: Following my blog on the issue of Russian Money
Laundering in London and the new offshore paradigm, my friend, Timon Molloy,
Editor of Money Laundering Bulletin invites me to read the Prime Minister's latest
letter to the President of the European Council, (https://www.gov.uk/government/news/pm-letter-to-the-eu-on-tax-evasion
) especially paras 7 & 8, to see how the UK is positioned to give a lead in
tackling offshore secrecy and tax evasion.
Timon appears to believe that the Prime
Minister's letter contains optimistic positive hopes for a better regulated
offshore sector in the future.
Unhappily, I cannot share his view.
To quote Jeffrey Sachs in his seminal article
in the Financial Times "...Austerity exposes the global threat from tax
havens..;"
"...The curtain has been pulled aside on
the once secret world of tax havens, and the scale of abuse is nearly beyond
reckoning. Week after week, Americans and Europeans worn down by budget
austerity have learnt about the secret accounts of their politicians, tax
evasion by leading companies and hot money destabilising the world economy. The
darker truth is that these havens are not gaps in the world’s financial system;
they are the system..."
And this is the most important point of all, it
is now the offshore sector that is the real financial market place.
The rest of the onshore banking and financial
structures are terminally holed below the waterline, and without the constant
massaging of their balance sheets by accountants, coupled with the juggling of
interest rates to such an extent that no-one has any incentive to save money,
the above-the-line banking and financial sector is to all intents and purposes,
destroyed. Oh, it will limp along for the foreseeable future, but it is no
longer a viable and vibrant business sector, it is a dinosaur in terminal
decline.
Frankly, the retail bankers have no vested
interest in providing retail bank services any longer. They have not wanted to
engage with ordinary clients for many years because they cannot make money from
them. Charge-free banking was always a drain on the bottom line, and most
ordinary people only want the most ersatz banking services, so banks really
wanted to get rid of them a long time ago. Now having bankrupted the entire
system, they are on the way to succeeding. My own prediction is that before too
long we will see the break-up of vast swathes of the European banking system as
consolidation takes place, and a vast number of retail clients will be left effectively
unbanked!
The offshore tax secrecy jurisdictions have won
the argument because it is now a commercially acceptable, and regularly-stated
principle that a company's first financial duty is to its shareholders, and
that the directors have an overriding duty to maximise their returns on
investment. If that means engaging in 'aggressive' tax avoidance, and any other
form of curly-minded, constructive accounting mechanisms to achieve the
maximisation of protection of revenues from the grasping hands of tax
collectors, then so be it.
One of the biggest influences on my economic
development came from the writings of two social commentators, James Dale
Davidson and William Rees-Mogg, the former editor of ‘The Times’, in their
seminal work ‘The Sovereign Individual’, first published in 1997.
In this book, the authors identified the way we
would be living in 2010 and they identified how the offshore sector would come
into its own as a secure repository for the wealth created by entrepreneurs,
tax evaders and criminals.
The authors’ arguments predicated the emergence
of a new kind of citizen, who they call ‘the sovereign individual’, a new kind
of independent wealth-creator, whose access to technology and the power of
their own intellect, would mean that they no longer needed to consider
themselves as the property of an individual state or political collective, but
would be free to negotiate their own terms with which they proposed to deal
with governments in the future.
This new individual was placed by the authors
in the context of his relationship with the nation state thus;
“…The new megapolitical conditions of the
Information Age will make it increasingly obvious that the nation-state
inherited from the industrial era is a predatory institution, one from which
the individual will want to escape. It is an escape that desperate governments
will be loathe to allow. The stability and even the survival of Western welfare
states depends upon their ability to continue extracting a huge fraction of the
world’s total output for redistribution to a subset of voters in the OECD countries.
This requires that the taxes imposed upon the most productive citizens of the
currently rich countries be priced at supermonopoly rates, hundreds or even
thousands of times higher than the actual cost of the services that governments
provide in return…” The Sovereign Individual. p116.
Providing the services those individuals need
is no longer considered to be a morally-dubious activity, but a primary
requirement, and an entire service industry of lawyers, accountants, and
corporate formation companies has developed to service that function, (at a
cost naturally)!
Such a business sector
also facilitates the needs and requirements of dictators, corrupt politicians,
drug traffickers, (we even now have banks willing to openly engage in
laundering drug money into the offshore secrecy environment as HSBC have so
recently proved), as well as other criminal entities.
As I pointed out in my earlier blog, the UK and
the USA are two of the world's principal abusers of the facilities offered by
'peekaboo' secrecy jurisdictions around the world (the third is Switzerland).
These three countries probably account between them for the vast majority of
the world's most important banking facilities, to say nothing of the corporate
operating jurisdictions enjoyed by the World's leading companies!
There is no point in trying to hope that the
offshore sector is going to roll over and surrender its hegemony simply because
the world's politicians have discovered that they are no longer enjoying their
share of the tax take on which they have for so long depended to maintain their
welfare subsidies. The reality is that the those who pull the strings for the
offshore community have already quietly cemented their controls into place, and
as they are virtually invisible to all intents and purposes, the chances of
their being forced to make any changes to their systems is illusory.
Politicians the world over have a vested
interest in making common cause on the need for greater transparency in tax
affairs because they rely so heavily on their ability to maximise the tax take.
So, it becomes necessary for them to make public statements full of sounds and
fury, but as Shakespeare admonishes us, the question for us to assess is
whether their sentiments signify nothing!
In David Cameron's case, we are on notice that
his public statements about taxation and the offshore sector fall between two
stools. On the one hand, he will regret the loss of necessary tax revenue, but
at the same time, he is constrained by the vested interests of the City of London
and the British financial sector who benefit hugely from their access to the
facilities offered by the offshore sector, the biggest majority of which are
British protectorates or in some way associated with the UK. So, anything
Cameron may say about wanting to bring greater constraints to the offshore area
has got to be taken with a huge pinch of salt. He needs the support of the City
and they are not going to be predisposed to support a man who kills the goose
that lays such golden eggs!
So, in his letter to the President of the
European Council, it becomes necessary to deconstruct Cameron's claims and
protestations with care. He states;
"...Firstly, on tackling tax evasion, the
introduction of the Foreign Account Tax Compliance Act by the US could move us
rapidly to a new global system of multilateral automatic exchange of
information. This covers a wide variety of products and entities – and
critically, includes requirements, which the UK is implementing, to ensure that
we can collectively tackle tax evasion through the use of offshore trusts..."
Well, yes, this all sounds very grandiose, and
'multilateral automatic exchanges of information' has a resounding ring to it,
but it amounts to very little in reality. This is the sort of phrase inserted
by some Treasury draughtsman which gives the air of great effectiveness and official
agreement, but is really intended to be a piece of smoke and mirrors. No doubt
the British and the Americans have a great deal of interest in tackling tax
evasion through the use of offshore trusts, but the reality will be very
different from the expectation.
"...The UK has also taken other concrete
steps to clamp down on tax evasion. We recently concluded automatic information
exchange agreements, based on our agreement with the US, with our Crown
Dependencies – the Isle of Man, Guernsey and Jersey. We are also in advanced
discussions with our Overseas Territories to do the same, and continue to work
closely with them and the Crown Dependencies on further concrete steps they can
now take to demonstrate their steadfast political and practical commitment to
tackling tax evasion..."
Yes, whatever, yada, yada, yada! Politicians
deal in big sweeping statements, but the devil is always in the detail. On a
practical, investigator’s level, you can create all the information exchange
agreements you like, but what matters is not the fact that another tax area is
willing to share the information of the beneficial ownership of a particular
account with you, but where the ultimate beneficiary information eventually
lies, because the information you will be sent is certain to be of absolutely
no use to you whatsoever.
Why, because no tax structure architect is
going to make it easy for any investigator. The first offshore entity will
usually be a service company with a bank account facility, but behind that
entity will lie another and different jurisdictional entity. So the original
request which may be made about a company in the British Virgin Islands, will
be answered by details of another company owner, say in Montserrat. This will
in turn be owned by a holding company in Monaco, which in turn my be the entire
asset of a Trust registered in Jersey, which is owned in turn by a
Liechtenstein Anstalt, I could go on and on! This is just an illustration,
purists may say that certain links might not work, but the point is to
illustrate the problem.
As each article of information is acquired as a
result of official requests made through mutual information exchange
facilities, each one of which will take many months to achieve, so the trail
will lead on to yet another entity. It is like opening a Russian doll, inside
each one is another and another. By the
time the trail is finally chased down, any assets will have been dissipated and
moved on into another new and different structure, so the trail starts all over
again. This is why these information exchange agreements are frankly illusory! These agreements sound great, but in practice
they mean very little, if anything!
So what else does Mr Cameron want us to
believe? He states;
"...The recent announcement by the UK with
France, Germany, Italy and Spain to pilot multilateral automatic information
exchange based on our agreements with the US is a significant step. I am
delighted that other European countries, including Poland, have already
signalled their willingness to join this initiative. And to support the
development of a universal standard, the UK has also asked the OECD to report
ahead of the G8 Summit on how to deliver this effectively. I hope that at our
May Council we can give the strongest possible message of support from Europe
for the rapid adoption of multilateral automatic information exchange as a new
global standard, and encourage other jurisdictions to publicly commit to
joining a multilateral system at the earliest opportunity..."
When politicians start talking about sending
messages of support for global commitments and the creation of multi-lateral
initiatives and universal standards, you know full well that they are talking
about "...this year, next year,
sometime, never..." Asking the OECD to come up with reports on initiative
implementation will be like waiting for Godot! This is H.M.Treasury (who have
written this letter), making claims to a lot of high-sounding aims and ambitions,
for which they cannot be faulted, while at the same time knowing full well that
they will all be drawing their pensions before anything meaningful is achieved,
if ever.
However, what it does mean are lots of nice,
expenses-paid trips to Paris and other palm fringed jurisdictions for the
Treasury civil servants who sit on the UK delegation to the FATF (a subset of
the OECD), so that they can ‘liaise’ with their opposite numbers while drawing
up reports on ‘initiative implementation’. It is the delegates themselves who
decide where they are going to meet next and they have a world of opportunities
to choose from.
Oh God, this is such a cynical piece of opportunistic
drafting by the Treasury. These weasel words cover a multitude of opportunities
for more foreign travel, and they have been included deliberately by the
drafters, because they are designed specifically to allow Treasury civil
servants to gad about the globe at the public expense.
No politicians will complain because this
exercise is all designed to give David Cameron a chance to stake out the moral
high ground before the French and the Belgians and the Germans start giving him
a hard time about the City of London refusing to engage with the Financial
Transaction Tax, which the City wants like a third nostril!
"...Second, we must break through the
walls of corporate secrecy. A lack of knowledge about who ultimately controls,
owns and profits from companies leads to aggressive tax avoidance, tax evasion
and money laundering, undermining tax bases and fuelling corruption across the
world. Therefore, the G8 and EU must work together to ensure full transparency
in beneficial ownership..."
This benign statement of the glaringly obvious
is wholly redundant. It is a statement designed to claim the moral imperative,
but the machinations required to get the G8 and the EU to work together to
achieve these ends would exhaust the patience of Job! The author of the letter
appears to have conveniently forgotten that the original European Money
Laundering Directive 1991 had already called for full mutual assistance in
exchanging information to combat money laundering.
This letter is a cynical piece of
window-dressing, designed to give all the impressions of a desire to set out
the highest possible standards for tax compliance, while couched in terms and
language that both the authors and the Prime Minister know will never, ever be
capable of meaningful delivery.
It is a sad commentary on the standards of our
public administration that some civil servant is able to make Cameron feel that
he has to come out with this bullshit. It is meaningless and complete gibberish
and should have no place on the agenda of a politician who is committed to
truth.
I came across a frightening analysis of
taxation as a primary function of the Nation State, in my reading of the
‘Sovereign Individual’. Recall this book was written in 1997. It provided a
very clear explanation why the conditions of the ‘Information Age’ in which we
are now living, meant that governments would find it harder and harder to
collect the same level of taxation which they needed, simply to maintain the
status quo of society.
The changes being introduced by such facilities
as the world-wide-web, digital technology and information networks, meant that
tax-payers would find new and more efficient ways of hiding, disguising and
disseminating their wealth from governments, whose needs to acquire such money
were becoming more and more acute.
“…In the twentieth century, advanced industrial
nations have taken between 30 and 60 per cent of national income to finance the
welfare state. Between the disintermediation, jurisdictional and encryption
problems of global computer networks, this capacity is now vanishing. The
welfare state was already becoming burdensome in the early 1990s. By 2010 or
thereabouts it will simply become unfinanceable, as will all kinds of unfunded
state pension…” The Sovereign Individual. p7.
David Cameron must almost certainly be aware of
this bleak assessment. He cannot publicly admit that he and his Government are
in complete thrall to the City of London to the extent that they are, and that
the City Fathers control the purse strings, and that they call the tune the
Government dances to. UK plc will never relinquish their relationship with the
global offshore sector, it means too much money for the City, as that is now
where the real economy resides. So instead he trots out this kind of unworthy
weasel wording in the vain hope that he might just sound like a statesman.
He doesn't, he sounds like a charlatan!
No comments:
Post a Comment