It’s time for Europeans to call Britain to account for its tax haven empire

This is a modified, expanded version of a blog published by the Tax Justice Network, with permission. 

A massive data dump of tax haven information, published via the Washington-based International Consortium of Investigative Journalists in collaboration with 86 media organisations around the world, is the biggest of its kind in history. I believe we will see more of this kind of thing: in the past few years we’ve seen a real sea change in the world’s understanding of and tolerance for the offshore system of tax havens, and many offshore practitioners who previously wouldn’t have questioned what they were doing will now be realising that they may well have been doing the world a dis-service. I expect more whistleblower information to come forward. (I was contacted by a potential one not so long ago, though I decided not to engage.)

A headline in The Guardian newspaper tells us probably the most important thing we need to know about this explosion of new tax haven information.

“The nation at the heart of the offshore scandal: Britain.”

Quite so. And explains:

“It’s easy to imagine the villains of the piece to be irresponsible foreign nations – happy to shelter the mega-rich in offshore secrecy, unconcerned about the tax avoided in other, larger countries.If only the British government can prevail in these overseas battles, things will get better, it seems.But such a stance ignores that one nation in particular has ties to offshore havens everywhere. It’s a veritable nexus of offshore influence, related to havens in the Caribbean, and much closer to home. That nation is, of course, the United Kingdom.”

This is very much the subject matter of my book, Treasure Islands, which outlines how Britain in the past half century or so became the most important single player in the global system of offshore tax havens. It is fantastic to see this analysis emerging in the British newspapers now.

Another story from the Guardian, underscores what the Tax Justice Network has been urging for years:

The [British] prime minister has come under pressure to act against Britain’s secretive offshore industry at June’s G8 summit, as leaked evidence continued to mount that politicians and tycoons from all over the world have used the British Virgin Islands to hide funds.

The premier of Georgia, Bidzina Ivanishvili, was the latest to be named, along with prominent Pakistani, Indian, Thai and Indonesian figures – while there was fresh evidence of Britons acting as front directors for companies based in offshore havens such as the BVI.

A senior Liberal Democrat figure said the leaks showed the secret haven of the BVI “stains the face of Britain”, as anti-corruption campaigners called for action.

Lord Oakeshott, the Lib Dem peer and a former Treasury spokesman, said: “How can David Cameron keep a straight face calling for the G8 to make big business pay tax when we let the BVI use British law and British protection to suck in billions in dirty money?”

He asked: “How much British aid paid to corrupt countries like Pakistan ends up behind a BVI brass plate?”

Among many other things, the revelations confirm – as if any confirmation were needed — that these jurisdictions have not only been selling secrecy services – but they have been deliberately disgregarding their own laws. The very latest example comes from a story today about the famous Magnitsky case:

“authorities in the British Virgin Islands failed for years to take aggressive action against CTL, even after they concluded the firm was violating the islands’ anti-money-laundering laws.”

(Read the rest of the story to see the context. A similar story is evident in Cyprus.) More revelations continue to emerge, with more to come: keep up to date with the ICIJ’s feed here. BVI spokespeople have, as typically happens in scandals of this nature, taken the ‘a few rotten apples’ defence: most of them are clean, and we’ll root out the few bad apples.

This will get us nowhere. The BVI is far too ‘captured’ by offshore finance to have a hope of mustering any kind of serious response. This is one of the great global scandals of our age.

So what can be done? Well, Britain, which partly controls matters in the BVI, must now act. It certainly has the ability to do so. A former senior legal practitioner in the BVI, who wished to remain anonymous, told today’s TJN blogger recently, in a telephone interview:

“The governor has complete power of disallowance, he can disallow any legislation passed and he obviously takes his orders from Whitehall, but I think the UK government just keeps a benign eye on us, and makes sure we don’t do anything too outrageous. But on the whole the legislation is locally produced, although we would get advice from top people in the UK for the finer points: I think it is largely driven by the BVI and the UK only interferes if it thinks it’s entirely inappropriate for some reason.”

And who appoints the governor? A dear old 86-year old lady, who commands widespread respect around the world and is known by her title “The Queen”. Or, if you want a more formal position on this:

“The United Kingdom Government are responsible for defence and international relations of the Islands, and the Crown is ultimately responsible for their good government. It falls to the Home Secretary to advise the Crown on the exercise of those duties and responsibilities. The United Kingdom Parliament has the power to legislate for the Islands. . . “

If ever there were a call for intervention to ensure good government, this is it.

The latest revelations show beyond doubt – as if any further evidence were needed — that what is needed now is revolutionary change. Current international efforts to tackle this remain little more than fig leaves. Every tax haven in the world — except for the giant financial centres of Nauru and Niue — is on the OECD’s white list. Nearly every tax haven in the world is clean, apparently. The ICIJ and 86 media organisations around the world would beg to differ.

This is not good enough. We need major public mobilisation, and not just in Britain, to call the offshore establishment to account. Not just for the British Virgin Islands: for all its tax havens and semi-tax havens. Although the recent media revelations show abuses by many tax havens that are far outside Britain’s responsibility, Britain, by virtue of its partial control and influence over around half the world’s big tax havens, is the single biggest player in the offshore system. If Britain were to act, a big part of the problem could be seriously addressed. Global Witness said in a statement:

“This revelation of the extent of financial secrecy should act as a wake-up call to us all. Hidden company ownership enables corruption, state looting and dodgy deals that directly deplete state budgets and entrench poverty. Arms traffickers, drug dealers, and corrupt politicians all use shell companies to carry out their illicit activity.”

“By requiring the names of the ultimate beneficial owners of all companies to be made public, G8 leaders could provide a huge boost to efforts to reduce corruption and financial crime globally and to promote development worldwide. There is no excuse for them not to act.”

So what is the British government, for its part, planning to do about all this? The Guardian continues:

“Ministers insist they are not ready to act.”

To repeat: that isn’t good enough. It is ultimately the City of London, the greatest beneficiary of Britain’s offshore tax haven empire, which is lobbying against any serious change. The City is so strong that Britain can’t manage this, politically speaking, alone. Even though Europe is fighting its own internal struggles against its own tax havens such as Luxembourg and the Netherlands, that’s not to say it can’t help Britain tackle its offshore Empire. It is time for European governments – and their citizens – to start calling Britain to account.

  1. #1 by Victor on April 8, 2013 - 8:48 pm

    These jurisdictions didn´t become tax havens on their own and they will not stop being them on their own either.

    They are following the development model of the European microstates.

    Yet, while it may be true that tax havens need to be stamped out, most of these societies need true alternative development models.

    Their tourism dependent economies put them at high risk. The world needs a new global settlement.

    These countries launder away trillions, but their populations don´t enjoy but an infinitesimal part of this.

    These jurisdictions don´t have the resources to police tax evasion in the major economies and they shouldn´t have to either.

    Nowadays information technologies are used to monitor everyone´s behavior, but somehow the rich can move billions unsupervised. This is not negligence, but design.

    • #2 by Maggie G on April 18, 2013 - 8:01 pm

      The Propaganda System That Has Helped Create a Permanent Overclass Is Over a Century in the Making.

      Where there is the possibility of democracy,there is the inevitability of elite insecurity. All through its history, democracy has been under a
      sustained attack by elite interests, political, economic, and cultural. There is a simple reason for this: democracy – as in true democracy – places power with people. In such circumstances, the few who hold power become threatened. With technological changes in modern history, with literacy and education, mass communication, organization and activism, elites have had to react to the changing nature of society – locally and globally.

      From the late 19th century on, the “threats” to elite interests from the possibility of true democracy mobilized institutions, ideologies, and individuals in support of power. What began was a massive social engineering project with one objective: control. Through educational institutions, the social sciences, philanthropic foundations, public relations and advertising agencies, corporations, banks, and states, powerful interests sought to reform and protect their power from the potential of popular democracy.

      Capitalism contradicts democracy. A democracy is a system of government in which not only the voice of the people is heard but the interests and wellbeing of all citizens are paramount. The existence of classes poses a serious problem for democracy, since classes presuppose contradictory interests in different parts (the different classes) of
      the society. But capitalist society is premised on class-diametrically opposed interests for owners and workers, the exploitation of labor for investors’/employers’ profit. Hence, as a
      former student has said, “The agenda of capitalism is to downgrade skilled workers to create a willingness to work for lower wages…,” deny sustenance to single parents, and so forth. That is a remarkably anti-democratic agenda!

  2. #3 by jon livesey on April 8, 2013 - 9:36 pm

    An explicit call for the British not to be sovereign in their own nation. Interesting what europhiles let slip.

    • #4 by Victor on April 8, 2013 - 9:55 pm

      The UK could also be sovereign to introduce slavery.

      What does the sovereignty argument have anything to do with this? It seems like a catch all argument for the indefensible.

      Not even Cameron would defend overseas tax havens.

  3. #5 by karol on April 9, 2013 - 6:23 am

    I would dare defending them. The offshores’ success is a proof of how overtaxed and overreagulated most of the other economies are. offshores are just an alternative for people who see thevother governments have gone crazy.
    And since people are not slaves of their governments, I cannot see a reason why their wealth should. Why they should be obliged to wait and see what tax/tax rate/expropriation their masters come up with.
    And, obviously, these are not the only reasons why people are better of when offshores exist

    • #6 by Victor on April 9, 2013 - 11:34 pm

      The offshores aren´t actually developed economies. They produce basically nothing and the service economies vary widely.

      Africa is low taxes and deregulated. Tax rates and “regulation” are not correlated with economic development.

      Taxation is integral to citizenship. Taxation is not expropiation. How can we have states without citizens? Of course, its easy, Libertarians don´t believe in anything but individuals. They would abolish the state, just like Marxists.

      • #7 by karol on April 10, 2013 - 6:30 am

        funny. you are stating well crafted counterarguments to things I never said. sometimes they call it “Ignoratio elenchi”.
        well done.

      • #8 by Maggie G on April 18, 2013 - 8:04 pm

        Benoit Mandelbrot was poking enormous holes in the work of the leading economists long before Nassim Taleb made it more widely known. The ugly truth is that economics is a science in the way that medicine was a profession while it still used leeches to balance a person’s vapours. Yes, some are always better than others, and certainly more entertaining, but they all tended to kill their patients.

        The most intractable part of the current financial crisis, and the ongoing problem of the US economy is the huge tax which is levied on the American public by its corporations, primarily in the financial and health care sectors, and a political system based on lobbyists and their campaign contributions.

        There are hidden taxes and impediments to ‘free trade’ at every turn. The ugly truth is that capitalism-in-practice hates free markets, always seeking to overturn the rules and impose oligopoly if not outright monopoly through barriers to entry, manipulation of the political process, distortion of regulation, predatory pricing, brute force, and the usual slate of anti-trust practices.

        Some of these ‘hidden taxes’ are the bonuses on Wall Street which require an increasing percentage of the financial ‘action.’ The credit cards fees and penalties levied by banks to support profits in a contracting economy. The Sales General & Administrative portion of the Income Statements of the pharmaceutical industry which only American consumers seem willing to pay. A health care system which is a monument to overspending, outrageous pricing, and greed.

        The notion that ‘if only government would not regulate markets at all everything would be fine’ is a variation of Rousseau’s romantic notion of the noble savage which no one believes except those who wish to continue to act like savages, and those who get no closer to the real work of an economy than their textbooks. Economic Darwinism works primarily to the advantage of the sharks. Anyone who believes that ‘no regulations’ works well has never driven on a modern highway at peak periods.

    • #9 by Victor on April 10, 2013 - 10:06 am

      Really, what´s your argument then?

      • #10 by karol on April 12, 2013 - 6:49 am

        what was not clear?
        but the argument goes something like this:
        1. offshores give people, among other things, an alternative. without an alternative there is no freedom. and
        2. offshores are one of few tools that pressure governments into more efficiency in taxing and regulating through regulatory competition. without competition, what you end up is inefficient monopoly.

  4. #11 by truth be told on April 9, 2013 - 2:41 pm

    .What is interesting is that most persons on the lists are political figures or associates of political figures. These are the same hypocrite who are always at the podiums calling for tax transparency and attacking these smaller nations. Simply put, we need to stop fooling ourselves, as long as large countries continue to place an onerous tax burden on its citizens, persons will always try to find methods of reducing their tax liabilities. Why don’t we deal with the root issues and stop treating the symptoms. In the grand scheme of things, the British Virgin Islands is a small player in global finance. London and New York are 10 times more guilty of commiting financial crimes in a day than the british virgin islands will in a lifetime. Let’s start with logical and equitable tax reform then there would be a reduced need for the services that so-called tax havens are being villified for

    • #12 by Victor on April 9, 2013 - 11:30 pm

      Your nick is an ironic misnomer.

      The relationship between major centers like New York and London and the tax havens is integral to our current global financial system. The BVI and the others are not at all minor players.

      Tax rates on the rich have been slashed continously for the past decades and they still won´t be satisfied. The only appropiate word is greed.

  5. #13 by mustafa copur on April 10, 2013 - 1:54 pm

    its time to europa call to norwegian and swedish they change their (helvete) faith.
    helvete.this is in norwagian and swedish ten feca of bitch woman seler sexual sick anemy of sociailsm demokrasi and jesus our lord. is means person woman and man dicade to follow riligion bilief even under the every persecuting every thiscrimination.hell and heaven even will not ecpect those bitch mentality.besuca bible say no pleace to evil one this norway finland and swedish
    those 3 bitch rude they heta us but every years they go eat our food and drinks our one steta goverment control their mather father their sister their doughter in frantof and bihand following they dicade for their puplic which etnic their woman will go bed this is reality of their extremism by secret way.look oll bitch work they doing daily againsth me.following asylum center stuff of spy norwagian bitch they say good morning that why l dont tell them good morning.l told her l say good morning whos good human been not pimp woman seller bitch secret service.look brevik one of the norwagian secret service he go utaya he kill 80 human been .following bitch now in love with muslim.this oll fals cheathing.becusa l know how they order their woman they selling their body from secret service norwagian.human l like she dicade her self.olsa for extremist every things is promlem.
    1.heta they are.l dont like heta.
    2.bitch mentality.they they friends one they anemy.this is not my riligion olsa demokrasi and socialism faith.this mentality can not partner with me
    3.they are anti criest sexual sick poeople they until 30 years slaping 70 man in every country following charging me or they doing confuse job obouth my life.becuase of this l can not partner with bitch.
    4.asylum goverment one of unated steta of america british bitch contreling in norway.besauce of this their asylum procedur is fals and not safe
    5they are very compliketily bitch poeple.becusa their churh behavior simply swedish bitch. my informing europan oll dirty extremism caming sexual immorality sexual sicknes .heta from iscandinavian rasist.europa they will never ever can bring beck jesus criest if you follow this sick extremist ten feca norwagian and swedish finland.l will not give them my banana.
    my country kurdistan our culture jesus culture,our behavior moses behavior our father abraham our mather zohre.hatice sara.l call you today europa came beck your past why did you persecuted me in europa 17 years.following answer l will not even spit your iscandinavian feca.l will be steta less but l will never ever lost my jesus criest faith demokrasi and socialism
    mustafa copur
    riligion.jesus is my master forever
    land kurdistan
    born 20.06.1969

  6. #14 by Victor on April 10, 2013 - 10:44 pm

    And now not only Switzerland, but also Luxembourg will exchange more personal data on tax avoiders with the United States than with/in the European Union.

  7. #15 by wg on April 12, 2013 - 7:51 am

    What’s this citizen business and why do I have to pay into Mr Shaxson’s Orwellian big State world.

    I congratulate all who manage to deprive the state corporatist thugs of their ill-gotten gains.

    Mr Shaxson represents the statist political elites – this is nothing to do with “citizens” but buying more glass palaces and building more empire.

  8. #16 by Victor on April 13, 2013 - 4:02 am

    It used to be that the argument was “no taxation without representation”. Now the argument is just “no taxation”. Paying taxes used to be part of the civic duties, a virtue. Now it is oppresive and anti-”freedom”.

    Some people want the freedom to live in one country while making profits in another but paying taxes according to the laws of neither of the two.

    The wealthy became wealthy due to, not despite, our current “statist corporate” model. They want all the privileges and rights but none of the responsibilities and duties.

    The only thing some libertarians are right about is that it is the big financial centers in the “non-tax-havens” that make this possible. Laundered money shouldn´t be able to reenter the financial system. If billions are stashed in the Virgin Islands, they should stay there. This is paper wealth after all. In that as much they are right.

  9. #17 by Ken Westmoreland on April 17, 2013 - 5:48 pm

    Excellent. Let’s strip the Overseas Territories (and Crown Dependencies) of their fiscal autonomy – then what? They end up having to be subsidised by the UK taxpayer, just as the French Overseas Departments are subsidised by the French taxpayer.

    • #18 by Victor on April 17, 2013 - 9:21 pm

      This argument is only valid if the amount of the future subsidy would exceed the amount of revenue currently lost.

      Anyway theee jurisdictions could institute a small tax on repatriations and create a large enough trust fund to not depend on metropolitan subsidies.

  10. #19 by Sam Rolfe on April 22, 2013 - 10:39 pm

    Shaxson, like so many of his Europhile ilk is very quick to blame Britain for tax havens, so that we can all pay far too much tax to the EU coffers, However no mention is made of the deeply entrenched fraud that goes on day to day in the heart of the EU, where for some years now auditors refuse to sign off the accounts due to massive irregularities. So in essence Shaxson wants us all to pay more so his cronies can carry on defrauding us? I don’t think so.

  11. #20 by David C on April 24, 2013 - 2:39 pm

    As far as I am aware, US income tax is used solely to pay off interest to the Federal Reserve Bank(a private company).Feel free to check this out. The EU is totally riddled with fraud(No accounts signed off, as pointed out by Sam Rolfe)