Pin-Striped Pirates

If you want to know why Britain has never completed the process ofdecolonisation, look at two lists side by side. One is the official register oftax havens, compiled by the OECD (1). The other is the list of British overseasterritories and crown dependencies (2). Over a quarter of the world’s taxhavens are British property. More than half of Britain’s colonial territoriesand dependencies are tax havens. Strip out Antarctica, the military bases andthe scarcely-habited rocks and atolls, and of the 11 remaining properties, onlythe Falkland Islands is not a recognised haven. The obvious conclusion is thatBritain retains these colonies for one purpose: to help banks, corporations andthe ultra-rich to avoid tax.

These figures scarcely do justice to the UK’s responsibility for this menace.The website Shelter Offshore, which helps people to avoid their obligations tosociety, has just published its list of the world’s "top 5 tax havens"(3).Jersey, Guernsey and the Isle of Man come first. "These highly respectableBritish offshore tax havens," the site tells us, "can be very attractiveindeed", offering "superior levels of investor privacy". Privacy is thepolite word for the secrecy and obstruction that helped to bring down theworld’s financial systems.

Last month the British government announced that it will introduce new laws toprevent piracy: the armed forces will be allowed to detain ships and arrestsuspected robbers on the high seas(4). Yet the same government offers anattractive portfolio of tropical and temperate islands in which pinstripedpirates can bury their treasure.

That comparison is unfair – to pirates. The freebooters who use these havensare responsible for thousands of times more deaths even than the notorious AbdulHassan, known on the Somali coast as "the one who never sleeps"(5). Becauseof the secrecy surrounding the treasure islands, no one knows how much moneythey divert from developing countries. Christian Aid’s estimate – of $160billion a year – is the lowest figure(6), though 60% greater than theinternational aid the poor world receives(7). The Pope suggests $255bn(8); theUS research group Global Financial Integrity proposes $900bn(9). In all caseswe’re talking about the means by which hundreds of thousands of lives couldhave been preserved in the world’s poorest countries. But Britain’s networkof tax havens permits multinational companies, dodgy businessmen and corruptleaders to snatch money from the poor.

Gordon Brown wrings his hands over the plight of the poor, and urgesimpoverished countries to earn more money through trade. But by keeping our taxhavens open for business, this mumbling Christian hypocrite ensures that evenwhen the poor nations do trade successfully, they are unable to keep hold of theincome.

This authorised theft, of course, affects us too. We are robbed twice by thesegangsters: once when they avoid the taxes the rest of us have to pay, again whenthe tax havens’ secret banking arrangements cause the crises which oblige usto rescue the banks. As the Tax Justice Network points out, the banking systemcollapsed because it became indecipherable. The banks lost confidence in eachother when they could no longer tell who owns what or who owes whom, and couldno longer trust each other’s financial statements(10). Nothing has done moreto promote this distrust than the lucrative secrecy the tax havens offer totheir clients.

Organised crime also depends on tax havens. The OECD uses four criteria todetermine whether a place is a haven: it imposes no tax, there’s a lack oftransparency, it has laws preventing the effective exchange of information withother governments, and the money which changes hands bears no relation to thebusiness done there(11). The last three criteria are all essential prerequisitesfor large-scale crime. In fact it’s doubtful whether the traditional piracynow flourishing off the Horn of Africa would be possible without the morerespectable piracy taking place in the English Channel, the Irish Sea and offthe Spanish Main. Anyone who wanted to stamp out drug smuggling, kidnapping,gun-running and fraud would start by shutting down tax havens.

But the crime havens have become so respectable that even the British governmentis now depriving itself of revenue. It has become the major shareholder in theRoyal Bank of Scotland, which has offshore subsidiaries in Jersey, Guernsey, theIsle of Man and Gibralter(12). Have the bank’s new owners, in return for ourgenerosity in bailing it out, demanded that it shuts these operations? No. Andthat’s not the worst of it. The Inland Revenue, responsible for collecting taxin this country, signed a private finance initiative deal transferring itsbuildings to a company called Mapeley Steps(13). Mapeley Steps, which isregistered in one tax haven (Bermuda) is owned by Mapeley, registered in another(Guernsey). Mapeley has boasted of paying no income or corporation tax in anyjurisdiction(14).

Why does the government keep these havens open? There’s an answer in GeraintAnderson’s book Cityboy – a crude but gripping exposure by a former researchanalyst at a City bank. "Eighteen years out of power has made these jokers soparanoid about being viewed as old Labour that every time Cityboys andentrepreneurs asked for business-friendly reforms they rolled over and allowedtax and regulatory changes"(15).

There is a standard British procedure for dealing with problems like this: bywhich I mean problems that generate bad publicity but which you don’t want toaddress. You commission a review and you choose the right man to conduct it.Confronted with a vocal international campaign and a new US president determinedto tackle this issue(16), the government has selected a man called Michael Foot(not the former Labour leader).

Until last year, Foot was the inspector of banks and trust companies for theCentral Bank of the Bahamas in Bermuda, a British tax haven(17). Though thereview was launched only a fortnight ago, he already seems to have decided whatit will say. Speaking about tax havens to the magazine Accountancy Age, heclaimed that they had been given a clean bill of health by the IMF, andobserved, "I can’t see where the regulation failure is supposed tobe."(18) The Tax Justice Network maintains that throughout his long career inBermuda, at the Financial Services Authority and elsewhere, he has never raisedany public concerns about systemic problems in the financial sector(19). Theidentity of the person the government appoints is an index to the outcome itdesires. Foot sounds like just the man for the job.

Even as it was commissioning this review, Brown’s government tried toundermine international efforts to address the problem. Teaming up with thatrevolting little monarchy Liechtenstein, the UK sought to strike out a paragraphfrom the Doha trade agreement which aimed to eradicate tax evasion(20). Thanksin part to British lobbying, the draft commitment was substantiallyweakened(21).

Were Britain to release its remaining colonies, they would quickly succumb topressure from the Obama government and the European countries trying to stampout international evasion and organised crime. We hold onto the Falkland Islandsfor their oil and fish. We hold onto the other territories for something farmore valuable: secrecy.

www.monbiot.com

References:

1. OECD, viewed 15th December 2008. Jurisdictions committed to transparency andeffective exchange of information. oecd.org

2. Foreign and Commonwealth Office, viewed 15th December 2008. List of CrownDependencies & Overseas Territories. fco.gov.uk

3. Shelter Offshore, 12th December 2008. Top 5 Tax Havens. shelteroffshore.com

4. The Prime Minister’s spokesman, 19th November 2008. Morningpress briefing.

5. guardian.co.uk

6. Olivia McDonald, 9th December 2008. Castingthe first stone.

7. uk.reuters.com

8. Nick Mathiason, 7th December 2008. Pope attacks tax havens for robbing poor. TheObserver.


9. Nick Mathiason, 30th November 2008. Tax evasion robs developing countries of$900bn a year. TheObserver.

10. Richard Murphy and John Christensen, 10th October 2008. The threat lyingoffshore. TheGuardian.

11. OECD, viewed 15th December 2008. TaxHaven Criteria.

12. Private Eye, 5th December 2008. Offshore Alistair. In The Back, page 26.

13. Stefan Armbruster, 23rd September 2002. Revenue sell-off to tax haven firm. BBCNews Online.

14. Jim Pickard, 10th May 2006. Tax-free Mapeley to reject Reit status. FinancialTimes.

15. Geraint Anderson, 2008. Cityboy: Beer and Loathing in the Square Mile, page.Headline, London.

16. Nick Mathiason and Heather Stewart, 9th November 2008. Obama backs crackdownon tax havens. TheObserver.

17. HM Treasury, 2nd December 2008. Independent Review into British OffshoreFinancial Centres. Pressrelease.

18. Michael Foot, quoted by Judith Tydd, 11th December 2008. Regulation cantackle havens, says review chief. AccountancyAge.

19. John Christensen, Tax Justice Network, pers comm.

20. Tax Justice Network, 30th October 2008. UN Tax Committee - why it matters;UK backs Liechtenstein. taxjustice.blogspot.com 

21. Tax Justice Network, 11th December 2008. Doha: a cup half full.
taxjustice.blogspot.com