Friday, February 27, 2009

Willem Buiter: close the tax havens (again)

Willem Buiter of the Financial Times, author of the recent "Blockade the Tax Havens" has been at it again. In a nutshell:

"There is the need and opportunity to close down all tax havens and regulatory havens. Tax havens are defined as countries that have bank secrecy, which includes Switzerland, Austria and Luxembourg as well as the usual micro-state suspects (bank secrecy or bank privacy is the legal principle according to which banks can protect personal information about their customers, even from the tax authorities and police authorities of these customers). The anonymity provided by bank secrecy promotes tax evasion, tax avoidance (or fraud), money laundering and hiding the proceeds of criminal activity. Regulatory havens are nations that offer companies the opportunity to avoid global standards for reporting, governance, auditing, transparency, openness etc. Tax havens and regulatory havens are key elements in the global regulatory and tax arbitrage games that have undermined government revenue bases and weakened global regulatory standards.

The means to put tax havens out of business are simple: forbid banks, other financial institutions and private persons from doing business with and engaging in transactions with banks and other financial institutions located in countries that have bank secrecy. To take care of regulatory havens, don’t recognise and enforce contracts drawn up under their laws and do not recognise court judgements originating from tax havens."

Just as we have been saying.


Economic transparency: curtailing the shadow financial system

Global Financial Integrity in Washington has issued a new report, "Economic transparency: curtailing the shadow financial system." It contains a set of action points for change. A couple of short highlights:

"We may be at a rare moment when the interests of rich and poor countries are synonymous."


"In commentary to date, much more emphasis has been given to strengthening financial regulation, while meaningful improvements in global transparency are seldom mentioned. We believe this is precisely the wrong balance. We believe that much more can be accomplished through transparency than through regulation. While regulation simply tries to provide a tighter set of rules governing financial transactions, transparency requires that the shadow financial system itself be largely dismantled."

And much more.


Links - Feb 27

** Also see our searchable archive of past story summaries; and Offshore Watch. **

Gabon president's accounts frozen
Feb 26 (BBC) – A Bordeaux court has frozen Gabon President Omar Bongo's bank accounts. It is the first time French authorities have frozen the accounts of an acting head of state. Mr Bongo, Africa's longest-serving leader, is thought to have more than $4m (£2.8m) in French bank accounts. For those who don’t follow Bongo and his long history with France, this is astonishing news.

Stanford Claimed ‘War Chest’ to Woo Virgin Islands Tax Break
Feb. 26 (Bloomberg) -- R. Allen Stanford told U.S. Virgin Islands authorities two years he had “a very large war chest of cash,” and had told members of the Virgin Islands Economic Development Commission that his 62 companies, in which he was the sole shareholder, managed more than $30 billion and that he was ready to invest about $2 billion in the island of St. Croix and elsewhere in the Caribbean in exchange for the right to reduce his personal U.S. tax bill by 90 percent.

The blog round-up: Whom to watch
Guess who features at the top. . . .

Fit and proper persons?
Feb 26 (Guardian) - Swiss bank UBS paid $760m to settle a tax evasion investigation in the US, so what are the UK regulators doing here? TJN’s Richard Murphy writes in The Guardian.

«La place financière suisse a de vrais atouts»
Feb 26 (TJN) – According to Tax Justice Network, “spearhead (fer de lance) against tax dodging.

Bank secrecy is dead. Now what? Le secret bancaire est mort, et alors?
Feb 26 (Hebdo Switzerland) - In the face of external pressure, Swiss bankers are trying to pretend that UBS is an isolated case. But they know that bank secrecy must evolve. And that Swiss finance does not need it.

Steuerparadies Appenzell verärgert Deutsche (Tax haven Appenzell annoys Germans)
German story on a curious little Swiss tax haven called Appenzell. Translation here


Obama on tax warpath

This latest story from, suggests good progress.

"United States President Barack Obama has made good on his promise to crack down on corporate tax avoidance by proposing in his budget for 2010 a tough new enforcement campaign directed at taxes owed both domestically and abroad. The budget also includes an increase in funding for the IRS as the new administration sets about closing all those loopholes that it believes allow multinationals to play fast and loose with the US tax code and deplete the Treasury's coffers."

Sounds good. Here's some interesting background:

"Internal Revenue Service Commissioner Doug Shulman said US-based corporations more than tripled their foreign profits between 1994 and 2004, rising from USD89bn to USD298bn, with 58% of that profit earned in low tax or no tax jurisdictions."

And this:

"Meanwhile, multinational enterprises increased from 3,000 in 1990 to more than 63,000 in 2007 and the value of foreign tax credits being claimed increased by more than 25% in just two years from 2005 to 2007."

A last word from the New York Times. First, some specifics:

"To combat deficits, Mr. Obama proposes to let Mr. Bush’s high-end tax cuts expire in 2011, raising the top rate from 35 percent to as high as 39.6 percent. He would also impose a 20 percent rate on investment income, up from the current super-low 15 percent. And he would reinstate a tax provision enacted by the first President Bush, but undone by his son, that limited tax write-offs by high-income taxpayers for dependents and other expenses, like mortgage interest on vacation homes.

The proposal also calls for taxing private equity partners just like the rest of us (TJN: bravo!). Under current law, multimillionaire buyout mavens pay tax on much of their income at about the lowest rates in the tax code. Under the Obama budget, their earnings would lose favored status and be taxed as the ordinary income of ordinary mortals."

And finally:

"President Obama’s first budget recognizes what most of Washington has been too scared or ideologically blind to admit: to recover from George W. Bush’s reckless economic policies, taxes must go up."


Thursday, February 26, 2009

Boo hoo Bono

The Irish rocker Bono is unhappy about being criticised for moving his tax affairs (along with those of his fellow band members) to the Netherlands to avoid tax. (Even OK Magazine has picked up the story!) As he is quoted in the Irish Times, following a tax justice protest:

"The thing that stung us [about the criticism] was the accusation of hypocrisy for my work as an activist."

“I can understand how people outside the country wouldn’t understand how Ireland got to its prosperity but everybody in Ireland knows that there are some very clever people in the Government and in the Revenue who created a financial architecture that prospered the entire nation – it was a way of attracting people to this country who wouldn’t normally do business here,” he says. “And the financial services brought billions of dollars every year directly to the exchequer.

What’s actually hypocritical is the idea that then you couldn’t use a financial services centre in Holland. The real question people need to ask about Ireland’s tax policy is: ‘Was the nation a net gain benefactor?’ And of course it was – hugely so."

Now look at this shocker, in another article in the same edition

"After a decade of a credit-fuelled property bubble, the economy is not so much crumbling as vaporising: were we the size of Britain, January’s rise in unemployment would have been over half a million."

Poor old Ireland. We are horrified to hear this. This, unfortunately, puts Bono's truly idiotic comments in perspective.

Now here's another story also from the Irish Times, about the Dublin International Financial Services Centre (read offshore financial centre,) noting a recent Guardian investigation into British companies that relocated to Dublin, and whether it is all a game of smoke and mirrors (typically, yes it is.)

"The address in Spencer Dock given as the HQ of Tarsus, a business media group, turned out to be simply that of its tax advisers. “I have,” the receptionist said, “never heard of them.”

Extraordinary. The scale of the calamity helps illustrate the fragility of a national strategy based on selling out to the lowest common denominator in a race to the bottom. Jim Stewart, Senior Lecturer in Finance at Trinity College, Dublin, recently wrote for us in Tax Justice Focus and described the harm, too, that Dublin has helped heap on to the shoulders of ordinary people in other countries, giving this as one of his examples:

"Bear Stearns had two investment funds and six debt securities listed on the Irish Stock Exchange, and it also operates three subsidiaries in the Dublin IFSC through a holding company, Bear Stearns Ireland Ltd., for which every $1 of equity financed $119 of gross assets – an exceedingly high (and in most circumstances dangerous) ratio."

Here's the kind of thing that has been going on in Dublin, he notes:

"In Ireland, for example, if the relevant documents are provided to the regulator by 3 p.m. the fund will be authorised the next day. A prospectus for a quoted instrument is a complex legal and financial document (a debt instrument issued by Sachsen Bank ran to 245 pages) so it is unlikely it could be adequately assessed between 3 p.m. and the normal close of business (5 p.m.)"

The Irish Times article continues:

"For the sake of a handful of jobs, we facilitate the avoidance of taxes by British corporations. And we do this as part of a mentality that has grown with the International Financial Services Centre (IFSC) – the notion that lax regulation is part of the competitive advantage we have to offer."

"Three years ago, at the time of the CologneRe scandal, Justin O’Brien wrote in The Irish Times that the “disturbing picture of regulatory incapacity in Ireland . . . has the potential to be catastrophic to its reputation for probity”. He also quoted from off-the-record briefings from international regulators expressing “shock and dismay that Ireland had abdicated its responsibilities for short-term advantage”. The “wider regulatory community”, he warned, “now perceives Dublin as a rogue market”. Why did we have to wait for a catastrophe before we recognised the truth?"

All of which makes Bono's comments seem so spectacularly ill-timed. Reminiscent of another friend of ours, Dan Mitchell of the Center for Freedom and Prosperity, and his unfortunate views on Iceland.


Dear Evan Davis - are journalists doing enough to warn people of impending problems?

Aeons ago, before HBOS, RBS, AIG, Citibank and the whole shebang came crashing down around our heads, you asked a very interesting and important question: "did we (journalists) do our best to warn people of impending problems during the upswing of the [economic] cycle?”

You asked the question during a session at the Radio Festival in Glasgow in July 2008, and the clear inference of your intervention was that the fourth estate had failed -- pretty conclusively -- to warn the general public about the risks in the financial markets and the economic consequences that these risks might hold.

I agreed with you at the time, and I don't think much has changed in the intervening months. I read any number of articles, and listen to many, many radio programmes on the subject of the financial crisis, but the messages remain confused, distracting, sometimes disingenuous to the point of mendacity (not you, of course, but the many bankers and regulators who pontificate about why it was other people's fault, rather than a systemic problem with colossal consequences). This probably reflects the complexity of the financial markets, but other factors are at play here, not least that there's a whole crowd of people out there - especially in London, Washington and New York - who want to point fingers at others.

The reason for writing to you now is that after I joined you on the Today programme last Friday, several colleagues have commented that you glossed over my suggestion that tax havens have played a significant, though hidden, role in fomenting the current crisis. Unfortunately lack of time prevented me from expanding on this point. Worse still, my interlocutor on the programme pooh-poohed the idea and pointed the finger of blame firmly at the US sub-prime mortgage market.

Wrong! The US sub-prime mortgage market might have been amongst the straws that broke the camel's back, but it was just one element in a much bigger picture: yes residential property markets have bubbled, but not just in the US. Commercial property markets also bubbled and have now tanked (take a look at what's happening in the Emirates now). Two big issues stand out here. One is why banks and regulators allowed the massive build up of debt (personal, commercial and public) and yet failed to properly assess the risks these posed to social and economic stability. Another, related issue, is the gigantic macroeconomic imbalances that have built up in the global economy as a result of huge flows of licit and illicit capital, generally from the South to financial markets in the North, or from FSU countries heading westwards. Tax havens were crucial in driving both of these processes.

One part of the failure to understand the nature of the risks lay with the sheer complexity of the instruments used to securitise debt. Another part lay with the opacity of the structures created by banks and other businesses to shift assets and liabilities off-balance sheet. Another part lay with the way in which these structures are located across a multiplicity of jurisdictions, leading to a fragmentation of regulatory effort and a lack of clarity over which regulatory authority has responsibility for particular transactions. Yet another problem lay with the fact that many of the structures were created to achieve some form of tax arbitrage in a low tax jurisdiction. Alongside the tax arbitrage, the same players were looking for ways of exploiting opportunities for regulatory arbitrage. And we're not just talking about securitised debt here. The leveraging of hedge funds reached such levels that they were no longer instruments for mitigating risks: they were able to shape market movements to create one way bets. Likewise the private equity funds, who were also able to profitably exploit opportunities for tax arbitrage.

This witches brew of complex instruments, leveraged finance, regulatory arbitrage, tax avoidance, fragmented regulation, opaque structures, and the rest, shares a common denominator. Much of this activity happens in lightly regulated offshore financial centres, located in tax havens like Cayman, the Channel Islands, Dublin and London. Why? Because of the culture of lax regulation. Because of the opportunities for tax avoidance. Because of the lack of operational transparency. Because the ability for capital to structure its operations across a wide number of OFCs creates a fragmented regulatory environment in which everyone assumes that transactions are taking place elsewhere.

These places have acted as crucibles for much of the financial innovation of the past few decades, but too many people still think of them as a marginal feature of the financial market topography, rather than a central feature of contemporary financial capitalism.

Now I can understand why this is difficult terrain for journalists. Facts are scarce and its often hard to join the dots without having considerable insider knowledge. And that knowledge is a valuable commodity, more likely than not busy making money rather than scrutinising the markets in a critical way. But surely there is sufficient circumstantial evidence now out there to start raising searching questions: which is exactly where your talent lies. Care to discuss this further with us?

best wishes



Swiss bank secrecy, dead?

Bank secrecy is dead. Get used to it. (Le secret bancaire est mort, et alors?) So runs the title of a Swiss magazine article on the topic, nicely complemented by an article in Switzerland's Le Temps newspaper by Bruno Gurtner, president of TJN.

"Switzerland has been wrong in these last years to have believed that bank secrecy was impregnable,| Gurtner said, "and to have sometimes refused to participate in forums which promote transparency in international finance."

Recently, Pierre Mirabaud, president of the Swiss Bankers' Association, recently told Swiss television that the crisis was about "UBS' lost honour"; other bankers have made declarations to the effect that UBS was an isolated case (this is one of the ways the offshore system has been protected, time over time - the "a few rotten apples in a otherwise clean system" defence - to deflect attention away from the fact that it is the system itself that is dirty.)

Ivan Pictet, a senior Swiss banker, predicted recently that without bank secrecy, the Swiss banking sector could shrink by a half, falling from 12 percent of GDP to six or seven percent. Gurtner takes a different view. What Switzerland needs to offer, instead, is expertise, experience, and stability.


Wednesday, February 25, 2009

Links - Feb 25

** Also see our searchable archive of past story summaries; and Offshore Watch. **

UBS has £37bn from UK clients
Feb 25 (Guardian) - The wealth-management arm of UBS, under fire in the United States for its part in a multibillion-dollar tax evasion scandal, has more than 20,000 clients in the UK who have entrusted £37bn to the battered Swiss bank. Asked whether UBS faces investigation for tax abuse in the UK, a spokeswoman said she was unaware of any inquiry.

We will put people first, not bankers
Feb 22 (Observer) By Gordon Brown - More evidence that Britain's promise to crack down on offshore finance is a ruse. This should not be at the cost of Britain hosting big international banks. There is no room for parochialism or protectionism in our model of the future. Global financial flows and liquid capital markets have brought massive benefits to our economy since the dawn of global trade centuries ago. We are not evacuating, but rather entrenching, our place right at the heart of global commerce, finance and trade.

Too Big Not to Fail?
Feb 23 (The Nation) - By TJN’s Jim Henry. A romp through the unfolding crisis, with much new data and analysis. By February 2008, by my reckoning, banks and insurance companies have already absorbed at least $817 billion of government capital injections, $251 billion of toxic asset purchases, $2.6 trillion of government loans and $5.9 trillion of government debt guarantees. If we added the guarantees for once quasi-private entities like Fannie Mae and Freddie Mac, the loan guarantees double to $10.9 trillion. To call this "capitalism" is to have Ayn Rand and Friedrich von Hayek turning somersaults in the crypt. Time and again, this pathological form of pro-bank development has jeopardized the prosperity, stability and innovation of the small businesses, inventors and would-be savers who are the backbone of market economies. Bank-dominated political economies don't really deserve to be called "capitalism," since big bankers have never really been entrepreneurs who are content to stick to the capitalist rules of the game.

Feb 25 (Tax Research) - This isn’t new. But it’s worth airing again. It’s a paper I co-wrote submitted to the US Senate in 2007 on the tax haven activities of Jersey, point by point rebutting their claims to be well administered and to not be a tax haven. It concludes:

Lawsuit filed against UBS Chairman, Swiss regulators
Feb 25 (Reuters) - A U.S. judge on Monday gave UBS until April 30 to file its response to a case launched by the U.S. IRS. Wegelin said the U.S. and British governments, which have been vocal on Switzerland, were keeping quiet about "financial swamps" in their own backyards, which it said include the Channel Islands, the Caribbean and Delaware.

Swiss Ideas on how to save bank secrecy / Les idées pour sauver le secret bancaire
Feb 25 (Le Temps) – Swiss parties debate how to save bank secrecy. Three ideas predominate. First, to abolish the distinction between tax fraud and tax evasion for foreign, though not for Swiss, capital. Second, study the possibility of having the EU Savings Tax Directive extended to other countries such as the US.Third, enshrine bank secrecy in the Swiss constitution. In French.

Auf der Suche nach dem Fluchtgeld
Feb 23 (SudDeutsche Zeitung) – A long interview with TJN’s John Christensen (translation)

The Oligarchs' Escape Plan
Feb 17 (Counterpunch) - Prof. Michael Hudson looks at similarities between past IMF bailouts of élites in developing countries, and current US bailout. And much more.

Dubai Gets $10 Billion Bailout to Ease Debt
Feb 23 (WSJ) - `The United Arab Emirates said Sunday it will spend $10 billion to bail out the once-highflying tax haven emirate of Dubai, whose huge construction and financial-sector expansion plans became a symbol of boom times, and now of a world-wide downturn.

Meltdown: Regulators to Tackle Tax Defaulters
Feb 25 (ThisDay Nigeria) - Yesterday’s meeting of the Financial Services Regulation Coordinating Committee (FSRCC) . . . sources revealed that matters relating to taxes were discussed.
 In fact, the meeting was said to have considered removal of directors of banks and companies that had been evading or avoiding taxes.


Swiss bank secrecy vs. Anglo-Saxon secrecy

Our old "friend" Konrad Hummler, the fire-breathing President of the Swiss Private Bankers' Association, has been in action today. He's issued a statement to some journalists (unfortunately we can't find a web link; this was e-mailed to us) that seems to be a riposte to comments by politicians such as the UK's Alistair Darling attacking Switzerland.

The private press release, issued by Hummler's bank Wegelin & Co, talks about Hummler:

"He (Hummler) believes it is unacceptable that large, floundering economies, which have pumped billions of dollars and Euros into their financial systems in an apparently fruitless attempt to save them, are now fear-mongering about the demise of Swiss banking secrecy simply to distract from their own problems.

The very parties perpetuating the myth of Switzerland as a hub of evil financial dealings are tight-lipped about their own trusts on the British Channel Islands and in the Caribbean. The USA would do well to drain the financial swamps in its own backyard (Delaware and Florida) before embarking on crusades against Switzerland."

Well, although we don't like what he does, not at all, and we'd point out that this is also an attempt to distract from Switzerland's involvement in the vast scale marketing of corruption services, his point about the British Channel Islands and the Caribbean is well made. As we've recently said. The Wegelin release ends:

"While Konrad Hummler accepts that tax and banking secrecy issues need to be debated, he suggests excessive moralising, of the kind that is currently being practised by the EU and the USA, is potentially explosive. If Switzerland were to hold up a mirror, this deeply patronising tone could backfire."


Tuesday, February 24, 2009

Memo to Alistair Darling: stop issuing mis-information


To: Alistair Darling, Chancellor of the Exchequer
From: Tax Justice Network
Date: 25th February 2009

Subject: Mis-information about the UK's responsibilities vis-à-vis the Crown Dependencies

TJN has been contacted by a journalist working with the French newspaper La Tribune. He tells us that UK Treasury officials have informed him that the UK has no constitutional means of exerting influence over the activities of its Crown Dependencies, and therefore cannot interfere with the way they function as tax havens. This is not correct, and we would be grateful if you would ensure that UK officials desist from giving out this false information.

Despite not being part of the United Kingdom, Guernsey, Jersey and the Isle of Man are intricately linked to the UK by virtue of their being dependencies of the British monarch. The inhabitants of the Crown Dependencies are treated as subjects of the British Crown and are treated as part of the United Kingdom for the purposes of the British Nationality Act.

Being possessions of the British monarch means that they do not have independent status as sovereign nations in their own right. They have no independent status in the United Nations, or in any other multilateral organisation. The British government is responsible for representing the Crown Dependencies at international fora and for their good governance in international affairs.

Almost every law enacted by the local legislatures in the Crown Dependencies requires the assent of the Queen in Council, generally known as the Privy Council, prior to their enactment (the exceptions apply solely to the Isle of Man, where the monarch's personal representative, the Lieutenant Governor, may grant assent to some laws). A UK Minister is appointed as Privy Councillor with the specific responsibility for ensuring the good governance of the Crown Dependencies. This role is currently undertaken by a Minister of State from the UK Ministry of Justice, which acts as the principal channel of communication between the UK government and the three Crown Dependencies (there is regular contact between Crown Dependency officials and other Whitehall departments, but the MoJ is the official link between the UK government and the insular authorities).

The UK Ministry of Justice is also responsible for processing draft legislation from Jersey, Guernsey and the Isle of Man prior to its receiving assent from the Queen in Council, and the MoJ is additionally responsible for consulting with the islands on extending UK legislation to them.

In addition to having effective responsibility for vetting all legislation passed by the local legislatures of the Crown Dependencies (by the way, why did New Labour give assent to Jersey's Trust Law of 2006 which permits the creation of sham trusts?), the Ministry of Justice is also responsible for the appointment of almost all the key officials in the islands. The Baillifs of Jersey and Guernsey, are Crown appointees. Ditto the Demesters and High Baillif in the Isle of Man. Likewise the Attorneys-General, Solicitors-General, and stipendiary Magistrates are all Crown Appointments. The British monarch is also responsible for appointing the Crown's personal representative to the islands, known in all cases as the Lieutenant Governor.

Now, like most things relating to Britain's constitutional arrangements, there is a degree of uncertainty surrounding the exact nature of the relationship between the UK and the Crown Dependencies. This allows for a certain amount of obfuscation and playing with smoke and mirrors to present a picture that suits the UK's political games in the international arena. But we can look to the 1972/73 Royal Commission on the Constitution, whose report is widely known as the Kilbrandon Report, which whilst acknowledging a degree of uncertainty, also stated as follows:

"the United Kingdom Government are responsible for defence and international relations of the Islands, and the Crown is ultimately responsible for their good government. It falls to the Home Secretary to advise the Crown on the exercise of those duties and responsibilities. The United Kingdom Parliament has the power to legislate for the Islands, but it would exercise that power without their agreement in relation to domestic matters only in most exceptional circumstances”.

“[The UK] Parliament does have power to legislate for the Island without their consent on any matter in order to give effect to an international agreement”

Source: Hansard, House of Commons Debates, 3 June 1998, cols. 471 and 465.

Times have changed slightly since then: the MoJ has replaced the Home Office, but the wording is fairly clear and unambiguous:

The Crown is ultimately responsible for their good government. [BTW the same applies to Antigua so what went wrong there, and in the Turks & Caicos? Have you all fallen asleep on the job?]

The UK Parliament does have power to legislate for the Island without their consent on any matter in order to give effect to an international agreement. This could (and should) be applied, for example, to the European Union's Savings Tax Directive.

All in all, it seems pretty conclusive that the UK government has both powers and responsibilities vis-à-vis the Crown Dependencies, though you and your colleagues have chosen to exercise neither. But kindly stop your officials from mis-informing journalists and others: this smacks more than just a bit of la perfide albion.


U2 must believe in tax justice

STOP PRESS: an article in the Irish Times dated 25 February 2009 reports that Bono and U2 will be defending their tax avoidance in an interview to be published on Friday 27th 2009. One to watch out for.

Irish Campaigners say ‘U2 Must Believe in Tax Justice’

As U2 prepare to launch their new album, this week Irish global justice campaigners will be challenging the band to put their money where their mouth is and support global tax justice. Campaigners highlighted the millions of euro denied to impoverished governments through tax avoidance and evasion by multi-national companies shifting their profits to avoid tax.

Nessa Ní Chasaide of Debt and Development Coalition Ireland said, "Bono may campaign for a better deal for the world's poor – but his band are taking advantage of the same tax avoidance schemes that rob impoverished countries of billions. At least $160 billion drains out of impoverished countries each year because of multinational companies shifting their profits to avoid tax.We need international action to ensure that everyone pays and pays their fair share.”

In 2006 U2 moved one of their companies from Ireland to the Netherlands to minimise their tax bill. This is depriving the Irish government of revenue that we need to pay for social services and development aid to impoverished countries.

Andy Storey from Afri added, "Tax is a fundamental question of global justice. Lost taxes in impoverished countries far outweigh what theyreceivefrom rich countries in aid. There are trillions of dollars stashed in tax havens. If that money was taxed in the countries where it was earned, governments would have their own resources to improve the lives of their people."

Fleachta Phelan of Comhlámh continued, “Every person and company has a duty to pay tax and make their contribution to society. The Irish government must end tax dodging through supporting international action against bank secrecy and forcing companies to publish where they make money and where they pay tax.”

Campaigners are inviting believers in tax justice to write alternative U2 songs for tax justice. See for more details.

According to Christian Aid, impoverished countries lose at least $160 billion every year as a result of tax avoidance and tax evasion by companies operating in their jurisdiction. -

The lives of 350,000 children under the age of five could be saved every year if tax dodging was ended.

The OECD estimates that tax havens like Bermuda, Switzerland and the Isle of Man hold between $5 and $7 trillion in their accounts.

For further information contact:Nessa Ní Chasaide, Co-ordinator, Debt and Development Coalition, 087 7507001 Debt and Development Coalition Ireland: www.debtireland.orgAfri: www.afri.ieComhlamh:


Invitation to Members of the States of Jersey

on Thursday 12th March, 2009 – 6,45pm
LOCATION: St. Paul's Centre, Dumaresq Street, St. Helier (Upper Hall), Jersey

Offshore financial centres: past, present, future
Why major reform is vital

As the global economic crisis unfolds, the activities of hedge funds and the shadow banking system are coming under increased scrutiny. Leaders of the G-8 and G-20 countries are calling for stricter regulation of the financial system. Some of them, including Presidents Obama and Sarkozy, Chancellor Merkel, Dominique Strauss Kahn at the International Monetary Fund, and others, have noted the role that tax havens have played in hosting this shadow banking world, and are calling for strong measures to remove these weak links in the regulatory chain, and put an end to the tax avoidance industry. Pressure for major reform will increase as the crisis deepens and widens to other economic sectors and regions of the world.

International civil society supports efforts to tackle abusive practices carried out through tax havens. Our organisations also believe that any actions taken against those who facilitate tax dodging and financial speculation must be accompanied by measures to protect the poorer residents of tax havens. Despite the enormous wealth located in these places, many people living in tax havens are badly affected by the high local cost of living and the lack of employment opportunities outside the banking industry. They are also frequently victims of regressive tax policies, which subsidise rich people at the expense of others, and the lack of economic diversity caused by crowding out of traditional industries like tourism and agriculture. Furthermore, tax dodging has an extremely harmful effect on the developing world. The practice costs developing countries alone an estimated £250 billion every year - money which could be used to reach the UN's Millennium Development Goals several times over, and help the governments of poor countries lift their citizens out of poverty

In mid-March the G-20 finance ministers will be meeting in England for preparatory discussions leading up to the G-20 summit meeting in London on 2nd April 2009. We will be calling on the G-20 to implement comprehensive reforms of the global financial system, including measures to counter speculation, tax avoidance and the shadow banking system. These reforms will profoundly impact on many tax havens. We believe it important that we discuss the necessity for reform with the people of Jersey, which has attracted international media attention as a major centre of the tax avoidance industry. Such discussion will allow an exchange of views on how governments and civil society can work constructively towards finding durable solutions to the current financial crisis and exit strategies for tax havens that are highly dependent on their offshore financial services industry.

It has become clear to everyone that the global banking industry does not currently serve public interest. It is over-complex. It lacks operational transparency. Attempts to regulate its activities are fragmented and weakened by the laxity of regulation in offshore centres like London and its small island satellite havens. We urgently require new strategies to preserve jobs and generate lending that will serve useful social and environmental goals. We hope that the people of Jersey will recognise that they can play a positive role in this process and we invite them and their elected representatives to join us at our meeting at 18h45 on 12th March 2009.
This invitation was mailed to every Member of the States of Jersey on 20th February 2009 by the following organisations:
Berne Declaration -
Campagna per la riforma delle Banca Mondiale -
Debt and Development Coalition Ireland -
Friends of the Earth Europe -
Les Amis de la Terre -
Tax Justice Network -


Monday, February 23, 2009

Links - Feb 23

** Also see our searchable archive of past story summaries; and Offshore Watch. **

Vatican demands closure of tax havens
Feb 23 (Economic Times) - The official statement from the Vatican, called an encyclical, is expected to ask for a closure of such tax havens. The encyclical is scheduled to be released on March 18 by Pope Benedict XVI.

Labour's a bit late with the Swiss roll
Feb 22 (Observer) - Alistair Darling and Gordon Brown have suddenly launched an unlikely crusade against Switzerland. Labour has only jumped now because it finds itself in danger of being completely outflanked.

France says U.S. warming to its tax haven policy
PARIS (Reuters) - French Economy Minister Christine Lagarde said on Monday her U.S. counterpart, Treasury Secretary Timothy Geithner, was moving closer to European countries' position on tax havens.

UBS - shouldn’t they be shut down in the UK now as an improper person to offer financial advice?
Feb 23 (Tax Research) - UBS is a bank now proven to be guilty of systemic fraud. The US Department for Justice is suggesting it assisted at least 52,000 people evade their US tax obligations. How many cases in the UK? Who is officially asking? Who is investigating? Who is reporting?

McCreevy has lost control of brief, says critic
February 23 (Irish Independent) - The head of a European political party said EU Commissioner Charlie Mr McCreevy was resisting regulation of the financial markets and that Commission president Jose Manuel Barroso had now taken over his brief.

The sordid legacy of the end of empire
Feb 22 (Observer) - VS Naipaul's essays in The Overcrowded Barracoon: Naipaul had toured the West Indies in the late Sixties as they were considering breaking away from the British Empire, tiny colonies "set adrift, part of the jetsam of an empire," he wrote. How were they going to make a living? The Foreign and Commonwealth Office in London replied. The fragments of empire, those specks of land with apparently no viable future, would survive by turning themselves into tax havens.

Darling denounces Swiss secrecy
Feb 22 (Observer) - Alistair Darling has launched a blistering attack on Switzerland, suggesting its banks' refusal to end centuries of secrecy is "intolerable".

A Securities Transaction Tax Could Raise Revenue -- But Why Not Simply Remove the Loopholes for Investors in the Existing Income Tax?

Feb 21 (CTJ) - On a bill that would impose a 0.25% tax on securities transactions to pay for Wall Street bailouts. There's another proposal we like better. Congress should simply eliminate the loophole in the income tax for long-term capital gains and corporate stock dividends, which subjects these forms of income to a top rate of just 15 percent.

Added to our quotations page:
The true measure of a career is to be able to be content, even proud, that you succeeded through your own endeavors without leaving a trail of casualties in your wake.
Alan Greenspan, June 1999

US Senate delays tax haven hearing over UBS-paper
Feb 22 (Reuters) - The U.S. Senate Permanent Subcommittee on Investigations has delayed a hearing on tax haven banks and a bid to get details of U.S. clients with Swiss accounts, to allow the events of the last week to be "digested", according to an unnamed source.

European G-20 Nations Seek Crackdown on Tax Havens (Update1)
Feb. 22 (Bloomberg) -- European leaders said they will crack down on tax havens as they seek to boost transparency and apply uniform rules governing financial markets to stem the global crisis.

Les paradis fiscaux en ligne de mire des Européens
Feb 22 (20 minutes) –Angela Merkel asks for an “ambitious result” from the G-20, notably asking for sanctions against tax havens. Sarkozy: “We want to close down tax havens . . . we want material results, with a list of tax havens and consequences.” Translated from the original French.


Sunday, February 22, 2009

Financial crisis: meeting in Berlin on March 26

A meeting on the global financial crisis and the responsibilities of businesses and banks is to be held in Berlin on March 26. It will include a discussion on tax havens, hosted by Nicola Liebert.

The title is "Freiwillig in die Krise –reguliert wieder heraus Die globale Finanzkrise und die Verantwortung von Unternehmen und Banken" Click on the title to find details of the venue, partcipants, theme and contact details.

It will look at impacts on developing countries too, and aims to formulate proposals from civil society, and to foster debate with representatives of the German government and Bundestag.

It is organised by DGB-Bildungswerk, dem Cora-Netzwerk für Unternehmensverantwortung, terre des hommes und ver.di.


Friday, February 20, 2009

Tax and budgeting in Latin America: new report

For those interested in Latin American taxes and budgeting issues, our attention has been drawn to a new publication, in both English and Spanish, from the UN-ECLAC (UN-economic Commission on Latin America and Caribbean.)

The report is called Las finanzas públicas y el pacto fiscal en América Latina and it contains the following sections:
  1. The role of the State and Public Finance in the Next Generation
  2. El pacto Fiscal visto a sus 10 años
  3. Ponencias
  4. América Latina: Panorama global de su sistema tributario y principales
    temas de política
  5. Does Fiscal Decentralization Help Create Fiscal Space?
  6. Fiscal Decentralization and Macroeconomic Governance
  7. The future of Budgeting: more of the same but different.


Guest blog: A silver lining for the financial crisis?

Guest blogger: Alex Cobham, policy manager for Christian Aid

A silver lining for the financial crisis?

The TJN blog has already kindly highlighted the key points that Christian Aid’s report, The morning after the night before: The impact of the financial crisis on the developing world, made in regard to the Doha conference on Financing for Development. (We blogged on the negotiations and the outcome of the conference here.)

The report shows the damage that the crisis is already doing to people living in poverty in developing countries – people who are completely blameless for the crisis, yet are likely to suffer much more because of it over the coming years.

The report also contains our analysis of the causes of the crisis, and raises the possibility of a silver lining for development- a possible outcome which would represent a massive and fundamental step forward for the fight against poverty. We summarise this analysis here.

Background to financial crises

This global financial crisis is of a piece with the crises suffered by many developing countries in the last thirty years, as a direct result of the liberalisation of international financial flows (capital account liberalisation). In each case, rapid expansion of credit availability to the domestic economy was followed by an economic boom based on consumption and asset price bubbles.

At some point, investor sentiment turned and the sudden withdrawal of funds plunged stock markets, banks and other financial institutions into crisis – leading to bank runs and collapses, and an equally sharp withdrawal of funds from business and household credit. This in turn caused bankruptcies and widespread unemployment, leading to a collapse in consumption demand. The sum effect is a sharp contraction in economic activity, and the resultant social and economic dislocation.

John Williamson, who famously coined the term ‘Washington Consensus’, showed in a 1998 paper with Molly Mahar that every serious episode of capital account liberalisation had been followed by a bust. For a while, it was claimed – despite all evidence to the contrary – that the overall economic growth benefits were still positive. This position became untenable for all but the most ideologically driven. Most recently, former IMF chief economist Raghuram Rajan has shown that countries which rely more on foreign finance have exhibited systematically lower rates of growth.

Causes of the crisis

In the current case, there was no single act of liberalisation responsible. Instead, over a quarter of a decade or more, the richer economies engaged in competitive deregulation of financial markets. ‘Tax havens’ – secrecy jurisdictions – took this to an extreme, exploiting the gaps left by national regulation of global finance.

Regulation of banks and other financial institutions exists primarily to limit the risk that they are able to take on, recognising the huge social costs of their collapse – costs that the bank bailouts around the world now clearly illustrate.

In particular, regulation limits the amount of assets that banks and others can acquire, as a proportion of their own capital base, in order to protect depositors from undue risk. The Basle II capital accord allows assets of $1,250 for each $100 of capital. As Jim Stewart of Trinity College, Dublin has shown in Tax Justice Focus, the Irish holding company of now-collapsed US bank Bear Stearns held $11,900 of assets for each $100 of capital.

The crisis was driven by two key factors which allowed an unsustainable expansion of credit. One was the complexity of new financial instruments that confused investors and regulators as to the true ownership of assets and liabilities. The other was the opacity of the ‘shadow banking system’ – financial activities outside the traditional banking system, from hedge funds and private equity, to the structured investment vehicles and other conduits of investment banks and others, all taking advantage of ‘regulatory arbitrage’ to operate out of secrecy jurisdictions.

Obama’s incoming US Treasury Secretary, Timothy Geithner (then of the New York Federal Reserve Bank), has estimated just some of these activities as exceeding the total assets of the entire US banking system in size. As he explains, “Financial innovation made it easier for this money to flow around the constraints of regulation and to take advantage of more favorable tax and accounting treatment.”

Trigger point

As in developing country liberalisation episodes, the process continued until – almost arbitrarily – investor sentiment finally turned. In this case, the trigger was a growing realisation by investors that somebody, somewhere was holding assets whose value was based on the tanking US subprime mortgage market. As banks and others refused to reveal their true exposure – or were genuinely unable to do so, baffled like others as to their own position – investors moved rapidly out of the entire sector, seeking perceived safe havens like gold and US Treasury bills.

So began the unravelling that has yet to run its course, despite the vast amounts of public money injected to recapitalise the banks. The recession in the rich economies is likely to be long and deep, while the impacts in developing countries are already being felt in lost trade, investment and remittances – topped off only by questions over whether donor countries will honour their aid commitments.

The silver lining

There is growing consensus among international policymakers and opinion-formers about the above analysis – you only need to follow this blog to see that. Increasingly too, there is a demand for real action to prevent a repeat. This means true corporate transparency about their activities, assets and liabilities in each jurisdiction. It means preventing secrecy jurisdictions from exploiting the gaps between national regulation – and that means global agreement on the responsibilities that are implied by being allowed to participate in international financial markets, including automatic information exchange between jurisdictions to eliminate the key gaps.

As luck would have it, these measures could also eliminate the key international obstacles to effective taxation in developing countries – which as we have shown would go so far not only to increase much-needed revenues, but would also have a long-term dividend in strengthening democracy, improving standards of governance and reducing corruption. These are the reasons that Christian Aid are now campaigning, along with the our friends at ActionAid, for an international accounting standard for country-by-country reporting by multinational companies, and for automatic tax information exchange between all jurisdictions – that is, for tax transparency of the private sector and of secrecy jurisdictions.

This silver lining will not lift the cloud of the damage that the crisis is causing, and will cause in the next few years, to the poorest men and women in the world. It would, however, set a radically different context for the prospects for their countries’ future independent development – and this is why the ongoing discussions around global financial reform must include developing countries in a genuine and transparent way.

Alex Cobham


New SOMO paper - in French

Amsterdam-based SOMO has now translated its October 2008 paper Taxation and Financing for Development into French.

Click here.


Links - Feb 20

** Also see our searchable archive of past story summaries; and Offshore Watch. **

Germany Investigates Liechtenstein Prince Over Taxes, FTD Says
Feb. 20 (Bloomberg) -- State prosecutors in Germany are investigating Prince Max von und zu Liechtenstein over the evasion of German taxes, Financial Times Deutschland reported.

United States Asks Court to Enforce Summons for UBS Swiss Bank Account Records
Feb 19 (US DoJ) - The US government has filed a lawsuit today in Miami against UBS asking the court to order the bank to disclose to the IRS the identities of the bank's U.S. customers with secret Swiss accounts. According to the lawsuit, as many as 52,000 U.S. customers hid their UBS accounts from the government in violation of the tax laws; 20,000 involved securities, and 32,000 involved cash.

Bank Asks Offshore Clients to Sign Tax Forms
Feb 17 (NYTimes) - Credit Suisse, under a widening investigation into foreign banks with offshore private banking services, is working to avert a potential standoff with federal authorities like the one faced by the rival Swiss bank UBS.

A Swiss Bank Is Set to Open Its Secret Files
Feb 18 (NYTimes) - In the hush-hush world of Swiss banking, the unthinkable is happening: secrets are spilling into the open. “The Swiss are saying that this is the end of Swiss banking as they knew it,” said Jack Blum, an offshore tax specialist. “Nobody will trust the security of the Swiss bank account.”

Brown targets Switzerland in global tax haven crackdown
Feb 19 (Guardian) - A worldwide crackdown on tax havens, from Switzerland to the Cayman Islands, will be spearheaded by Gordon Brown as the world's richest nations use the global economic downturn to close loopholes that are costing them hundreds of billions in lost revenues. See also “Fox to lead global effort to tighten henhouse safety.”

UK tax-take to reveal depth of crisis
Feb 18 (FT) - A dramatic deterioration in the public finances is expected to be revealed on Thursday morning as official figures show extremely weak tax revenues in the crucial month of January and lay bare the cost of the government’s capital injections into Britain’s banks.

Swiss distraction on tax havens
Feb 20 (Guardian) - Gordon Brown's decision to target Switzerland on tax dodging is a diversion to distract from his failure to take action against Britain's tax havens (Brown targets Switzerland, 19 February). The UK plays a major role in helping companies dodge the tax they owe. By John Hilary. Just as we wrote in
Fox to lead global effort to tighten henhouse safety.


Thursday, February 19, 2009

Gordon Brown: Mister Fox' transcript

Following our earlier blog about tax havens, we have found a little more substance on what UK Prime Minister Gordon Brown actually said.

First, there are a number of words which seem to be exactly what we'd like to hear. Such as:

"We are fashioning for the future a global deal, a grand bargain where each continent accepts its responsibility and its obligations to act to deal with what is a global problem that can only be solved with a global solution."

Nothing new there, but it's the right thing to say.

"We must persuade the whole of the world to take action and that will include action against regulatory and tax havens in parts of the world which have escaped the regulatory attention that they need."

Again, the right thing to say - and we do like his use of the term "regulatory and tax havens."

"We have got to think the previously unthinkable, we have got to do what was previously undoable, the cooperation that is needed round the world is not something that has been achieved before but I believe it can be achieved to meet the needs of our times."

We agree, again. But then he starts criticising the U.S. system, and adds this:

"I am very happy to say that our regulatory system has been a better system but it is still not good enough to meet the changing challenges of the times. . . . . We created the right framework, a unified regulator, we actually monitored companies across all their different activities and not just their insurance activities or their banking activities, but we have got to learn the lessons of what has happened around the world."

So just what kind of regulation is he talking about? Note, too, that he rather dodged this question:

Question: "You said in your earlier remarks that the new regulatory system would have to have jurisdiction in all jurisdictions, including tax havens. Can I ask which ones do you have in mind, are they ones that come under the UK Crown, Jersey, Guernsey and the Isle of Man, or is it more the Cayman Islands and Lichtenstein? And under this new regulatory system how much more tax revenue from those tax havens do you hope to get for HMRC?"

Then, finally, we note that he gives away this:

"I have been pressing for what is necessary, an international system of regulation, for ten years."

Ah yes, so we've noticed, Mister Fox.


Switzerland lifts bank secrecy

Well, only a tiny bit. Our headline, however, mimics one from Switzerland's Le Temps newspaper: La Suisse lève le secret bancaire. What the bank has done is to pay an unprecedented fine and cut loose 250 clients, to protect another 19,000, under ferocious and well-deserved American pressure.

We don't approve of UBS being able to buy most of its clients out of trouble. But this is a significant step. And note that this story isn't over:

"In June, a U.S. District Court gave the IRS permission to serve UBS with a so-called John Doe summons. The summons demands information that would help track down U.S. taxpayers with UBS Swiss bank accounts that they've been trying to hide from the IRS. Usually, such summonses have to specifically name individuals, so the broader John Doe version has the potential to uncover many more possible tax evaders.
. . .
"These taxpayers should note that today's agreement states that the U.S. Government will continue to seek enforcement of the summons," IRS Commissioner Doug Shulman said in a statement. "If the bank fails to comply with a final order to produce the information, the U.S. government may deem UBS to be in violation of the agreement."

Recently we have noticed signs that the edifice of Swiss bank secrecy is under threat as never before.

Which is more than we can say, it seems on today's evidence, for Britain's role as the tax havens' tax haven and arguably the centre of global secrecy.

Why, you can hide away in the UK for just £224.95.


Stanford's friends

Again, offshore trickery is spreading mayhem. A headline gives the flavour:

Stanford panic spreads across Latin America (Financial Times)

We have heard for some time from sources in Washington that Stanford Bank has been one of the most important funders of some key cheerleaders and think tanks that promote tax havens. More on this in due course.


Fox to lead global effort to tighten henhouse safety

We are heartened to see this headline in the Financial Times: Britain urges crackdown on tax havens. This is good news, and it highlights how far the political agenda has shifted in the recent past, from a policy of ignoring tax havens, to a headline issue. We can claim a lot of credit for helping this shift - though the global economic crisis has undoubtedly helped focus minds.

We don't yet know all the details of what Brown is planning. But given his background, and the fine details of what's in the press, we are not encouraged. Let's start with a couple of quotes of his, from the past (from our quotations page.) He said this, as shadow chancellor (opposition finance minister), in 1994.

"The Chancellor should end the tax abuses which reach to the heart of our public finances by indulging the super rich at the expense of all the rest of us."

There are various other quotes of his on that page, in a similar vein. Brown then went on to become chancellor in 1997, before he became Prime Minister ten years later. All through that period, he has been absolutely steadfast in defence of tax havens, which are Britain's forte. Britain and its City of London is at the centre of the offshore world, offering lax regulation, secrecy, a lack of international co-operation, and zero taxes for clever people and companies, the world over.

That's not to mention Britain's role in effectively running some of the world's most important tax havens - from the Crown Dependencies like Jersey, Guernsey and the Isle of Man, to its Overseas Territories like the Cayman Islands, Bermuda, and so on.

Now let's look at what has just been reported. The Guardian says that Britain will target Switzerland in particular. Big mistake. Switzerland is important, to be sure - but the bank secrecy it offers is nothing like as pervasive or perniciously devious as the trust structures that Britain and its satellites offer - these structures tend to involve secrecy that is far harder to crack.

In this vein, the newspaper reported:

"One senior British figure said that a lengthy EU campaign to rein in savers who attempt to avoid tax had eventually identified a trail leading to Switzerland."

He is doubtless talking about the EU Savings Tax Directive. Switzerland has certainly played its part in undermining it (by facilitating tax evasion, which is criminal, not avoidance) but Britain has played a more powerful role - by lobbying constantly behind the scenes to water the directive down, and joining with Switzerland, Luxembourg and others to stymie efforts to tighten up. Most notably, Britain powerfully lobbied against the Directive tackling trusts - the dirty British secret. This is the big loophole through which the criminal tax dodgers happily stepped. We occasionally directly see British officials lobbying behind the scenes - and it isn't pretty.

Here is another nasty little clue as to how serious Britain is again from The Guardian.

"Focusing on corporations that use tax havens. . . . Britain and other leading countries are expected to proceed cautiously in any attempt to restrict the financial manoevring of corporations."

Here's something else:

"Sources say it is important that everyone pays their fair share of tax but no country will want to damage the economic competitiveness of major companies."

Competitiveness. The heart of the problem. This statement, alone, also signals - if it reflects core UK policy as it says it does - that Britain is not serious, not serious at all. The article is talking about the competitiveness of major companies - but all along the drumbeat from British policy-makers, when talking about tax havens, has been about the "competitiveness" of countries - a very different concept. The two types of competitiveness are inter-linked, and it is likely that competitiveness of countries is what the official had in mind. This is all about tax competition and regulatory competition. It's nothing to do with normal market competitiveness. It is about a race to the bottom. Read more here.

Britain now knows that others have cottoned on to the giant offshore tricks it has been playing along - and it is starting to feel the heat. How to respond? The best approach, of course, is to lead the initiative! That way you can control it, of course. Shift the targets away from Britain towards other countries, and you can then get ahead in the race to the bottom - by making the others slow down! Could this be what is happening?

More and better regulation will come, of course - which is inevitable in light of what is happening. We await more details, but this is what it looks like from where we are sitting.

But here is how Britain and other tax havens protect the system. Whenever problems emerge, they announce initiatives to tackle them. "The problem is solved!" they cry. And too many people, unfortunately, believe them. The latest announcement will certainly have a very powerful effect in this respect. Here's an example from 1998, in the UK parliament:

"While the Chancellor huffs and puffs in the House trying to pretend that the previous Government did not take action on offshore trusts, the view of the operators of the trusts is that the legislation passed by the Conservative Government removed so many tax advantages that they have no fear that Labour can make it much tighter."

The story is, you see, that it's all been tightened up. Don't worry. And after this, the games continued merrily as before, only in different ways.

As we said in our headline, the fox is seeking to lead a global effort to tighten henhouse safety. It is a brave or foolish person who decides that it is time to trust the fox now, especially on this evidence. If there is a global crackdown on tax havens - maybe the last country that should be leading it is Britain.


Wednesday, February 18, 2009

Too little too late

Treasury Minister Stephen Timms had a lengthy comment published today by the Guardian newspaper. The theme of the comment was tax evasion and avoidance, largely a response to the Guardian Tax Gap series of the past two weeks. But Timms steered well clear from any mention of tax havens, or aggressive tax avoidance, or HMG’s abysmal record of blocking attempts to strengthen international cooperation.

No, what's interesting about Timms’ comment is not what he says (heard it all before from Treasury Ministers going back to the 1970s) but the comments he has elicited underneath the web article. Try this, for example:

18 Feb 09, 12:16am (about 19 hours ago)
Too late now, Mr. Timms. You have known or should have known about these issues since 1997. We want a government that will provide real leadership, not do what the bankers, management consultants and fat cats tell them.

and this:

18 Feb 09, 12:34am (about 19 hours ago)

"As a Treasury minister, I understand the need to make sure the tax system works fairly."Yes Minister. This is a very brave but futile words Minister. Do tell us what you achieved over the last 12 years.The "Non Doms", high net worth individuals and the "Tax Planning" industry thrived treating tax payment as a optional obligation for them. They were too big to pay only the plebs do. The middle Income families were taxed directly and stealthily at the pain of imprisonment.At the same time the Government sold its soul and the nations Tax revenue to the highest bidders. It is telling that even Tories recognised the unfairness before this Labour Government did.

or this:

18 Feb 09, 7:56am (about 11 hours ago)
Mr. Timms government , Gibraltar, Jersey, Isle of Man, Caymans. It has never even considered ending their tax-exempt status.And what about the income of non-doms?

and how about the following:

18 Feb 09, 1:50am (about 17 hours ago)
Dear Mr. Timms - can you honestly state that you think that anyone who has examined the bizarrely cosy dealings this administration has had with business, please see for example: would have any confidence in the notion that tax avoidance by big business will be actively clamped down on ? I sincerely doubt it.

There's a common theme here: its called scepticism. During his period as shadow chancellor "Crash Gordon" made bold promises about tackling the tax avoidance industry, but the few measures he has taken have melted into air, and the tax avoidance industry continues to thrive. Sadly, it becomes clearer by the day that this is something the Brits are good at: all those years of practice have really sharpened their skills in this area. And meantime the UK industrial base has been hollowed out, the North Sea oil and gas reserves have long since peaked, and the entire economy is awash with public, corporate and personal debt.

The scepticism is well deserved. As recently as yesterday we were told by sources well connected to very senior people in HM Revenue & Customs that the government's true position on corporate tax avoidance remains one of 'intense relaxation', and the same applies to regulation of tax havens. Despite clear evidence that tax havens have played a pivotal role in catalysing the current crisis, Brown, Darling, Cameron et al, have shown no inclination to do anything about it. Timms' article is too little to late. Words have become too cheap in modern Westminster: we are only interested in action now.


Monday, February 16, 2009

Links - Feb 16

** Also see our searchable archive of past story summaries; and Offshore Watch **

Closing the gap
Feb 14 (Guardian) - Whatever one's choice of euphemism for the now near-epidemic engineering of minimal taxes, there is no mistaking the harm. Here are some things Messrs Brown and Darling need to consider.

A climate of private and state secrecy
Feb 14 (Guardian) – Editorial wrapping up its Tax Gap series. Identifying companies that have not disclosed tax haven business as required, criticising the Revenue for its secrecy. Nor will the Revenue identify which of the "big four" accountants are peddlers of the tax avoidance schemes compulsorily disclosed to Whitehall.

Billionaire Oil Man & West Virginia Center on Budget and Policy Have Their Say about Tax Incentives
Feb13 (CTJ) - Billionaire George Kaiser, head of Kaiser-Francis Oil Co., during testimony, "Kaiser said he could "say unequivocally" that the tax subsidies in question have never influenced his companies' decisions to drill or restore any well in Oklahoma." Kaiser even joked, "In fact, I may lose my day job as a result of my testimony."

Reaction to the Tax Gap series
Feb 14 (Guardian) - Some great quote culled from the Guardian investigations. Find lots more quotes here

Behind tax avoidance lies an ideology that has had its day. We must end it
Feb 14 (Guardian) - Neoconservatism has collapsed. The need for the state should now be evident to all - and that includes big companies. What is most dismal is the scale. If we cannot slay tax avoidance now, we never will.

The US Tax Gap
A new report, regarding the $345bn estimated US Tax Gap figure for 2001. " it is doubtful that the $345 billion estimate includes the entire international tax gap. . .. it is unlikely that hidden offshore income is comprehensively included in the IRS tax gap estimates.

Noble Corporation to Hold Shareholders' Meeting to Vote On Proposed Change in Place of Incorporation
Feb. 11 (PRNewswire) - Noble Corporation announces it will decide whether to change its parent’s incorporation from the Cayman Islands to Switzerland.

Diageo tax settlement - trebles all round?
Feb 13 (Guardian blog) – An investigation concluded last November on terms that led Diageo's advisers to hold a champagne celebration. Nobody knew what those terms were but one clue emerged in the company's half-year results.

Darling offers tax abuse pledge but few words on Lloyds
Feb 13 (Guardian) - The UK chancellor, Alistair Darling, promised further action to stop corporate tax abuse when challenged by MPs. But he would not be drawn on whether the government knew about the alleged schemes before bailing out the bank.


Saturday, February 14, 2009

US tax gap: new analysis

We'd like to point you towards the "Magnitudes" section of our website, which if you haven't seen it before contains a significant number of estimates of the offshore and tax abuse problems, from around the world.

For those interested in these technical details, we've just updated one section (scroll down to the bottom), which relates to the U.S. tax gap, reflecting new US Treasury research suggesting that an earlier $345 billion US Internal Revenue Service (IRS) estimate for the total U.S. tax gap didn't include the full international tax gap (of up to $123 billion, or a round $100 billion that Senator Carl Levin) uses - because the IRS hasn't measured the international tax gap.

The new text on our website reads as follows:

"The U.S. IRS estimated in 2001 that the total tax gap stands at $345 billion, which Senator Carl Levin said in 2007 represented unpaid taxes each year owed by individuals, corporations and other organisations who "offload their tax burden onto the backs of honest taxpayers."

The IRS has not produced estimates of the international tax gap (= "all revenue losses resulting from noncompliance with the U.S. tax laws due to international transactions") but Levin cited a figure of around $100 billion." However, a January 2009 report by the US Treasury said that because the IRS did not measure the international tax gap, it was unlikely that the international tax gap is comprehensively included in the IRS' $345bn figure. Other specific estimates exist:

  • Estimates from Professor Reuven Avi-Yonah and tax expert Joe Guttentag that offshore tax haven abuses by individuals alone cost the U.S. Treasury $40-$70 billion a year in unpaid taxes.
  • Professors Simon J. Pak and John Zdanowicz found that transfer pricing abuses by corporations cost the U.S. Treasury about $53 billion per year in lost tax revenue. See the executive summary of their original short research report, studying 2001 data, here.
  • The combined totals of these two has been quoted by the US Treasury in 2009 as providing a range of $40-123 billion annually, though the $40bn figure assumes zero transfer pricing loss.
  • A 2004 study by the journal Tax Notes which found that American companies shifted $149 billion of profits to 18 tax haven countries in 2002, up 68 percent from 1999.
  • A preliminary estimate by Professor Kimberly Clausing of Wellesley College that the U.S. Treasury lost $50 billion in tax revenues in 2002 from profit-shifting by corporations to low-tax countries."
We've also updated the website to include Richard Murphy's new estimate for the UK's tax losses to tax havens, at $18.5 billion.


Friday, February 13, 2009

Guest blogger: Rudolf Elmer, whistleblower

Rudolf Elmer, the whistleblower in the Julius Baer case (see him in The Guardian here) wrote a blog for us in December, with some important suggestions for those working offshore, such as how to spot when business is dirty. Now he has written us another one, with a forward-looking approach.

A positive approach towards Offshore!

Even as a whistleblower I am not against offshore. I am against the abuse of offshore and that is a big difference, because abuse spoils the reputation of legitimate business. Today I want to write about what an accountant, banker, lawyer or employee might do when working offshore, in order to feel good about his or her work.

All of us should deal with the business we are processing in a particular way, so as to:

• comply with internal regulations, local and international anti-money laundering laws;
• reduce the risk of being jailed as a result of not performing the work we are requested to do for legal or ethical and moral reasons;
• strengthen or even rebuild a good reputation of the offshore world

I am convinced the general approach should be as follows:

•Do not do anything unless you understand it -- even if it is a complex offshore structure.
•Do not process any transaction, or set up any bank accounts or accounting files until you are certain that Know your Client (KYC) requirements are completed and signed off by management or directors.
•Do not sign any documents before you have the KYC completed.
•Do not process any transactions until the source of funds have been fully and clearly explained. For example, it is insufficient to say “from the client’s bank account with Bank XYZ.” Be totally specific.
•Wherever you work, make sure that Management or Directors take responsibility; they have signed off on KYC and the explanation of source of funds. If they have not you are at high risk of becoming liable for any misconduct because you accepted the client’s transactions personally.

Central to all of this is that you must “know your customer” in and out -- what the purpose of the transactions are concerned. There is no excuse if you do not know! This clearly means that

•YOU must ask questions initially
•YOU must continue to ask question when the relationship goes on
•YOU must ask question until you are comfortable with the answers. In a worst-case scenario, the judge will ask YOU why YOU had not asked them.
•You only can be comfortable with the answers when you understand them. This way, you can explain to authorities, supervisors or judges why you accepted the funds, or processed the transaction. Why, why, why?
•If YOU are unable to answer those why questions YOU might be committing a criminal offence. You might go to jail for not being able to answer the why questions.

These “Why” questions are a very serious matter these days, and you will be tested if a client of yours is investigated not only by Management but also by Banking Supervisors, by Auditors and eventually by the Judges.

It is not acceptable any more to think “I cannot ask these questions because I will lose the business." If this is so, then you should question why you would want to keep the business. Why would legitimate clients, settlors, beneficiaries, beneficial owners and so on not be in a position to answer those questions?

Unfortunately, many offshore employees have a strong service-oriented mentality, which can be a big problem: asking questions can be embarrassing or feel intrusive. Reflecting on this in hindsight, from a jail cell, is too late. So compare the perceived embarrassment with the real embarrassment of a court case or trial or fine or jail sentence.

Jail sentences are real possibilities now, anywhere: it has happened, and that means prosecution of company staff, not just companies, who have not asked the crucial questions or not understood a piece of business. Times have changed.

If you can answer those questions and understand the answers, you are dealing with legitimate business, even it runs through offshore. This is possible!

Rudolf Elmer, a whistleblower who enjoyed his work.