many fine things that are written. Here is one recent example of top-class British journalism in the London Review of Books (LRB). It is a review of a book called Flat Earth News which is about . . . British journalism. The LRB explains:

His book starts at the point at which he got interested in the story of what he calls ‘flat earth news’: ‘A story appears to be true. It is widely accepted as true. It becomes a heresy to suggest that it is not true – even if it is riddled with falsehood, distortion and propaganda.’ That’s flat earth news, and Davies became interested in the phenomenon, via the story of the millennium bug. How on earth did so many papers get sucked into producing so many millions of words of, it turns out, total nonsense about the impending implosion of all government, all commerce, all human activity, by the catastrophe which was going to be caused by the bug?

Davies chooses to focus on the fact that of the millions of words written about the bug, all of them were written by journalists who had no idea whether what they were writing was true. They simply didn’t know. Flat Earth News makes a great deal of this. The most basic function of journalism, in Davies’s view, is to check facts.

Davies recruited some researchers at Cardiff University’s school of journalism who looked at a fortnight’s production from a number of British papers, and analysed 2207 UK news pieces. They focused on two things: the number of stories that were derived directly from press releases; and the number that were taken straight from the main British news agency, the Press Association. The results were surprising:

They found that a massive 60 per cent of these quality-print stories consisted wholly or mainly of wire copy and/or PR material, and a further 20 per cent contained clear elements of wire copy and/or PR to which more or less other material had been added. With 8 per cent of the stories, they were unable to be sure about their source. That left only 12 per cent of stories where the researchers could say that all the material was generated by the reporters themselves. The highest quota proved to be in the Times, where 69 per cent of news stories were wholly or mainly wire copy and/or PR . . . The researchers went on to look at those stories which relied on a specific statement of fact and found that with a staggering 70 per cent of them, the claimed fact passed into print without any corroboration at all. Only 12 per cent of these stories showed evidence that the central statement had been thoroughly checked.

So only 12 per cent of what is in the papers consists of a story that a reporter has found out and pursued on her own initiative; and only 12 per cent of key facts are checked. The re
st is all rewritten wire copy and PR. This remaining 88 per cent is, in Davies’s stinging coinage, ‘churnalism’.

Now this would not necessarily be a tax justice story, but for the fact that when facts are checked infrequently, the best-resourced organisations will have a very significant advantage in shaping opinion. How much money does the Taxpayers' Alliance have? Well, we looked around their website and we couldn't find out how much money they have. They are clearly supporters of the libertarian American lobby groups the Cato Institute and the Center for Freedom and Prosperity, two of the most thuggish cheerleaders for corporate loopholes the world have ever seen. Loophole lobbyists find it rather easy to find sponsors: Cato, for instance, promotes tax competition between countries despite the economic fallacy at the heart of their lobbying, they support crime havens ("Liechtenstein has a tax code that rewards productive behavior") and they cheerfully admit that

Cato's 2005 revenues were over $22.4 million, and it has approximately 95 full-time employees, 70 adjunct scholars, and 20 fellows, plus interns.

If TJN had a hundredth of the revenues available to Cato and the Center for Freedom and Prosperity, we would be delighted. But the funny thing is: we are an absolutely tiny organisation - and yet our message is spreading, fast. These people simply have no answer to the agenda TJN is setting. If the Taxpayers' Alliance were honestly batting for the ordinary taxpayer, then their positions would be easier to defend. They are certainly lobbying
on behalf of some taxpayers. Those taxpayers don't look like the ordinary ones, though.


Friday, March 14, 2008

The "competitive advantage" of tax havens

Lord William Wallace of Saltaire, Deputy leader of Liberal Democrat peers in the U.K., has written to the Financial Times about the role of tax havens in the world economy. He says:

It is clear from the recent outraged correspondence that many successful businessmen and bankers feel entitled to live (at least for tax purposes) in the offshore world, while working in the onshore economy. This is the classic free-rider position: benefiting from the public goods provided by the onshore world while making little or no contribution to their provision.

Absolutely. And then he skewers the ridiculous claims by the tax haven proponents about how these countries "compete" successfully in the global economy.

Our global economy depends on the provision of a range of public goods: counter-terrorism, action against transnational crime and fraud, protection of sea lanes against piracy, the maintenance of a lawful and well-regulated international order. Larger states contribute disproportionately to the provision of such goods, as well as providing the domestic order, infrastructure and welfare that underpin market economies. Small states pay less; tax havens pay nothing. The “competitive advantage” of offshore financial centres rests on the willingness of larger states to tolerate their free-riding.

Well said Lord Wallace. We might, perhaps, quibble with one of his statements: that "tax havens pay nothing" towards global public goods. In fact, they pay less than nothing - they pay a negative amount - for they suck capital out from the states that are paying for those public goods, undermining their ability to pay for them.

But broadly his argument helps expose the great fallacy peddled by the supporters of tax havens: that market competition is good, therefore competition between tax havens must be good too. Plenty of people haven't thought too hard about this argument, and consequently swallow it whole. But it only takes a modest amount of intellectual exercise to understand the fallacy. The FT commentator Martin Wolf, in his book "Why Globalisation Works", put it like this:

The notion of the competitiveness of countries, on the model of the competitiveness of companies, is nonsense.

Quite so. As we have explained elsewhere, there are two kinds of competition: the good kind (such as between companies in free and fair markets to provide the best goods or services at the lowest cost) and the bad kind (such as between companies seeking to supply the highest bribe to win a contract.) The TJN website section on competition and co-operation says:
Think about it this way: when a company cannot compete, it goes bankrupt and another, hopefully better one, takes its place. For all the pain involved when firms go bust, this process does weed out bad firms and keeps others on their toes - and is a source of capitalism’s dynamism. However, if a country cannot “compete” – this is a route to becoming a failed state, an altogether less wholesome proposition. Poor countries are particularly vulnerable.

It is reassuring to see so much sense breaking out in world-class newspapers. Yet there is a lot of nonsense, too. It is also well worth reading Richard Murphy's recent blog on another set of letters in the FT: one from an outraged person who clearly feels entitled to live offshore but not pay for it, and the response from those pointing out those arguments as absurd.


Tuesday, March 11, 2008

Robert Morgenthau speaks

Robert Morgenthau is an inspirational figure in U.S. politics: one of the legendary figures in international crime-fighting. His own history, and that of his family, is quite fascinating: take a look at this Wikipedia entry, for example. Or look at his testimony to the US Senate Permanent Subcommittee on Investigations in July 2001, looking into Liberian shell companies and accounts in Jersey - and much more besides.

A few days ago Morgenthau wrote a letter to the New York Times. Please read the whole letter. Here are a few highlights - and we hope the New York Times will forgive us for quoting such a long section from its letters page:

In the world of tax havens, Liechtenstein is a relatively minor player.

On its Web site, Liechtenstein reports having 161 billion in Swiss francs (equal to 155 billion United States dollars at current rates) on deposit in 15 banks in 2006. By contrast, the Cayman Islands boasts that it has 1.9 trillion United States dollars on deposit in 281 banks, including 40 of the world’s top 50 banks. Bank deposits in the Caymans have increased by $500 billion in the last 18 months and now amount to four times the total deposits in all the banks in New York City.

The Caymans, notorious for their bank secrecy laws and lack of supervision over financial markets, have figured in many major financial scandals. For example, they were the nominal home of Long Term Capital, the giant hedge fund that collapsed in 1998. Enron Corporation used 441 Cayman affiliates to hide $2.9 billion in losses. Parmalat Finanziaria used Cayman subsidiaries to falsely claim $4.9 billion in bank deposits that it did not have. Last year, two Bear Stearns hedge funds that were incorporated in the Caymans collapsed, following the devaluation of its subprime mortgage-backed investments — the implosion cost investors $1.6 billion in losses.

Morgenthau should know about these things. He is the U.S. attorney who decided to go after the enormously corrupt BCCI bank. As this older New York Times story indicates:

Mr. Morganthau, who will be 72 years old tomorrow, got involved in the case as the result of the frustration of a Congressional investigator, Jack A. Blum (who is currently a senior adviser to TJN), now a lawyer in private practice, who in the spring of 1989 believed the Justice Department had no interest in following information he had developed for the Senate Foreign Relations Subcommittee on Terrorism, Narcotics and International Operations.

And Morgenthau finishes this week's letter like this:

The economically developed countries need to impose severe sanctions on the tax havens and those who use them to unfair advantage. As recent history confirms, totally unsupervised markets will eventually have serious problems, with ripple effects for markets worldwide. And offshore tax evasion alone costs the United States government more than $70 billion annually. Left unchecked, these rogue jurisdictions have the potential to do a great deal of harm to the world’s truly productive economies.

He is dead right. The scandal of tax havens is not just about narrowly defined issues like drug money laundering or terrorist financing, as we have recently noted. This is also about the integrity of world markets: not only their ability to deliver prosperity, but also their ability to justify people's faith in them. Depending on how the global credit crunch progresses, this faith may be severely tested in the months and years to come.


Legitimising the illegitimate

A recent headline in the UK-based publication Accountancy Age says it all: "IMF gives Liechtenstein qualified praise." It was referring to a new IMF report looking into Liechtenstein's efforts to stop money-laundering and terrorist financing under the Financial Action Task Force (FATF) methodology. The IMF report did raise a number of concerns but, as Accountancy Age reported, Liechtenstein's Prime Minister Otmar Hasler used the IMF's qualified praise as a weapon in his fight against the forces of transparency and democracy:

The prime minister remained delighted with the IMF's assessment of its efforts at overcoming financial crime. . . . 'The praise by the IMF shows that we are on a successful path of reform. We have consistently followed this path so far and will continue to do so.'

It is quite astonishing that the FATF, which is an IMF-linked initiative, has removed all countries - including Liechtenstein - from its "blacklist" of non-co-operative countries. Yet the still-emerging Liechtenstein tax evasion scandal shows clearly that this is a pirate state dealing in stolen public assets (which is what evaded taxes are.) It is, as has been remarked elsewhere, engaging in parasitic behaviour, not wealth creation - just see this Global Witness report and put in "Liechtenstein" in the search field, for one of many examples. And that is not to mention the myriad other of the word's dirty secrecy jurisdictions, from Panama to Curação to Monaco.

In their reports, the IMF and the FATF have, as TJN's John Christensen and David Spencer remarked in a recent Financial Times comment article, "legitimised the illegitimate." This is, simply put, a great international scandal, and the world's most important financial institutions and others must extricate themselves from this mess. Civil society organisations and honest citizens around the world should be hounding them in the process.

The essence of the problem is this: international financial institutions, and many others, have chosen to focus on ridiculously narrow aspects of the problem, and ignore much bigger ones. (see here for an exploration of some of the history of the different initiatives in this field.) Money laundering under current initiatives tends to focus almost entirely on drugs money, and little else. But drugs money laundering and terrorist finance are dwarfed by the much, much larger flows of tax evasion and other illicit funds seeking the secrecy of tax havens like Liechtenstein (the World Bank has reported a $1.0-1.6 trillion annual figure) yet little attention is paid to these bigger flows. Raymond Baker of the Global Financial Integrity Program put it like this, in his book Capitalism's Achilles' Heel:
Laundered proceeds of drug trafficking, racketeering, corruption, and terrorism tag along with other forms of dirty money to which the United States and Europe lend a welcoming hand. These are two rails on the same tracks through the international financial system.

Yet little information is shared between drugs money-laundering agencies and tax authorities, for example. As the Financial Times remarked recently, in an editorial:

Havens should provide information to foreign tax authorities that have reason to suspect evasion. Most countries already do this for money laundering and terrorist finance: the crime of tax evasion should be treated no differently.

Quite so. Tax evasion must be made part of the money-laundering equation; tax evasion should be a predicate crime in money laundering investigations. While on this subject, we should also mention that we want the 2003 UN Convention Against Corruption (UNCAC, which is gradually being ratified around the world) to have tax evasion as a predicate crime in corruption investigations. Corruption, like money laundering, is too narrowly defined.

TJN has already criticised the OECD for its feeble approach of information exchange on request between national tax authorities, and the approach of bilateral tax treaties - and for its elimination of almost all the world's tax havens from its own backlist. As far as the IMF is concerned, an e-mail from a legal expert in this field put it like this:

The way the IMF has been conducting its ROSCs (Reports on the Observance of Standards and Codes) has led to turning its Offshore Financial Centre surveillance process into a grant of a seal of approval. Plus, the anti-money laundering reviews are conducted by regional bodies, which means Caribbean supervisors review each other etcetera - which hardly leads to rigorous reviews.

And then look at this - how the FATF has accepted what could be construed as bribes from the tax haven of Luxembourg.

It is now time to put and end to the half measures that do little but legitimise crime and sleaze. Tax evasion is a crime against society, and it must now be treated more seriously. It is time for the world's financial institutions to embrace the need for an all-encompassing approach to money-laundering and corruption.


Monday, March 10, 2008

Secrecy and tax in Europe: the EU Savings Tax Directive

The EU Savings Tax Directive aims to tackle tax evasion in Europe and enhance the EU's internal market. TJN has just published a briefing paper with recommendations.

This is in the news: EU Finance Ministers appear to be in the mood now, in the wake of the emerging Liechtenstein Affair, for stiffening the Directive (which is currently full of loopholes) and for accelerating the process of reform. As we indicated in a recent edition of our newsletter Tax Justice Focus, Europe leads the world in terms of thinking of ways to deal with the threats from tax havens, but there is still far to go.

The special interests are already lobbying against the reforms - witness this statement attributed to Luxembourg's Finance Minister Jean-Claude Juncker:

"I look forward to many years of fascinating and fundamental discussions."

Shame on Mr. Juncker. This is perhaps the main tactic - delay - that the secrecy jurisdictions and purveyors of global crime and corruption will wield in their fight against transparency and in their efforts to continue undermining the rights of fellow sovereign nation states to decide their own tax affairs. It is absolutely essential that this reform happens quickly, and that Germany and other EU countries use big sticks to get the reforms underway FAST. Civil society groups in and around Europe now have a right and a duty to push their governments to accelerate and strengthen these reforms.

In essence, the Directive applies to interest (on bank deposits, for example) paid to individuals who are resident in an EU member state which is not the one where the interest is paid. Most EU countries have agreed to exchange data with other jurisdictions automatically. A few of them won an option allowing them instead to preserve the secrecy of information, and instead to apply a witholding tax on interest payments. This second option is used by Austria, Belgium, Luxembourg and all the non-EU jurisdictions that participate (it should be noted here that Jersey and other Channel Islands states are not in the EU - see here for more details.)

The briefing paper looks at the directive and its flaws, and makes a series of recommendations, which can be briefly summarised as follows:
  1. the witholding tax option should be removed so that information is exchanged automatically in all cases;
  2. loopholes allowing several other kinds of legal entities such as private companies and trusts to escape the Directive should be closed;
  3. loopholes allowing certain kinds of income (such as certain insurance products) to escape the Directive;
  4. The Directive's provisions should be extended overseas to places like Singapore and Dubai;
  5. These actions should be taken quickly;
  6. These should be taken as a prototype for the negotiation of international agreements beyond the EU to help tackle tax evasion on a global basis.
(See the briefing paper itself for TJN's full formal recommendations and a more complete explanation of the directive.)

All the above points are essential, but here we will highlight point six in particular. The European model for sharing tax information is vastly superior to the model long peddled by the OECD, as TJN's John Christensen and David Spencer recently explained in a comment article they authored in the Financial Times:

The OECD’s approach to tax transparency requires information to be exchanged with other jurisdictions only on request. In other words, you must know what you are looking for before you request it. This is shockingly inadequate. We need the automatic exchange of tax information between jurisdictions and all developing countries must be included.

It is the EU's model of automatic exchange of information on a multilateral basis, not the OECD's model of information exchange on request and the use of bilateral tax treaties, which is the right model - for the world's developing countries as much as for its rich ones. This should become a prototype for a global model. The prize is potentially quite enormous. A shift towards implementing this type of transparent information exchange could transform the world, though it still needs one more component in place to start moving forwards properly, as our FT comment article explains:

International taxation has been mostly ignored by aid organisations and other civil society groups, partly because it is seen as too complex. It is time for them to wake up. Ending tax haven abuses not only would help the citizens of rich countries but also could do more for developing countries than all foreign aid combined.


Sunday, March 09, 2008

Top Iraq contractor skirts US taxes offshore

We've recently blogged about the newspaper investigations into the tax avoidance strategies of Britain's Tesco supermarket; about the banana industry, and about Dutch multinationals avoiding tax. Now there's a story on tax avoidance in the United States.

Now read the lead into a story based on a new Boston Globe investigation.

CAYMAN ISLANDS - Kellogg Brown & Root, the nation's top Iraq war contractor and until last year a subsidiary of Halliburton Corp., has avoided paying hundreds of millions of dollars in federal Medicare and Social Security taxes by hiring workers through shell companies based in this tropical tax haven.

With an estimated $16 billion in contracts, KBR is by far the largest contractor in Iraq, with eight times the work of its nearest competitor. One of these Cayman companies was established two months after current US Vice President Dick Cheney was appointed chief executive of KBR's parent company Halliburton in 1995.

The Defense Department has known since at least 2004 that KBR was avoiding taxes by declaring its American workers as employees of Cayman Islands shell companies.

According to the US-based Citizens for Tax Justice, summarising the story:

The Globe estimates that SEI (KBR subsidiary Service Employers International) is avoiding about $101 million in payroll taxes every year using this scam. If this has been going on throughout SEI's 5-year stint in Iraq, that's more than $500 million in revenue that won't be shoring up the Social Security system. KBR representatives breezily dismiss this by pointing out that "the loss to Social Security could eventually be offset by the fact that the workers will receive less money when they retire, since benefits are generally based on how much workers and their companies have paid into the system." So, for those looking for a more creative way of subverting Social Security than John McCain's privatization plans, here it is: reduce future Social Security benefits by pretending your employees aren't entitled to them!

One glitch in this clever plan, as the Globe alertly points out, is that Medicare benefits are not reduced for those who don't contribute. So the Medicare portion of the foregone 15.3 percent tax is money that is going to have to be raised through taxes on the rest of us. And Texas-based KBR is also avoiding state unemployment taxes on these workers, when means that they'll be ineligible for unemployment benefits later on.

No wonder Democratic Senators Barack Obama and Carl Levin, and Republican Senator Norm Coleman, have been pushing the Stop Tax Haven Abuse Act. Senator Levin said last year (in a statement that quotes TJN):

The latest estimate from the Internal Revenue Service (IRS) is $345 billion in unpaid taxes each year owed by individuals, corporations, and other organizations who stiff Uncle Sam and offload their tax burden onto the backs of honest taxpayers. Of that $345 billion annual tax gap, tax evasion that makes use of offshore tax havens is estimated to account for as much as $100 billion.... At one of our Subcommittee hearings, a former owner of an offshore bank in the Cayman Islands testified that he believed 100 percent of his former bank clients were engaged in tax evasion.

Now KBR is not being accused here of tax evasion, which is (by definition) illegal, but of tax avoidance, which is legal. But as is abundantly clear, both kinds are extremely harmful - and the legal kind may be in many cases even more harmful than the illegal kind, because it is so insidious. Levin's statement reported on studies that estimate offshore tax haven abuses by individuals costing the US treasury $40-70 billion a year; a further $50 billion in annual tax revenues is lost due to profit-shifting by corporations to low-tax countries; another study measured transfer pricing abuses by corporations costing the U.S. Treasury an additional $53 billion per year, much of which use offshore schemes.

Fifty billion here, fifty billion there - and soon we are talking real money (but note we can't simply add up these above numbers, as some of the estimates overlap or include domestic, not offshore, tricks.) And this is just tax losses to the United States from the offshore scandal. Less sophisticated countries are yet more vulnerable to offshore abuse.

Just as is happening in response to the Liechtenstein affair in Europe, politicians in the U.S. are girding themselves for an assault on tax havens. This adds weight to the argument that the world may have reached, or be reaching, some kind of grand tipping point on tax havens, after which greater political will emerges to crack down on the scandal. Democrat Representative Richard E. Neal of Massachusetts, chairman of the House subcommittee on select revenue measures, called for hearings on the emerging KBR affair.

"Tax avoidance has become an art form for powerful corporations," Neal said. "It is both shocking and disappointing that some American companies continue to exploit our system in wartime by setting up shell corporations via a tax haven mailbox." He said congressional tax-writing committees should empower the Internal Revenue Service to take more aggressive action against shell corporations. And, as CNN reports, Congressional investigators are in Cayman this week to look into U.S. businesses' efforts to escape paying their taxes.

One focus for the GAO this week will be Ugland House (see picture), a five-story building in George Town that is listed as the headquarters for thousands of U.S. and international companies.

Cayman Islands financial and tax officials also will meet with the GAO team, and one official said the visit provides "a unique opportunity" to demonstrate the legitimacy of the British dependency's financial industry.

Cayman is a British Overseas Territory. In Levin's statement there is more, this time in an example regarding one of Britain's Crown Dependencies:

Six U.S. taxpayers relied on phantom stock trades between two offshore shell companies in the Isle of Man to generate fake stock losses which were then used to shelter billions of dollars in income.

Britain again. It is not living up to its responsibilities. We look forward to the US investigators' reports.


Friday, March 07, 2008

The Queen of Mean should have lived in London

Martin Wolf, the Financial Times' chief economics commentator, has a remarkable ability to cut through swathes of complexity and see right to the heart of things. That is why he is so influential. He has just written in the Financial Times about the domicile issue in Britain, which has been provoking ferocious arguments in recent weeks. He starts with a reminder of the behaviour of the New York billionairess Leona Helmsley, the so-called Queen of Mean, who said "Only the little people pay taxes." The conclusion to Wolf's article could easily have been written by the Tax Justice Network: his position is completely aligned with our own:

Experience also shows that the case for a simple, neutral and stable fiscal system, which taxes the worldwide incomes of all long-stay residents on the basis of ability to pay, is overwhelming. As soon as one departs from that principle one enters in a maze of special pleading or invidious distinctions, in which failed ideas of industrial policy – subsidising winners through the tax system – return to the fore.

That, in a nutshell, is what the Tax Justice Network is all about. And we suspect that once Martin Wolf has said this, Britain's "non-domiciled" people have finally lost the political argument. There is probably no way back from here. From a very different end of the newspaper market, Britain's Daily Mirror has said the same thing:

Resentment is growing here over freeloading Loadsamoney loudmouths who act as if they are too important to be taxed.

It is well worth reading both articles, but we would stress the importance of Martin Wolf's - because he has made one of the clearest and most concise arguments for abolition of the domicile rule. Here is an example:

Non-doms, we are told, make a gigantic contribution to the economy. If they are taxed too heavily, they will depart and the economy will suffer. Again, why not pursue this argument a little further? Should the UK not subsidise the inflow of human capital, just as many countries subsidise inflow of foreign direct investment? What about a negative tax (a subsidy) on all UK income earned by non-doms above, say, £100,000 a year?

Yet this, too, ought to be extended to highly paid citizens who, presumably, also provide big benefits to the economy. Why should the country wish to subsidise people to employ foreigners instead of citizens. So why not give everybody who earns about £100,000 a year a negative tax rate or at least a nice juicy lump sum? Moreover, if having non-dom billionaires resident in London is good, why not subsidise them too? So why not compete for billionaires the way countries compete for investments by Intel and the like?

The Mirror offers an easy path to for Britain's government on the domicile rule.

Brown should give the rich a squeeze, here and abroad, and ignore any pip squeaks. It would be fair and popular - and there aren't many government policies we can say that about at the moment.


Thursday, March 06, 2008

Haven evasion

The Financial Times has followed up TJN's comment piece yesterday with an editorial entitled "Haven Evasion." It said this:

Tax havens that help evaders, and enjoy high levels of per capita income for their own small populations as a result, are parasitic.

This uses the same word employed by an aide to the German Finance Minister in another, longer FT story today looking at the Liechtenstein Affair.

these countries are slowly realising they need to reinvent themselves as normal – as opposed to parasitic – economies. Yet by doing so they would be destroying their very business model.

As indeed these places are: parasitic. They are not creating wealth, they are appropriating it, using secrecy. Swiss bankers say in private that without secrecy, they cannot compete. As we have argued elsewhere, these places are not spurring entrepreneurship or innovation: they are spurring crime and corruption.


Wednesday, March 05, 2008

TJN's new comment article in the Financial Times: Stop this Timidity in Ending Tax Haven Abuse

We have already commented several times on the fast-changing mood in the world of international taxation: we appear to have reached, as Richard Murphy has pointed out, a tipping point. TJN’s director John Christensen and senior adviser David Spencer have just remarked on this in a nice comment piece in today’s Financial Times. The article argues that a mountain of political capital has been recently building up in the fight against tax havens, but

The world risks wasting this political capital on the wrong targets. We are pursuing the timorous policies of a past age to tackle tax havens.

The piece comes in the same FT edition as another article entitled “EU majority backs clampdown on tax havens” which is most welcome, not least because the UK – which has for years played a spoiler role in the tax haven debate – has indicated its intention to support the clampdown. Given the outrage now emerging in British newspapers about tax abuses, this development is perhaps less surprising - but we will be watching them very carefully, of course. We are also heartened by this story, illustrating how "the French government plans to use its presidency of the European Union this year to crack down on tax havens."

We will not report TJN’s entire FT article here - please read the whole thing instead. But we would like to expand on some of the points.

Perhaps the most important one is this. Current initiatives to crack down on tax havens, such as those pursued by the OECD, have been watered down so badly by vested interests that they are not only ineffective, but they have legitimised the illegitimate. Perhaps the most important element to note here – and this is one of TJN’s most important policy areas – is that these schemes only ask for countries to exchange tax information with each other on request. As the article says:

In other words, you must know what you are looking for before you request it. This is shockingly inadequate. We need the automatic exchange of tax information between jurisdictions and all developing countries must be included.

Pro-tax haven lobbyists argue very loudly that if automatic information exchange were enacted, nobody would have any privacy. The argument is entirely, absolutely, bogus.

First, our governments already require us to exchange all our tax information with them – you are breaking the law if you don’t report your income and pay your taxes. Why ever should we allow a small, charmed section of society to opt out of this perfectly normal and healthy democratic bargain? This is about transparency, not control, and anyway taxation makes governments healthy and responsive to citizens’ needs. Second, in our experience those who use tax havens to preserve the secrecy of their financial affairs are not the campaigning journalists, human rights fighters and oppressed citizens, but the kleptocrats, dictators and cronies who are oppressing them. End offshore secrecy, and the world will be a freer, happier, and better governed place.

Automatic exchange of tax information – alone - would tranform the planet, and make it a better place. If enacted, it would also help restore the world’s faith in globalisation itself, which for many good (and some bad) reasons has been getting a very dirty name of late.

More on this shortly.

As an aside, in this context, we would like to highlight this rather comical press release from a group of wealthy and high-profile lobby groups in the United States, which attacks TJN after we had the audacity to host a briefing on Capitol Hill on Offshore Tax Evasion. In the press release we are accused of threatening groups such as homosexuals in Saudi Arabia and elsewhere, and the lobbyist Grover Norquist admits that “the U.S. is a tax haven”. It may seem odd to be highlighting the arguments of our opponents, but what we have come to realise is that these stupendously wealthy institutions simply have no answers to the agenda we are creating. We will happily continue to dissect all their arguments in this and future blogs.

Separately, we should also point out that John Christensen also has a letter in today's Guardian newspaper, concerning Tesco's tax tricks.)


Tax Justice Demonstration in Liechtenstein

We would like to point out this Youtube video of a recent tax justice demonstration in Vaduz, Liechtenstein.

Liechtenstein gave its permission, and about 30 people from the Attac network demonstrated in Vaduz against tax havens. Some 100 others demonstrated against the demonstration. According to information provided to TJN, the first version of this video led to threats onto against one of the demonstrators who was interviewed at the beginning, and this section was consequently removed from YouTube to protect the person form further aggression.

You will have to speak German to understand what the demonstrators were saying, but even if you don't it's worth watching to get a sense of what happened.


Tuesday, March 04, 2008

Europe versus the tax havens: a word of caution

Following our recent blog about "spivs, swindlers, cheats and cads", tax havens are once again at the top of the news in Britain and other European countries. There are too many stories today to mention here, but try these for size. The Independent, in an article entitled "Europe vs the super-rich" starts like this:

The European Union will declare war today on Liechtenstein, Monaco, Andorra and Switzerland. Weary of losing billions of tax euros, the EU's 27-strong high command of economics and finance ministers, Ecofin, is meeting in Brussels to agree a strategy aimed at bringing the continent's tax havens under control.

Their weapon of choice will be a strengthened version of the EU's 2005 savings tax directive, which has proved pathetically easy for armies of accountants, lawyers and specialist tax planners to outflank.

The story uses a calculation that appears to be heavily influenced by the TJN web site:

Globally, estimates of the total funds parked by individuals in offshore havens vary from $7trn (£3.5trn) to $12trn (£6trn). Depending on assumptions about returns and tax rates, such sizeable funds could yield around $250bn (£125bn) for legitimate public spending. That ought to be enough, for example, to achieve many of the UN's Millennium Development Goals by 2015.

In a follow-up article, The Independent looks at the spoiler role Britain has played in the face of efforts by Germany, France and the Scandinavians to introduce Europe-wide rules to crack down on tax havens. And it contains a startling indication of the rapid shift in mood in Britain.

Where once the rallying call to the world's wealthy was, "It's good to be rich. Come here and enjoy it without tax", the new cry is, "It's intolerable to be rich and not pay tax".

The excesses of the financial community in rewarding themselves, and their absolute refusal to co-operate with any kind of transparency for their wealth, have become a national outrage. So long as the economy kept growing it was deemed tolerable. Given the whiff of recession, fuelled by catastrophic investment decisions made in search of quick profits, and passive distaste has turned into active resentment.

We suspect that the sub-prime crisis and associated economic malaise may well do the same thing in America. The tide is turning. TJN's Richard Murphy looks into this in more detail, in a recent blog which says this:

I think that we have passed a tipping point; the occasion when the momentum for change becomes unstoppable.

And he outlines another important component of the change that is now happening:

Apologists in the accountancy profession, CBI and government (Digby Jones, for starters) are saying they’re indispensable. The middle classes no longer believe that. They no longer see those in the City and elsewhere as ‘terribly clever’. Northern Rock and the credit crunch have shown them to be a bunch of gambling chancers who had no real idea what was going on and who had no contingency for a down side. That’s obviously not clever; that’s very obviously dumb, but they’ve been massively well paid for it.

And the mood appears to be changing inside the British government Britain too. A headline in today's Guardian, "Home Office and Treasury now owned offshore" underlines the outrage and the bizarre tax gymnastics that Britain has enveloped itself in:

Billions of pounds of private finance initiative (PFI) projects approved by Gordon Brown, including the refurbished Treasury headquarters in Whitehall and the new Home Office, have been moved offshore by their City owners to avoid paying tax on their profits.

This story about PFI and tax havens was floated a while ago by the wonderful British satirical magazine Private Eye, and the Guardian has provided us with new details and insights, which are fleshed out further in another story: a more in-depth exploration of how some of these deals work. The article quoted a senior advisor to TJN:
"The way these contracts are being handled ought to be investigated by the Commons Treasury committee," Prem Sikka, professor of accounting at Essex University, said yesterday. "The taxpayer is losing out. They are having to pay rent for these projects but the tax base is declining."
Following the Guardian's investigations of Tescos, and of the banana industry, and similar kinds of things now emerging in the Netherlands, this is yet more fuel for the growing bonfire. And it seems that the UK government may be starting to listen at last. Look at this Times story, for example, which says:

The chancellor is to step up hostilities against Britain’s super-rich by pressing for sanctions against Monaco, the Mediterranean tax haven.

“So far the attention has been on Liechtenstein, but Monaco is the goldmine,” said a Whitehall official. “Germany has got the bit between its teeth now and Monaco is where they want to go next – and we’re right with them.”

And yet while all this new political will for action is most welcome, a word of caution is advised. While it is still unclear what direction Europe's thrust against tax havens will take, current international initiatives being looked at so far are full of holes. For one thing, developing countries need to be considered more centrally in proposals to improve matters. And there is more. We will be bringing you more details on this before long.