Friday, November 29, 2013

Tax abuses and human rights: making the links

From David Quentin's tax & law blog:
"The possibility of strong and coherent linkages between tax justice and human rights is starting to emerge. The International Bar Association has recently published an important report on the subject, there was a conference about it in Johannesburg last week (at which I was a speaker), and John Christensen’s message at yesterday’s "Tax Justice - are you serious?" event was emphatically that an important next step for tax justice campaigners is to forge links with the human rights community."

It seems to me that a rights-based analysis of tax abuse brings dangers as well as opportunities. . . . "
Now read on. We will be saying a lot more about this large subject quite soon.

To be honest, his whole blog is one to watch.

Update 2014: for more information on tax justice and human rights, see here.


Links Nov 29

Luxembourg, Liechtenstein and Malta sign up to fight tax evasion Financial Times (paywall)
The tone of the headline is perhaps a trifle optimistic, but Luxembourg, Liechtenstein and Malta are reported to have agreed to share tax information automatically with Britain, along with Colombia, Greece and Iceland, as the latest to sign up to an information-sharing pilot scheme launched in April by Britain, France, Germany, Italy and Spain.

France dragging its feet on EU tax-evasion fight EurActiv

Benelux Focuses On Strengthened Tax Cooperation Tax-News

FINMA chief warns Swiss banks to cooperate swissinfo
See also: Ex-UBS banker Weil agrees to extradition to US swissinfo

Swiss court agrees bank data transfer to Tunis swissinfo
The question is always, how is it that the assets were accepted in the first place? See also: West failing to return billions of dollars in fines from foreign bribery cases The Guardian

Irish sense advantage in foreign firm drive swissinfo
"Ireland competes fiercely with Switzerland in the “industry” of attracting the large scale operations of global corporations – and their tax receipts."

Offshore Tax Havens Are Under Attack - But What About New Zealand? Digital Journal
Introducing a new book "The Land Without A Banking Law - How to Start a Bank with a Thousand Dollars". New Zealand is ranked at 48th position on the 2013 Financial Secrecy Index.

Barclays haven’t stepped up to Action Aid’s challenge because all the evidence suggests they’re selling tax abuse from Mauritius Tax Research UK

ENRC listing fiasco sparks vital debate about stock market regulation Global Witness

Caribbean Financial Action Task Force blacklists Belize; is banking sector in jeopardy Channel 5 Belize

We’re Not Tax Havens, Pledge British Territories iExpats
A familiar theme. See also how the 2013 Financial Secrecy Index reveals the UK runs the biggest part of the global secrecy network.

UK Prime Minister Cameron pressed on Google Bermuda 'tax dodge' Ekklesia

British Outpost BVI Struggles to Shake Off the Past Wall Street Journal - Markets Pulse

Canada: Finance Minister Jim Flaherty 'Not Aware' Of Mint Chair's Tax-Haven Dealings CBC

UK: Why BTL equals "Big Tax Let-Off" Intergenerational Foundation


A focus on poverty obscures the need to tackle inequality

Gordon Gekko
From the Equality Trust:
"The idea of poverty as a stand-alone condition somehow unconnected to overall income and wealth distribution has two rather unfortunate side effects. First it encourages the idea that the poor are some sort of disconnected “other”. The argument follows that they are not like decent, hard-working, respectable people and their problems are innate (so it’s really all their fault) and are far more complicated than just a shortage of money. This dislocation is very convenient for rich people, especially when the idea is rammed into public consciousness on a daily basis and becomes a cultural norm. People (and governments) can then conclude that there is little point in tackling excessive wealth at the top of society since the problems that need tackling are clearly all confined within the poorer end of society. Inequality therefore remains unaddressed and high levels of poverty persist.

Second, the focus on poverty also allows the rich (should they wish to try and help) to disport themselves across the domestic and world stage as a force for good. This further obscures the root problem of their excessive share of income and wealth which is left largely unexamined and unquestioned. All of which probably explains why some rich people are keen to tackle poverty but most of them do not want to talk about inequality."
Important points to remember. With strong tax justice implications.

Also from the Equality Trust recently: Boris Johnson, Mayor of London, and the laughable Laffer Curve. (See also Laffer in La-La Land).

Update 2014: for more information on tax justice and equality see here.


Thursday, November 28, 2013

Links Nov 28

EU nations reconsider disclosure of tax data MarketWatch

EU To Lobby Singapore, Australia On Tax Evasion Rules Law360
See also: European Commission - Directorate-General for Exte : Global dimension of Tax and Customs: Commissioner Šemeta in Asia and Australia 4-traders

Leaders to consult on beneficial ownership registry Compass Cayman

‘The Biggest Criminals Write Laws That Make Their Crimes Legal’ ICIJ

Switzerland's two biggest banks create joint lobby organisation swissinfo
Swiss banks Credit Suisse and UBS have launched the Swiss Finance Council in Brussels in a bid to “become more actively engaged” in European policy matters.

UBS Paris searched by police swissinfo

Vale to Pay $9.6 Billion Brazil Tax Bill After Big Discount The New York Times

Colombia: Government rejects tax amnesty, and costs up to $14million (In Spanish)
Government rejects amnesty on repatriation of undeclared assets

Canada’s revenue agency struggling to keep up with rise in tax-haven cases, AG report says Financial Post

Jim Love, Canadian Mint chairman, helped run offshore 'tax-avoidance scheme' for clients CBC

Petition: Launch an inquiry into the relationship between UK parliament and City of London Treasure Islands Blog

UK: Alliance Boots under pressure on tax bill Financial Times
New research by the anti-poverty charity War on Want and the US labour federation Change to Win has triggered a complaint with the OECD, on one of the UK’s oldest and most trusted high street brands.

Tax avoidance more worrying than excess pay – Ipsos MORI Accountancy Live
Hat tip: Offshore Watch

Silvio Berlusconi ousted from Italian parliament after tax fraud conviction The Guardian

Secret financial records revealed ABC
ICIJ director Gerard Ryle discusses the Offshore Leaks investigation

Japan: Secrecy law stirs fear of limits on freedoms Financial Secrecy Media Monitor

Pope Francis’s condemnation of economic inequality falls on deaf ears in Washington The Washington Post


Wednesday, November 27, 2013

Links Nov 27

Cayman Islands court will still protect trusts from bad tax decisions Cayman News Service
Very important implications to note here. TJN has repeatedly cautioned on trusts being used as vehicles to escape fig-leaf measures to curb tax evasion. See also: Cayman Islands Government consulting on beneficial ownership disclosure Cayman News Service

Two theories about gold: Swiss data secrecy suggests a sinister explanation for India's gold fetish Business Standard

From 2015, Argentina will access Swiss bank accounts La Nación
Hat-tip Jorge Gaggero. Timeframe allows plenty of scope for moving or restructuring assets.

Cyprus news: Finance Minister defends Cyprus record following negative OECD rating Financial Secrecy Media Monitor

Isle of Man Joins Multilateral Tax Co-operation Network Tax-News

Liechtenstein Signs OECD Multilateral Tax Convention Tax-News

Illicit financial flows: a global problem Revista Humanum (In Spanish)
Spanish language version of a piece by Alex Cobham on the post-2015 agenda, linked recently in English

UK: Five tips for Chancellor of the Exchequer George Osborne on banking reform The Guardian
Prem Sikka comments on the post-crash banking Bill going through parliament

UK: MP Margaret Hodge attacks 'voluntary' tax policies for rich The Guardian

City of London: Biggest Tax Haven in the World Format (In German)

American Express Uses Offshore Tax Havens to Lower Its Taxes Citizens for Tax Justice

Bitcoin Hedge Fund Posts Staggering Return ValueWalk
See recent links for commentary on risks of Bitcoin as a vehicle for money-laundering and tax evasion.


Germany's likely new coalition goes for financial transaction tax

From Peter Wahl, WEED:

The coalition treaty between German Social Democrats (SPD) and Christian Democrats has been concluded. As far as the Financial Transaction Tax (FTT) is concerned, the relevant part reads (in my translation):
"We want to implement rapidly a broad based financial transaction tax in the framework of the Enhanced Cooperation Procedure in the EU. Such a tax should include preferably all financial instruments, in particular shares, bonds, investment certificates, currency transactions as well as derivatives. The tax should be designed in a way, which prevents tax avoidance. The effects of the tax on pensions, small investors and the real economy have to be assessed and negative consequences should be avoided, while undesired business models should be pushed back."
(Page 64).

As a first assessment I would say that the following points are positive:
1. they have now explicitly included currency transactions,
2. they want rapid implementation,
3. they address the avoidance issue,
4. they mention explicitly the regulatory dimension of the FTT ("undesired business models").

What could be problematic:
1. the mentioning of pensions and small savers points at issues, where they might compromise and accept exemptions,
2. the issue of use of revenues, which had been included in the draft of the sub working group on development has been kicked out in the final round (as we had expected).

Further procedure:
The agreement is not yet definitively adopted. The SPD will carry out a referendum among their members, which will be finished on December 12th. So things will be settled definitively only around December 15th.

Although there is quite a skeptical attitude among SPD members, they will in the end probably adopt the agreement.

The willingness of Berlin, to go ahead with the FTT is also underlined by a recent statement from Schäuble:
"The German government position continues to press for a introduction of the financial-transaction tax soon,” the ministry said today in an e-mailed comment to Bloomberg. “We continue to aim for a broad base combined with a low tax rate.”
For those who read German, the full text of the coalition agreement (185 pages) can be downloaded here.

Update 2014: for information on tax justice and the finance sector see here.


Bloomberg advocates profit apportionment

Amid U.S. plans for tax reform led by Senate Finance Committee Chairman Max Baucus, Bloomberg News has published an editorial in which it says:
"Baucus could propose a version of the system the multinationals are suggesting, in which only U.S. activity is subject to U.S. taxes -- but instead of basing the tax on how much income a company earns in the U.S., he could base it on the portion of sales that are made in the U.S.

This approach, called formulary apportionment, is how most U.S. states levy taxes on companies that operate across state lines. Its appeal is straightforward: While earnings can be booked where taxes are lowest, goods and services follow the customer. Apportionment would therefore eliminate the tax incentive for U.S. companies to move earnings offshore. The European Union is considering a similar system for its members.

This approach wouldn’t be pain-free. For instance, tax treaties with other countries would have to be renegotiated. But it would be worth the effort if the current Baucus proposal gets bogged down and a more politically robust alternative to the status quo is needed. The worst outcome would be to do nothing, leaving in place a system that makes no sense at all."
Formulary apportionment is an ugly term: we often prefer 'profit apportionment' (or 'profit apportionment by formula', which gives a clearer idea of what's going on. (If you have no idea what we're talking about, see this introduction here, and click through to the main report.) Sales isn't necessary the only component of a useful formula, but overall the approach is right.

More support for our proposal (well, it's not originally ours, but we have been pushing it hard and quite effectively recently.) We hope that the OECD, which currently dominates international rule-making, slowly stops being so terrified of it.

Update 2014: for resources and information on Transfer Pricing see here.


How can tax havens improve their image? Send in the spin doctors!

From the Treasure Islands blog:

From Offshore Incorporations Ltd. (OIL,) a forward-looking industry survey looking at the future of tax havens (hat tip: ICIJ.) It rather speaks for itself (click to enlarge):

The OIL graph does not provide a scale, so I'll merely measure it in centimetres on the computer screen of today's blogger. Compare the 6.3cm score for 'public relations' with the less than 0.4 score for 'governance' - a fifteenfold difference - and this paints a picture of a secretive industry being dragged, screaming, kicking and blinking, into the (admittedly still very dim) light.

But there is more. This picture is fascinating, from a political economy point of view, for it reveals something profound about the business model of these places. As TJN noted in its recent Financial Secrecy Index:
"The business model of these places is the product of two apparently conflicting offerings or incentives to international owners of financial capital. The first is to convince them that the jurisdiction is safe, trustworthy and law-abiding. The second is to convince many of them that they will tolerate and protect law-breaking dirty money. This helps explain the apparent paradox that jurisdictions such as Switzerland are regularly ranked among the 'cleanest' and least corrupt in international corruption rankings - while also harbouring oceans of of dirty money. One useful way to understand how these two conflicting incentives are reconciled is to summarise the overall 'offshore' business model, colloquially, as a message to international investors that "we will not steal your money, but we will not mind if you steal someone else's."
This may be a rather broad-brush summary covering a much more nuanced picture, but it does capture a fundamental truth about offshore that is essential to understand.

Some havens have sought to address this conflict at the heart of their business models by moving (somewhat) upmarket, and expanding the range of services they provide. So for example where they once hosted blood-soaked drugs money, no questions asked, they now host hedge funds and private equity firms (in which there is still plenty of tax evasion and other lawbreaking, but it's much harder to see).

Yet Treasure Islands puts its finger on a different way of addressing the essential offshore conflict.
"Skittish financiers dislike places that are chaotically corrupt, as do onshore regulators. Secrecy jurisdictions steeped in sleaze confront this by putting on strenuous performance of rectitude, a theatre of probity that involves repeatingly projecting the essential message - 'We are a clean, well-regulated, transparent and cooperative jurisdiction' - burnished by carefully selected comments and praise from toothless offshore watchdogs."
The above table rather reinforces the point. Richard Murphy has a good example of this theatre of probity today - see here. Or see this earlier blog entitled "we are not a tax haven." There are endless examples.

There have certainly been some positive moves from tax havens, particularly in the last two or three years as the tax justice agenda has caught on. But our FSI reveals just how very far there is to go, and the sheer distance between rhetoric and reality. the above table reminds us all that leopards don't easily change their spots.  

The general message is: if you have a bad reputation - don't clean up: spin!

Update 2014: If you are interested in Offshore History, see here


Tuesday, November 26, 2013

Links Nov 26

EU moves to close corporate tax loopholes Reuters
See proposal for Council Directive here. See also Furore over tax evasion opens door to new EU proposal on corporate tax EurActiv

Tax havens urged to expose firms hiding fortunes on their shores The Guardian
Note the photo

Automatic tax data exchange to hurt fund flows, say Swiss banks The Economic Times
However, note recently linked article Private Banking Is Alive and Well in Switzerland The Wall Street Journal

Clarifying the Meaning of ‘Beneficial Owner’ in Tax Treaties TaxProf / Tax Analysts
"Koichiro Yoshimura looks at the meaning of the term "beneficial owner" in the OECD model income tax treaty, and through a functional analysis, attempts to set reasonable and more acceptable beneficial ownership criteria."

Tanzania lures investors with 10-year tax breaks, sets aside land for cities The East African

India: Vodafone in talks with Government for possible solution in tax case The Hindu

Bermuda a key target in tax haven accusations Bermuda Sun

Spain PM's ally convicted of tax evasion globalpost

Effective Corporate Tax Rates The New York Times

What Is Goldman Sachs Doing With Venezuela's Gold? Bloomberg

Pope Francis calls unfettered capitalism 'tyranny' and urges rich to share wealth The Guardian

Bitcoin and international crime The Baltimore Sun

Berlusconi says 'US papers' will prove innocence Ansa
'Had no part' in tax-dodge scheme that spells Senate ejection


Quote of the day: Kofi Annan

From former UN Secretary-General Kofi Annan - our quote of the day.
‘If corruption is a disease, then transparency is a central part of its treatment.'
One for our quotations page. Speaking a Christian Aid reception at a meeting of signatories to the UN Convention Against Corruption in Panama City, he also said:
‘Non-transparent business practices’ were failing Africa and its people, he said last night, with secrecy over company ownership giving rise to the question: ‘how do we know it is honest?’ In contrast, transparency was ‘a powerful tool’ to build peaceful, prosperous and stable countries.

‘The G8 and G20 have shown a commitment to clamp down on tax avoidance and evasion,’ said Mr Annan. ‘Such avoidance or evasion is not only unjust; it enables vast illegal or unfair outflows of revenues from extraction industries in developing countries.

‘Several countries are taking steps to pull back the veil of secrecy surrounding control and beneficial ownership of companies. The United Kingdom set a forceful example when it in October announced that it would make its registry of companies fully open to the public.

‘I strongly urge each of the countries that are signatories to UNCAC to follow the UK’s example and consider creating public registries of companies and trusts.’

‘Such an action could, in one dramatic sweep, end the extensive web of secret corporate structures to hide illicit and unjust earnings. But it can only work properly once a critical mass of countries act in unison,’ said Mr Annan last night."


Europe proposes to curb use of hybrids and other abusive tax schemes

From the European Union, slightly shortened for readability purposes:
European Commission adopts proposal to amend the Parent Subsidiary Directive
The European Commission adopted on 25 November 2013 a proposal to amend the Parent Subsidiary Directive to:
  1. include a general anti-abuse provision and 
  2. deny tax benefits to companies making use of hybrid loan instruments. 
Under the Proposal, Member States are expected to implement the amended Directive into their domestic law by 31 December 2014. The Council of the European Union should approve this Proposal by unanimity for it to become effective.
Now this is potentially quite significant. But there are some big caveats.

Commenting on the proposals, Green tax spokesperson Sven Giegold, who was European Parliament draftsman/rapporteur for an earlier revision of the parent-subsidiary directive (and who, by the way, was one of TJN's founders), said:
"These proposals are an important step to addressing the chicanery by unscrupulous multinationals, which exploit these loopholes in EU legislation to shirk their corporate taxation responsibilities. The Greens have long called for the EU to close the loopholes in legislation on parent-subsidiary taxation. The current provisions allow corporations to shift profits between subsidiaries cross-border, in many cases to avoid their tax responsibilities in the jurisdictions in which they operate and in some cases to avoid taxation altogether. It is high time that this door was closed and we hope these proposals will now be swiftly adopted.

"While this is an important step, it will only be effective as part of a wider EU approach on corporate tax avoidance and dumping. EU governments need to speed-up decision-making on the EU common consolidated corporate tax base, as well as finally agreeing to a minimum common corporate tax rate, which would more effectively close the door to tax dumping.

"Tax fraud, evasion and avoidance deprives exchequers in EU member states of EUR 1 trillion in revenue per year, according to the EU Commission. Addressing this problem should have been a top priority in the context of the current economic crisis and the fiscal problems faced by EU member states. EU governments must stop sitting on their hands and swiftly move forward with these proposals."
Reuters adds:
"Progress in tackling the problem is likely to be slow. Europe is torn between the demands of small countries, such as Luxembourg and Ireland, fiercely resisting change to their low-tax regimes which attract foreign investment, and states such as Britain and Germany, wary of driving away big employers.
We're not sure that's a wholly accurate portrayal of the positions of the UK and Germany: the UK in particular seems gung-ho for allowing an ever greater proliferation of abusive offshore-friendly schemes, while Germany is rather more cautious. In any case, TJN Senior Adviser Sol Picciotto adds that one can now see past the political difficulties:
"I think Sven is right: only the CCCTB can deliver a more comprehensive solution. This move against hybrids, as well as the Letters sent to Ireland, Luxembourg and the Netherlands challenging some of their tax breaks as state aids, are sticking plaster. But it’s possible that the pressure on these states may weaken their opposition to the CCCTB. In fact, the work on the CCCTB started after the Code of Conduct first began to put pressure on such measures. The Code gradually became toothless, but the new pressures resulting from BEPS changes the situation I think."
The lobbyists are, as usual, out in force. But there is still everything to play for.

Hat tip: Katrin McGauran

Update 2014: for more on corporate tax, see here.


Campaigners give onshore and offshore secrecy jurisdictions the red light

We have just blogged a press release from Christian Aid looking entitled Moment of truth for Britain’s tax havens as they attempt to shake off their shameful status, to mark the start of the British Overseas Territories' Joint Ministerial Council (JMC) meeting which starts today, bringing together UK ministers and political leaders from the UK Overseas Territories. This is potentially an important meeting for the world as a whole, since the Overseas Territories include some of the world's most important secrecy jurisdictions - and, as our Financial Secrecy Index project makes clear - Britain is the most important single player in the offshore secrecy system: in significant part because of its Overseas Territories.

Now, complementing this press release, here is a pointer to an important new report jointly written by Global Witness and Christian Aid, entitled Company Ownership: which places are the most and least transparent. Among many other things, it notes:
"What’s needed is clear: the names of the ultimate, ‘beneficial’ owners of companies, trusts and other corporate vehicles need to be made public. It is only by putting this information in the public domain that tax inspectors and others will be able to easily access this information; that businesses will be able to know who they are doing business with; and that citizens will be able to know who owns the companies that provide their services and extract their resources."
And they go on to note that in this context, distinctions sometimes made between 'onshore', 'offshore' and 'midshore' are largely meaningless: 'onshore’ is in no way synonymous with transparency; and by contrast some supposedly ‘offshore’ places are considering opening up. Two countries - the UK and France - have said they will create public registers of beneficial ownership, and a number of others are consulting on the possibility. This is grounds for optimism: but there is a very long way to go.

The press release follows:
Campaigners give onshore and offshore secrecy jurisdictions the red light

Some of the world’s most infamous secrecy jurisdictions, such as the British Virgin Islands and Jersey are considering becoming more transparent, whereas several G8 countries lag behind, said campaigners today.  A new report, [1] published by Global Witness and Christian Aid today on the eve of a meeting between the UK government and the heads of the Overseas Territories, grades each of the G8 countries and the UK’s tax havens as to how easy it is to find out the names of the ‘beneficial owners’ of companies – the people who ultimately own and control them.

“Tax dodgers, child traffickers, corrupt politicians and other money launderers all rely on the use of anonymous shell companies to hide their identity,” said Rosie Sharpe, Senior Campaigner at Global Witness.  “To tackle this sort of financial crime, the names of the beneficial owners of companies need to be made public for all to see.”

Abuses of anonymous shell companies have received high-level political attention recently.  At the G8 summit in June 2013 all the G8 countries as well as the UK’s Crown Dependencies and Overseas Territories produced plans to tackle hidden company ownership.  Some are better than others.  Those places that promise more transparency deserve recognition, whereas the places that have not yet embraced this move towards greater transparency deserve exposure.

Only the UK and France have been awarded the top grade of ‘green’ as they have committed to make beneficial ownership information public.  The other results, however, do not divide into ‘onshore’ countries getting good marks and ‘offshore’ jurisdictions getting poor marks.  Quite a few of the tax havens are running, or have committed to run, consultations on whether to make beneficial ownership information public, including the British Virgin Islands, Cayman Islands and Jersey.  Half of the G8 countries – Germany, Canada, Russia and Japan – however, get the lowest grade, a ‘red’.  The US – which is the most popular jurisdiction of choice for the corrupt [3] – gets the second lowest grade, an ‘orange’, for having committed to push legislation that would create private registries.  The administration now needs to see through this commitment.

“Thinking about making company ownership transparent and actually doing it are of course two very different things.  Once the consultations are concluded, we will be adjusting the grades accordingly – up if they promise to make company ownership information public, down if not. Our hope is to see a race to the top.  Without this, companies will continue to be used to evade taxes and steal money from some of the poorest people on the planet,” said Joseph Stead, Senior Economic Justice Advisor at Christian Aid.


For interviews or further information, contact:
Anthea Lawson, Global Witness, on or +44 20 7492 5882 or +44 7872 620 855
Rachel Baird, Christian Aid, on or 0207 523 2446.
Notes to editors:

[1]  On 25 and 26 November 2013 there is a meeting of the ‘Joint Ministerial Council’ taking place in London – an annual meeting of all the leaders of the Overseas Territories, plus UK ministers.

[2]  Company Ownership: which places are the most and least transparent can be downloaded for free from the link below, or at

[3]  A report by the World Bank’s Stolen Asset Recovery Initiative looked at more than 200 cases of grand corruption.  In 70% of the cases, a company was used to facilitate the crime, and the most popular jurisdiction to incorporate those companies was the US, followed by the British Virgin Islands.

Company Ownership: which places are the most and least transparent (PDF)
It is a most useful report, focusing on a very important aspect of financial secrecy. As they note:
"Company ownership transparency is just one aspect of the financial transparency that is necessary for citizens to be able to hold companies and governments to account, albeit an important one. Good performance on beneficial ownership doesn’t necessarily mean good performance on other issues; for a wider look at financial transparency across different jurisdictions, see the Tax Justice Network’s Financial Secrecy Index."

Update 2014: for information on the Mechanics of Secrecy, see here.


Moment of truth for Britain’s tax havens as they attempt to shake off their shameful status

A Press release from ActionAid, Christian Aid, Oxfam and War on Want:

Britain’s Overseas Territories, such as the British Virgin Islands, Bermuda and the Caymans, should use a joint ministerial summit, starting in London today, as a golden opportunity to commit to exposing the true owners of more than half a million shell companies set up on their shores, some of which are providing cover for tax dodgers trying to disguise their profits, as well as money launderers and even people financing terrorism.

The UK Government has shown leadership by agreeing to set up a public list of exactly who owns companies to avoid this happening in Britain. Campaigners from ActionAid, Christian Aid, Oxfam and War on Want are calling on the Overseas Territories to use their meeting this week to sign up to do the same, which, along with other concrete actions, would help them to shake off their shameful tax haven status.

Despite moves that show willing and claims from David Cameron that they no longer deserve to be called ‘tax havens’, campaigners are warning that the Overseas Territories continue to offer extreme secrecy to an alarming number of companies and wealthy individuals.

“The islands and David Cameron have claimed that they have cleaned up their acts and no longer deserve the “tax haven” label but unfortunately, that is not yet true. They are still clearly tax havens,” said Murray Worthy from War on Want.

Action Aid’s Chris Jordan said: “Tax havens are places that offer extreme secrecy and low tax rates – and the UK’s Overseas Territories still do both."

Barry Johnston, from Christian Aid said: “Following widespread public pressure and high profile campaigns asking the UK Government to clamp down on the scourge of tax evasion and avoidance, we appreciate its very welcome decision to create a public register of who really owns millions of companies in the UK. We are also pleased that David Cameron is encouraging other European governments to follow suit.

“Now the Government should follow the logic of those moves and lead the way in promoting such public registers as a standard for other countries. The Overseas Territories, whose governments are currently looking at this issue, have the opportunity to lead from the front on this new standard. But ultimately, the responsibility for the global impacts of these islands lies with the UK Government.”

Leaders at the G8 Summit in June made commitments towards a fairer and more transparent global tax system, including all the Overseas Territories promising to sign up to the international system through which governments exchange tax information – the OECD Multilateral Convention. This would allow poor country governments to have access to more information on who owns what and help them assess how much tax they are rightfully owed.

“We acknowledge the progress made on G8 commitments, including the move by the Overseas Territories to join the Multilateral Convention. We want to see them put this into practice as a matter of urgency, because doing so will help other countries, including the poorest, to catch up with tax evaders,” said Oxfam’s Claire Godfrey.

Campaigners have also highlighted a range of other measures that these jurisdictions would need to take before they believe they could no longer be called tax havens. These include extending the automatic tax information sharing agreements already reached with the UK to other countries, undertaking an analysis of their negative impacts on the tax regimes of developing countries and increased transparency on financial flows and access to company accounts.

Oxfam’s Claire Godfrey said: “The meeting this week is a golden opportunity for Britain’s Overseas Territories to take a big step towards shaking off the shameful status of being ‘tax havens’ once and for all. Only when all tax havens have agreed to build a fair and transparent global tax system will the world's poorest countries be able to reap the taxes they're due.”


For more information please contact:

Rachel Baird
at Christian Aid, on 0207 523 2446, 07969 314 117,
Or Sarah Dransfield at Oxfam on 01965 472269,

Notes to editors:

·         Using the 2013 Financial Secrecy Index database, Christian Aid calculated that at least 600,000 shell companies have been set up in the Overseas Territories. However, this may be a conservative estimate since the OECD Secretary General says 800,000 shell companies in the British Virgin Islands alone.

·         News that the Convention on tax information sharing had been extended to the Overseas Territories and also the Isle of Man (a UK Crown Dependency) came on Thursday 21st November, when the OECD announced the latest list of signatories to the Convention.


Monday, November 25, 2013

The Callous Caretaker

Guest blog by Paul Sagar (cross posted with permission from King's Review magazine)

When Margaret Thatcher died, social media sites in Britain exploded with polarized opinions. As well as splitting along obvious class lines, those either cheering a death or paying tribute to the ‘greatest leader in the post-war era’ could, to a large extent be grouped by geography: those of northern provenance tended to bunch differently from the rest. Some of the bile and vitriol of the first group was tasteless, no doubt. Predictably, those who professed outrage at such outpourings of hatred largely missed the point (sometimes quite deliberately) that the tastelessness was not simply vindictive, but born of a sense of righteous justification. Yet any victory for the haters was clearly pyrrhic. Thatcher’s death was at best a consolation; a booby prize providing the briefest of distractions from the fact that whilst the woman might be dead, her spirit lives on with a vengeance.

Altogether more interesting is the response from Thatcher’s admirers. We all knew the clichés already, and her death provided only an opportunity to rehearse them together at once. This was the woman who, as David Cameron put it, ‘saved Britain’, whilst according to Tony Blair, she was a ‘towering’ leader who put Britain on the track to prosperity by breaking the hold of the unions and ushering in economic modernity. This – the mythos of the right – is why she was a Great Leader. Compared to her, grumble many Tory ultras, her ideological descendants on the Government front bench are mealy wets of the sort Thatcher herself despised, unable to complete the great transformation she started. Inconvenient facts are, as ever, overlooked. The same Prime Minister who pledged to roll back the state consistently saw it swell in size and cost. The champion of British independence handed over, when she signed the Single European Act, more British sovereignty to European bureaucrats than anyone before or since. But those are details, and everyone either knows or ignores them and has done for a long time. 

But what if the central plank of the right’s narrative of the great leader is simply wrong? What if Thatcher didn’t force through a period of radical economic change, but was merely the caretaker of processes much deeper and more powerful than she herself ever was? A caretaker, whose main contribution was to add cruelty and callousness to economic processes of change that were set in motion long before she came to power?

One obvious piece of evidence supporting this hypothesis is the brute fact of Ronald Reagan. The reforms Reagan oversaw in the 1980s fundamentally changed the American political and economic landscape, to the point where the two Democratic presidents that have held office since can comfortably be classified as to the right of Nixon. For despite going down in infamy thanks to the Watergate scandal, in practice Nixon continued the LBJ reforms of the 1960s, and his economic policies would now be regarded as a species of communism by much of what has – in no small measure, thanks to the legacy of Reagan – become the mainstream American right. Yet if the old economic adage that when America sneezes Britain catches a cold holds any truth at all, then the political-economic corollary certainly applies, too. Thatcher’s ideological soul mate wrought changes that redefined the US political landscape, and the impact has been felt on this side of the Atlantic. But then, this way of looking at things merely shifts the Great Leader hypothesis one stage further back. What if Reagan, too, was mostly caretaking?

Reasons for questioning the Great Leader hypothesis emerge if one delves into the murky waters of Britain’s complex relationship with its vast tax haven network in the 1960s and 1970s. Doing so opens up a startling story of how the growing power of international finance left governments vainly locking stable doors after horses had bolted, before eventually deciding to let them run as free as they liked.

A good place to start is with an internal memo sent by Inland Revenue officials to their Treasury colleagues on October 18th, 1967. Appalled at the huge levels of revenue being lost to illicit and barely-licit avoidance schemes by wealthy individuals and corporations, the Revenue desperately appealed to the Treasury’s greater might in shutting down such practices. They pessimistically noted that whilst we ‘do not suppose that the Treasury will be able to help us in this…we feel we must leave no stone unturned’. The desperation was palpable: ‘Even a piece of gossip that Mr X. was thought to have made such a transfer would be some help, because we might not hitherto have suspected Mr X. and we can then at any rate launch an attack on him by requesting information’. Despite initial scepticism that it could help, the Treasury soon became strongly sympathetic to the Revenue’s cause. Not, however, because it was especially concerned about tax revenues. During the 1960s, its main priority was capital controls. 

With Britain operating a fixed exchange rate and ‘Keynesian’ economic management, it was imperative to manage the movement of currency in and out of the British economy and the wider Sterling Area it controlled. Crucial to economic policy was control of the balance of payments (the difference between the value of imports and exports), which in turn allowed central government to run targeted taxation and spending policies so as to manage the overall level of demand in the economy, only possible with a minimum of external interferences. Employment and inflation were indelibly linked to the matching of national aggregate supply and demand for goods and services, which in turn depended on a well-managed balance of payments, achieved by keeping Britain’s exchange rate pegged at a fixed level. Government policy dictated that money could be moved in or out of Britain only with official permission. (Even withdrawing funds to go on foreign holiday required such permission. Professor Sol Piccciotto, of the University of Lancaster, once showed me his passport from the period, filled with pages of official stamps detailing how much currency he was entitled to take abroad at any one time). Yet Illicit and disguised avoidance schemes – especially of the scale the Revenue was reporting – directly undermined this central economic imperative by allowing individuals and corporations to move capital without government knowledge or permission, distorting and upsetting the balance of payments. Tax evasion (illegal) and tax avoidance (technically legal, but usually only with the help of good lawyers and accountants) were emerging as serious economic problems: such activities undermined British capital controls, and hence national economic policy.

Even worse, the territories facilitating such practices were frequently dependencies of the British Crown, meaning they were inside the sterling area but not under the direct control of Whitehall. They were also granted economic privileges such as the ability to set tax rates and decide banking legislation, which they rapidly began to exploit in the post-war era. Given that, just a month after Treasury officials were alerted to the tax haven problem, Prime Minister Harold Wilson would be forced into the humiliation of a sterling devaluation, it is safe to say that the activity of British tax havens would have come under increasing disapproval in Whitehall at that time. Although the Channel Islands and the Isle of Man would later emerge as leaders of the illicit financial secrecy world, in the late 1960s it was the Caribbean that appeared to pose the biggest threat. (Some fun facts: today there are over 18,000 companies registered to a single building in the Cayman Islands, whilst the tiny Channel Isle of Sark boasts 24 registered companies for every human being on the island. Safe to say that since the 1960s, the growth of world tax havenry, especially in British-affiliated territories, has only accelerated.) 

The Caribbean was prominent for several reasons. Most important, however, was that because of the relatively desperate economic outlook of these territories, the more adventurous were increasingly prepared to co-operate in any way desired by wealthy outsiders seeking to hide money. Although Bermuda and the Bahamas were long-established as places to avoid estate dues, or to set up secret trusts to avoid domestically-owed taxes, in the 1960s the Cayman Islands emerged as promoter of the most aggressive schemes whose purpose, as one Revenue official put it, ‘blatantly seeks to frustrate our own law for dealing with our own taxpayers’. As Cayman brazenly expanded its activities, poorer neighbours wanted a piece of the action. The tiny Turks and Caicos Islands began emulating Cayman, much to the alarm of Revenue and Treasury officials desperate to avoid ‘yet another’ tax haven in the sterling area. Yet whilst we still mostly refer to these territories as tax havens, and tax avoidance and evasion are certainly something they facilitate, in reality what they’ve always more fundamentally provided is banking secrecy. Environments in which money can conveniently disappear and then reappear; in which companies that never do a day’s trading can be registered so that books elsewhere can be made to balance; where money can be squirrelled away without anybody asking – or even more importantly, telling – where it came from or where it is going. In the 1960s the Caribbean was hosting a race to the bottom as each territory offered more and more secrecy with less and less oversight, to whoever happened to have the cash. In the early Wild West days of Caymanian financial aggression, suitcases of money and diamonds were flown into micro airports before disappearing into ‘banks’ that were little more than brass plaques on walls, a practice established in Switzerland and Lichtenstein in the 1930s, as described in Nicholas Shaxson’s riveting book Treasure Islands. By the late 1960s, British tax revenues and capital controls were starting to seriously suffer. That made it a national economic issue.

But the problem wasn’t just domestic. Alerted by the Treasury, the Foreign Office was also alarmed. Crown territories supplying secrecy to anybody who had the cash did not represent a prudent international strategy. For a start, the Americans and the French were growing increasingly upset about British territories undermining their tax regimes and exchange controls. The Americans were particularly aggrieved, ‘deploring’ British encouragement of tax havenry because the Caribbean’s proximity meant Island banks were deliberately targeting US investors. France ‘animadverted on the prevalence of paradis fiscaux as yet another undesirable feature of the Sterling area’. More generally, tax havens were themselves potentially deeply unstable. Small populations lacking well-run political and economic infrastructures might not cope well with vast influxes of cash and the corresponding social divisions that moneyed elites would bring. In an era of increased political identification across post-colonial ethnic lines, there was a significant race dimension to the potentially explosive politics of Caribbean territories. Most of the moneyed newcomers, brought into manage accounts and look after brass plates, tended to be white, unlike the impoverished island residents expected to wait upon them. And in the era of decolonization, it was particularly undesirable for emerging African dictators in failing regimes to be using British territories to hide ill-gotten loot they were stealing from their populations. By the end of the 1960s, the Foreign Office joined the Treasury and Revenue in determining to put an end to British provision of illicit financial secrecy.

But not everybody agreed. The then Ministry for Overseas Development (later to become the Department for International Development) objected that these territories simply had nothing else to offer: the only alternative for ‘colonial pensioners’ was a lifetime of dependency on the ‘British dole’. Overseas Development recommended instead that Britain send trained financial advisors to its territories, to teach them how to provide secrecy properly, to make sure it was done right. The Treasury and Revenue balked at such suggestions, closing them down. Much more important, however, was the Bank of England, to whom the Treasury appealed for data and expertise. For the Bank had very different ideas about where its priorities lay, and whose interests it existed to serve.

Repeatedly declining to co-operate with a working party established by the Treasury, Foreign Office, and Revenue, the Bank dragged its heels and refused to share meaningful information. When asked for data it would delay for months before sending across a handful of irrelevant numbers, citing confidentiality as an excuse. As the months dragged by, it became increasingly clear that the Bank had no intention of helping the Government. Acting as the champion of the interests of the City of London, the Bank protected the benefits British finance was steadily reaping from the exploitation of banking secrecy. For what British-affiliated tax havens facilitated was the ability for banks and other financial institutions to move money quickly, and without disclosure, in and out of the sterling area. This meant avoiding both the interest of government officials, but also the delays associated with having to acquire permission for capital movements. Due to the impact on the balance of payments this was of direct detriment to the British revenue and central economic policy. Despite being a nationalized institution, therefore, the Bank of England consciously and deliberately obstructed the attempts of Whitehall to administer economic policy in what was perceived to be the national interest. (La plus ça change, some might say.)

Realising that the Bank would not be forthcoming with assistance, the Treasury, Foreign Office, and Revenue pressed ahead under their own steam. Painstakingly putting together reports, organizing fact-finding visits to tax havens, and co-operating on cross-departmental lines, civil servants eventually produced a lengthy report on Britain’s tax haven problem, finalized and published in 1971. Although the bulk of the document was divided into three corresponding parts to reflect the relative concerns of each department, it nonetheless opted for a strong line in order to clamp down on British territories engaging in abusive financial practices. And at first the report appeared destined to become more than just another shelf-filler. Public awareness of tax haven issues was growing, with questions being raised in Parliament and enough of a head of steam built up within Whitehall for memos to emerge indicating that the Minister of Finance, and Treasury Ministers of State, were taking a direct interest, keen to implement the findings of the report and end the ‘quite uncivilized’ behaviour of Cayman and its emulators.

But just as all seemed about to change for Britain’s tax havens, it didn’t. At this point the historical record becomes decidedly murky, a clear picture hard to obtain. Noticeably, the individual civil servants who for years doggedly pursued the tax haven issue suddenly disappear from the records. Coincidence, or were they purposefully moved on? We’ll probably never know. In any case, their replacements thought the tax haven issue irrelevant, and promptly shelved the report it had taken four years to painstakingly assemble. But also, and undoubtedly more importantly, 1972 saw a fundamental change in the global economic game. In 1971 Nixon had ended dollar-gold convertibility, heralding the end of the Bretton-Woods era of international economic agreement that underpinned domestic Keynesian tax-and-spend policies. This decision had a massive impact on Britain’s ability to keep a fixed exchange rate and manage its balance of payments, and in turn its domestic economic management. Following Nixon’s action, in 1972 Britain contracted the Sterling Area and placed the Caribbean territories outside exchange controls, in a rearguard effort to keep a grip on the exchange rate. (One which would eventually fail: Wilson was forced into a second, credibility-eroding sterling devaluation in 1976.) The Treasury and Foreign Office lost their main incentive to care about the activities of Britain’s Caribbean tax havens, and interest immediately waned. Indeed, if anything the Treasury now began to see tax loss as small beans compared to the capital that could be diverted into the City of London out of North America and other countries via Britain’s tax haven network operating under the watchful guidance of the Bank of England. Nothing changed for the beleaguered Inland Revenue. But this minnow of a department could pack no punch on its own. (This conspicuously continues to be the case today: compare the political attention currently paid to the £1.3 billion lost annually to benefit fraud, to the £30 billion tax gap estimated by HMRC arising due to tax avoidance and evasion.) After 1972, the impetus died, and Britain’s tax havens received freer rein than ever. 

The ongoing relation between Britain and her secrecy jurisdictions was not, however, without irony. Having initially shelved the original working party report, the next generation of Treasury civil servants soon found themselves drawn into the morass of tax haven skullduggery. As outrage at offshore financial activities grew, the issue was forced back onto the agenda. In 1974 the so-called Lonhro scandal erupted, revealing extensive tax evasion and corporate corruption centering on Caymanian financial services, but indelibly connected to UK individuals and companies. A flurry of activity in Whitehall followed as government ministers prepared to face tough questions in Parliament about the extent to which the UK did not adequately control territories facilitating corruption in the metropole. Around the same time, Chancellor Dennis Healey received a correspondence from an outraged constituent on the matter of tax avoidance and evasion, along with a copy of the magazine Tax Haven Review, apparently intended for bankers, lawyers and accountants, which had mistakenly fallen into the constituent’s hands. (We know that Tax Haven Review was not intended for a wider audience, because the subscriber information promised that to ‘maintain the confidentiality of this privately circulated newsletter, the full name of Tax Haven Review will not appear on the envelope’. Tax haven activities were accorded the public unacceptability of something like pornography: going in for this sort of thing was clearly best kept private.) 

During the 1970s the Channel Islands and Isle of Man came into their own as leading providers of financial secrecy, co-operating overtly with the Bank of England in hosting conferences advising individuals on how to avoid UK-owed tax. The MP Tony Benn indignantly forwarded a letter from one of his constituents on to Healy, which objected to the Bank’s openly colluding in tax avoidance schemes in a process that was surely ‘just a bit too sordid to be true’. By the mid-1970s it was apparent that contracting the sterling area had not put the genie back in the bottle. On the contrary, Britain’s tax haven network was still leaking capital and damaging the UK balance of payments, due to the secrecy it provided. The Channel Islands had now joined the game at maximum pace. The Treasury was still powerless in getting things under control. The new generation of civil servants, who in 1972 had dismissed their predecessors’ working party as irrelevant, belatedly came to admit that the findings of the earlier report remained troublingly relevant, and ought to be revived.

But in 1979 the changes made in 1972 were effectively repeated, but now at full throttle. Following the collapse of Bretton Woods, and the perceived failure of Keynesian economic policy at home, the new Thatcher government abandoned capital controls and moved the UK to a floating exchange rate. It is worth asking why capital controls had to be abandoned. Certainly, the perceived and real failure of Keynesianism, and the ushering in of the era of monetarism – which demanded open borders and floating exchange rates as taxation and spending were superseded by the setting of base interest rates as the primary tool of economic management – can only be explained via myriad complex and interconnected factors. Of particular importance is the end of the post-war boom, American economic policy after the decision to abandon dollar-gold convertibility, and the oil shocks of the early 1970s. But not insignificant is the fact that by the end of the 1970s the enforcement of capital controls was anyway becoming impossible for clunking government administrators of all nations. The invention of the telex machine, in conjunction with cheap access to transoceanic phone lines, meant that those willing to bend and break financial rules could move money in and out of jurisdictions far faster than government officials could chase it down or keep track of it. Tax havens, and the secrecy they provided, played a crucial part in this. One did not need to physically fly money into the Caribbean if one had a trustworthy banker with a good telex connection, and space for a brass plate. In significant measure capital controls were abandoned by the end of the 1970s because they had anyway became increasingly unworkable, in no small measure thanks to global finance deepening its ongoing love affair with cross-border technology. 

By 1979, capital controls increasingly couldn’t be maintained, because multinational financial institutions, in conjunction with secrecy jurisdictions, were helping make state regulation of currency flows across borders all but impossible. 

What has all this to do with Thatcher’s disputed status as a great leader? The point is to ask whether Thatcher stood to the entire British economy as the Treasury stood to capital controls and the desperate attempts to secure the sterling area in the 1970s. Was the game already up by 1979, the times well and truly a-changed? Was ‘Keynesian’ economic management dead, a move to monetarism and open border capital flows inevitable in a globalizing world in which financial technology dictated a change in the rules? If so, when Thatcher imposed monetarism at home, it was not a brave decision taken by a visionary leader, but a political-economic inevitability anybody in Downing Street would have been forced to follow sooner or later. What wasn’t inevitable was the way the transition was conducted. The assault upon industrial communities. The spy operations and violent confrontations against trade unions. The wholesale removal of worker rights and protections. The deliberate abandonment of entire swathes of the population to poverty and misery. The vindictiveness with which desolation and destitution was permitted to destroy the lives of the no-longer-working poor, told they had nobody to blame but themselves. The labeling as ‘enemies within’ individuals who were trying to protect their families and livelihoods. An ideology of selfishness and greed trumpeted as enlightened benevolence. The ‘Big Bang’ in financial services, which didn’t so much give the horses free reign as pump them full of steroids and put them on the long stampede that would eventually take them over the cliff of 2008.

But if, indeed, none of those things needed to happen, what is left of Thatcher’s legacy, and especially the mythos of her party? Certainly, there is not much substance to the idea of her as a great leader, an economic visionary with the iron will required to see through change that would otherwise not have occurred. No matter how much strategic acumen she demonstrated in her confrontation with the trade unions, there is scant evidence that she and her chancellors were ever really in control of the economic changes they presided over. Instead is the image of the heartless caretaker, indifferent to the suffering of communities whose economic base was being removed almost overnight with nothing put in its place, that comes out most clearly. 

It is a platitude to say that Thatcher reshaped British politics. In some ways it is of course immeasurably true: Tony Blair is proof enough of that (although without Reagan there would have been no Clinton, and that matters to the New Labour story also). The current coalition government has taken up Thatcher’s spirit with vigour, whatever the more extreme sections of its backbenches claim. Indeed, after the pause afforded by New Labour – those 13 years were at best an interlude and no sort of reversal – they are taking it far further. The present crop of Tories (the Lib Dems are largely an irrelevance when it comes to hard policy-making) has done what even Thatcher didn’t dare: launch a frontal attack on the NHS, and begin the slow process of dismantling and siphoning off that will probably end in privatization and some sort of insurance-based system.

But again, we must be wary of the cult of the individual in political explanation. How much is down to the personalities of Cameron, Osborne, Lansley, Willetts et al? It is a persistent misperception that the British welfare state was enacted out an egalitarian spirit of socialist goodwill. If that had been the case, no government would ever have managed to secure the broad support required to establish or sustain it. Rather, Tony Judt got things right when he wrote that:

the twentieth-century ‘socialist’ welfare states were constructed not as an advance guard of egalitarian revolution but to provide a barrier against the return of the past: against economic depression and its polarizing, violent political outcome in the desperate politics of Fascism and Communism alike. 
The welfare states were thus prophylactic states. They were designed quite consciously to meet the widespread yearning for security and stability that John Maynard Keynes and others foresaw long before the end of World War II, and they succeeded beyond anyone’s expectations. Thanks to a half-century of prosperity and safety, we in the West have forgotten the political and social traumas of mass insecurity. And thus we have forgotten why we have inherited those welfare states and what brought them about. 
With the collapse of the communist regimes in 1989-90 went also (albeit unfairly) much of the plausibility previously attached to social democratic welfare liberalism (another point made by Judt in his final works). With the supposed ‘end of history’, what has come to be known as neo-liberalism has marched ever onwards. But why? Because of Thatcher and Reagan and their courageous personalities? Or because of the rise of global financial power, as accelerated immeasurably by technology – think of what the internet is now to the telex machine – changing the way the game can be played between sovereign nations and global finance, the backbone of modern capitalism, as 2008 made painfully clear. It is both a platitude to say (and yet, perhaps, remarkably under-explained and –appreciated outside of specialist circles), that the rise of the multinational corporation changes the nature of international political economy, and the options available for leaders of sovereign nation states. What the failure of British civil servants to get a grip on the activities of tax havens in the 1960s and 1970s illuminates is the period of transition between what we might think of as western post-war industrial capitalism of the period 1945-79, and the financial services driven capitalism which came to replace it in the 1980s down to today.

But if neo-liberalism, and the sort of western democratic society that goes along with it, is the only available option for modern states – and nothing else is on the table, China clearly not being a desirable alternative for people anything like us – the future begins to look bleak. We have (thankfully) lost the external and internal threats of communism and fascism that provided the impetus for the provision of the welfare states we have inherited. But neo-liberalism is cruel, cold and powerful. It does not, if allowed to flourish in isolation, support systems of support for the destitute, at least above the bare minimum needed to prevent domestic unrest out of sheer desperation. The task now is to prevent, or at least mitigate, outbursts of the sort witnessed in the riots of London and other British cities in August 2011. It is not to counter organised political revolutionaries with a structuring ideology. This new task can be achieved relatively easily, with a repressive state apparatus operating via police and punitively retributive courts, and by emphasizing the threat of the ‘feral’ underclass to the no-longer-so-prosperous classes just above them. What it does not require is a genuine welfare state: an NHS and a safety net providing support for the unemployed, the disabled, the unlucky. 

This goes a long way towards explaining why the present government is removing the welfare state inherited from a different era. It is not a pretty picture. Hardly inspiring, either, fostering as it does a significant sense of hopeless powerlessness. And here I disagree with Judt. His diagnosis was accurate, but his belief that we could revert to the social democratic welfare states he championed strikes me as hopelessly naïve: a relic from a different era of capitalism that is not coming back. 

David Runciman has recently argued – most publicly in the London Review of Books – that democratic regimes are typically criticized from one of two directions: as being either a confidence trick, or as falling into a self-defeating confidence trap. According to proponents of the confidence trick view, democracy is a sham, a façade behind which a ruling elite more or less secretly sits. When the chips are down, true power shows its face, and illusions of rule by the people are dispensed with. On the confidence trap view, by contrast, democracy is all too real, but that is precisely why it is terminally incapable of dealing with crisis. The people are shortsighted, greedy, selfish and cowardly: when faced with real crises, democracies put off tough decisions and either collapse outright, or cease to be democracies in order to survive. In either case, say its detractors, democracy is not build to last.

Runciman does a convincing job of showing that both these attacks are misguided. Modern representative western democracies are dynamic entities that learn from their mistakes when they need to, and exhibit such multifaceted qualities that they always prove to be more nimble – as well as complex – in practice than their detractors paint them in theory. With the possible – and significant – exception of the challenge faced by climate change, Runciman is confident that not only is democracy for real, but it has the most advantages, and is best placed, to see out the century, even when compared to the emerging rival of a Chinese model which looks, in the short term, to have the upper hand.

But there is another vision, neglected by Runciman, which tracks his view quite closely in all but its final optimism. This view agrees that western representative democracy is dynamic, nimble and adaptable. But it also emphasises that democracy is umbilically connected to modern capitalism, and that the interplay between the two is one of the things that makes democracy good at surviving and renewing itself. But surviving and renewing itself in what form? Democracy may well continue, but if the trajectory of the past 30 years is extended for the foreseeable future (and there’s every reason to think that’s what will happen), the world we are faced with is one of rampant inequality, growing destitution for the increasingly disenfranchised and expanding underclass, political mistrust between the haves and haven-nots, and the expansion of the reign of selfishness and greed to all areas of public life. On this view, the danger is not that democracy – coupled as it must be with capitalism – will fail, but that it is altogether too well placed and adapted to succeed. 

In the recent science fiction film ‘Looper’, a society of the near-future is depicted with unnerving clarity. In tomorrow’s America, the vast majority live in a semi-lawless existence, abjectly poor and scraping out survival through violence and desperation, whilst a tiny super-wealthy elite live apart, as though in another world. That future West has decayed, is atrophying almost to the point of breakdown. The momentum of history has moved to China, a society more prosperous than ours, but hardly more desirable in its social constitution. The disturbing thing about ‘Looper’ is how near – in both chronology and trajectory – it looks. When America catches a cold, what happens to Britain? In any case, the future is not bright. There are forces on this earth far more powerful than caretakers, however callously they sweep.

A correction was made to this article on November 17th 2013 at 18:08. It originally suggested that Thatcher signed the Maastricht Treaty (which she didn’t), rather than the Single European Act (which she did).


Links Nov 25

Latest OECD Compliance ratings: what the media in non-compliant countries are saying Financial Secrecy Media Monitor
See also our recent blog Is the OECD's new tax haven report a whitewash? No, but . . .

EU Seeks to Force Firms to Pay Tax on Hybrid-Loan Payments Bloomberg

Taxing times for Singapore as corporate strategy faces scrutiny Reuters

Malaysia: Tax evasion is an act of treason New Straits Times

Tax base erosion major concern for India, China tax authorities The Economic Times
See more on the BEPS Mandate and the OECD Action Plan here.

U.S.: Senate Finance Committee Chairman Max Baucus' Proposal for International Tax Reform TJN-USA
A link to several resources on the International Tax Reform Proposal

Ireland should help tackle scourge of tax dodging The Irish Times
"The Coalition has no plans to introduce a public register of true owners of companies"

"According to figures from the Swiss National Bank, tax evasion is prospering" Le Temps (In French)
Hat tip: Bruno Gurtner. On a book published by Economist Gabriel Zucman. See also our recent blog Gabriel Zucman on tax havens: "It is as if Earth was partly owned by the planet Mars.".

Hedge Funds: Turning ‘Private’ The New Game In Town ValueWalk
"Are hedge funds dodging the Dodd-Frank?"

End the 1 percent’s free ride: Taxing land would solve America’s biggest problems Salon

Money laundering is the perfect crime. It is almost impossible to detect laSexta (In Spanish)

The UK’s tax havens are coming to London War on Want
Take action now and email the Foreign Office to demand they act to abolish the UK’s network of tax havens. See also Activists and MPs take on City’s influence on Parliament The Independent

MPs must ask stock exchange regulator why it failed to act on ENRC Global Witness
See also: Curious tale of the central Asian oligarchs and the City of London The Guardian, and Top UK estate agent: top end of housing market is in a slump Treasure Islands Blog

Here is our best approximation of where the world’s tax havens are Quartz

European apathy spells end for corporate social responsibility rules The Guardian

Representation Without Taxation - The Loopy Tax Strategies Of Google, Facebook, Apple, Amazon Silicon Valley Watcher

LinkedIn goes 'unlimited' to keep accounts private


Friday, November 22, 2013

Is the OECD's new tax haven report a whitewash? No, but . . .

The OECD's Global Forum, a multilateral framework designed to push for greater transparency in the global financial system, has published the results of its new compliance ratings for 50 countries.- and, in line with expectations published in our recent blog, both Switzerland and Luxembourg - respectively Numbers 1 and 2 in our Financial Secrecy Index - have been fingered as falling woefully short of even the OECD's rather low standards. (Note: This has nothing really to do with the OECD's - also flawed - project on international corporate tax, which we blogged yesterday.)

The four jurisdictions that have been subject to 'Phase 2 reviews' and have been judged non- compliant in the new report are Luxembourg, the British Virgin Islands, Cyprus and the Seychelles. It is important, and significant, that these rogue financial states are identified for what they are. Switzerland failed even to make it past the first stage of a two-stage assessment. FT journalist Vanessa Houlder, who tends to take a rather indulgent view of tax havens, commented:
"The ratings are an embarrassing setback for the financial centres and could expose them to a risk of blacklisting by tax authorities and development banks."
Quite so. And this would serve them right.

There is plenty that one could say about this Global Forum process, and about the latest ratings. We see it, overall, as a Curate's Egg: some good, and some less so. Above all, we think that the standards by which jurisdictions are being judged are too lenient: based for political reasons on lowish common denominators.

In today's blog we will not get bogged down in detail, but instead will present a visual comparison.

Here is one of the pages from the Global Forum's new assessment table:

And now, carved from our recent Financial Secrecy Index, a table looking at the British jurisdictions which are striving so hard now to be seen to be squeaky clean:

That is a pretty different colour scheme. Ours is full of angry red ink - "wholly uncompliant" with the standards that we have set, while the OECD's is full of friendly green ink: OECD standards are 'in place.' (OK, we are comparing different jurisdictions here, but if you look at the whole OECD table, it is perfectly fair to make this comparison.)

So is this a case of whitewash (or, in this case, perhaps greenwash,) by the OECD? We wouldn't go quite that far - the Global Forum certainly has its place, and it has undoubtedly helped propel some positive changes. But we would say, loudly and clearly, that our standards are a whole lot higher than theirs.

And we make no apology whatsoever for that. 

On a related matter, we've just been sent this article, from the Hindu Business line, an interview with Pascal Saint-Amans, tax boss at the OECD. Here is a key quote:
Pascal Saint Amans
Q: Does that means tax havens, as we have known them, are narrowing?

PSA: It’s more than narrowing. It’s over.
Which is, given what our Financial Secrecy Index shows, an outrageous thing to say. What would drive a senior official to say something like that, when he knows perfectly well that it isn't true?

Saint-Amans does, to be fair, qualify that 'over.' What he means to say, he continues, is that "they all committed to change."

So, to summarise crudely, tax havens are 'over' because they have promised to do better.


This is not just outrageous: it is dangerous, as illustrated by the headline of the very same article: "Tax havens are all but over." As a result of the mood music being stirred up by the OECD, the UK government, the IFC Forum, and many others, we get people regularly saying to us "well done - the problem has largely being solved."

No. It has not.

Or see this, just out from the International Consortium of Investigative Journalists (ICIJ.)
“Looks like the offshore party is over,” the Chicago Tribune said recently.

Will this time be different? Many financial crime fighters are skeptical.

"Rich nations’ latest promises to crack down on offshore centers are “a lot of bluster,” Donald Semesky, former financial crimes chief for the U.S. Drug Enforcement Administration, believes. “They all look good on paper, but they’re not real good in practice.”
Yes, we'd agree with that. And our index shows beyond doubt that this view is quite correct.

Update 2014: for background and information on secrecy see here