Tuesday, September 29, 2009

Fear, loathing and a reality check in Jersey

Last week BBC broadcast a Panorama documentary about how banks and bankers have reacted to the financial crisis. One part of the programme dealt with the tax evasion and avoidance activities of banks operating offshore in the British Channel Islands.

Northern Rock and LloydsTSB, both badly affected by the crisis and in partial state ownership, were selected for investigation. The programme used secret filming, which is highly regulated, to show how LloydsTSB staff encouraged prospective clients to use elaborate avodiance structures to route earnings via Hong Kong to circumvent the European Union Savings Tax Directive.

The programme has generated a fascinating online debate on the website of Jersey's only newspaper, the Jersey Evening Post. Some reactions are entirely predictable. Philip Ozouf, the island's treasury minister, has tried to dismiss the issue by saying it was "impossible to draw firm conclusions from the programme." Other comments range from denial of the facts to the outright misleading. But sprinkled between the nonsense there are many fascinating insights into a community that is coming to terms with the fact that its tax haven role is being challenged left, right and centre.

Let's start with the denial of the facts.

Cathy (comment 31) said:

I watched the playback on BBC website and I couldn’t help but feel sorry for the Lloyds employee – I’m a sucker for a fall guy. Seemed to me he was trying to create a relationship with his customer and a little camaraderie. His career is finished and the majority of what he said wasn’t incorrect, if only he has said “you are legally obliged to advise the UK taxman” he does look a bit silly but we’ve all had those moments, fortunately not all caught on camera.

Which rather ignores the point. As Panorama makes clear, LloydsTSB has created an elaborate structure to circumvent the EUSTD, and the "fall guy" was caught out advising on how to use that structure. Presumably the majority of what he said "wasn't incorrect" when he talked about how he and his colleagues brainstorm ways to get around the tax rules. No Cathy, the facts make it clear that this guy was being more than a "bit silly."

Next we have the tried and tested mislead-the-Jersey-public, few of whom are in a position to understand the bigger picture of offshore regulation.

John Harris of Jersey's Financial Services Commission is quoted in the original JEP article saying that "Jersey had very robust and comprehensive anti-money-laundering systems in place, as evidenced by the recent IMF report."

Which is totally irrelevant since the International Monetary Fund and the Financial Action Task Force are almost entirely pre-occupied with combatting the laundering of drugs money and the routing of terrorist funding through banking channels. Tax evasion doesn't feature (yet) on their agendas.

Matt (comment 5) picked up the same theme, arguing that tax evasion is not related to money laundering, but he forgot to mention that under Jersey law bankers suspecting a client of tax evasion should raise a suspicious transaction report. This ought to have happened each and every time a European-based client declined to opt for the information exchange option under Jersey's EU STD commitment. But in practice the STRs just haven't been raised.

Vicki (comment 6) is not taken in by either John Harris or the IMF:

Er thought it was the advice given which was sloppy… this is not an independent case either, have seen this kind of attitude many a time before within our financial services sector in Jersey.. Someone with money= targets met=bonus= new car!!

WAKE UP you incompetent fools.. whats the matter? worried that this proves just how meaningless our IMF ratings actually are? laughing out very loudly (along with a lot of internationally aware)

Funniest thing is that when regulators and auditors are visiting, the companies in question are aware beforehand and have time to make things ready??? Should be spot checks and frequent and by people who know what to look for…

And thicko micko (comment 4) who describes himself as a former relationship manager with a major high street bank, is equally unimpressed by the tax evasion deniers:

Oh come on, he was caught on camera clearly advising how to avoid paying tax on the investment. Key question is did he do this independantly or is it bank policy. I can tell you that when worked as a relationship manager for a major high street bank we were advising high net worth clients how to avoid tax by placing their money in Singapore outside of the EU.

Banks are businesses, they want as much money as possible invested, some are more honest than others but this type of thing does happen. Now watch the bank distance themselves from him and sack him – poor bloke I wouldn’t want to be him.

And this bang in the middle of Obama & Brunes war on tax havens – whoopse!

Whatever (comment 23) is having none of this and falls back on the time-honoured shoot-the-messenger gambit; somewhat undermined, however, by reference to "legitimate" tax avoidance (since when was cheating legitimate) and also the final sentence, which suggests the author doesn't quite grasp the immensity of Panorama's revelations:

It was sensationalist tabloid style journalism. There was no alternative view given, the short clips we saw of the lloyds banker could be completely out of context – for all we know the undercover man incited the comments and the lloyds man trying to find a level with the potential new customer just went with it – even in relation to his cars! The undercover man might have just asked what cars do you like/have? We just weren’t shown that bit. We only got see tiny extracts of the meeting and heard nothing of what the undercover man said about himself.

In relation to the hong kong fund, it sounded like a legitimate method of tax avoidance. In relation to the income tax comment, the lloyds banker was right – what a UK customer includes in his delcaration to the UK revenue is the customer’s concern not the bank’s…. even more so in this case where it was entirely reasonable of the lloyds guy to assume that the multi millionaire businessman he was talking to would know his obligations to the taxman.

Not really sure what the banker actually did wrong other than allow himself to get duped.

Dave Stephens (comment 32) counters with:

To call uncovering what was/is a blatant scheme to circumvent the EU Savings directive as “sloppy journalism” is just ridiculous. Sure there were some annoying keystone-cops sketches during the programme, but the fact is they uncovered a clear cut abuse of regulations. It was definitely more in the “help the client evade tax than avoid it” zone. How many other schemes by other organisations of this type over here? Why do some many of our Trust companies have operations in Switzerland where facilitating tax evasion by non-Swiss nationals is not a criminal offense? I think this undercover reporting actually gave us some good insights into the murkier corner of our finance industry where profits and new business targets can make a mockery of following the spirit of the laws.

Reading the article and comments below suggests that a long overdue debate about Jersey's role as a secrecy jurisdiction is now underway. Whilst some remain in a state of denial (wake up Messrs Harris and Ozouf) others recognise the need for change and recognise the island's vulnerability.

On balance the majority opinion seems to come down on the side of Tax Justice Network: tax avodiance is harmful. So the final word goes to BritAbroad (comment 45) who has grappled with his conscience and now wants out:

To all those above complaining about the quality of invesitigative journalism: you are missing the point by a country mile.

When all is said and done, Jersey does tax avoidance or ‘wealth management’ for high net worth individuals. Now, don’t get me wrong, it is terribly well regulated and totally above board. It is perfectly in accordance with international laws and accords and we were absolutely resplendent in our glory as one of the first movers to the OECD white list. But, you see, none of that, none of it at all, makes it right.

Well and good, you can disagree. But, for me it’s all just a bit to close to home. Because, you see, and I may despise the place and all those who are running / ruining it, but, when all is said and done, I’m actually from the UK. (Which used to be quite a nice little island itself once upon a time). Back there, thnaks to Jersey and places like it, the tax burden is shifting inexorably from those most able to make a contribution to those who can’t quite afford the very best tax advice. So, it’s MY family and friends back home, the affable, muddling, middle class that are now increasingly carrying the burden and that’s simply just not right.

Personally, I’ve had quite enough dinner table arguments with friends and family from home and (beautiful as it is) I’m leaving this place at the end of the year. **cue applause**

Oh and Jersey, stop living in denial please. The first step on the addict’s path to recovery is admitting that you have a problem. Gold stars for regulation are great: be proud of them. But, good regulation only enforces the rules – and be in no doubt that you are not making them.

So to Panorama. Put simply: a poorly executed program, making very salient points.


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