Why Britain is a world leader in financial secrecy

Between $21-32trn of private wealth is kept in tax havens, and Britain is at the very centre of a global financial system that allows the wealthy to avoid tax.

According to the Tax Justice Network, around $21-32 trn of private financial wealth is located in secret tax jurisdictions around the world, where it is either untaxed or lightly taxed. It’s estimated that since the 1970s, this has cost African countries over $1trn, dwarfing the continent’s external debts of $190bn.

Today the Tax Justice Network has published its biannual secrecy index, which ranks countries on indicators like banking secrecy, anti-money laundering regulation, the kinds of company and trust structures permitted and whether their beneficial owners are made public. The three highest ranking countries in terms of financial secrecy are Switzerland, Luxembourg and Hong Kong.

What is noteworthy is how many British island dependencies and overseas territories – where laws must be approved in London and the Queen is the head of state – rank in the top 50 most secret tax jurisdictions. The UK itself comes in as number 21, while the Cayman Islands is in at number 4, Jersey at number 9, Bermuda (14), Guernsey (15), British Virgin Islands (20), Isle of Man (34), Gibraltar (49).

This is all the more interesting when you consider that David Cameron decided to make cracking down on tax avoidance and promoting tax transparency a key issue at G20 this year. In 2011 Nicholas Shaxson, who is a consultant for the Tax Justice Network, wrote the influential book, Treasure Islands, which argued that London is not only the creator of the modern offshore banking system, but is also one of the worst offenders. Lawyers and tax advisers based in the City manage money coming in from the world’s richest and then redirect it to low-cost satellites, from Jersey to Gibraltar.

John Christensen, the director of the Tax Justice Network has written to the Queen, drawing her attention to these findings and arguing that, “the secrecy facilities provided by these jurisdictions stains the good name of Britain in the international arena.”

Clamping down on banking secrecy will make it harder for corrupt world leaders to embezzle public funds, for criminals to launder money and for the world’s wealthiest to avoid taxes – it would however leave a lot of the smart lawyers and tax advisers in the City short of work. Most lawyers would strongly disagree with my conclusion – they are not allowed to help people break the law, and have to carry out special checks on those who are euphemistically referred to as “politically exposed persons”.

But I remember one City lawyer telling me that every year she was flown out to Switzerland by a mystery client, whose identity they didn’t know, to check over her client’s tax affairs. When they arrived in Switzerland, they’d be left in a room with their client’s financial documents. They weren’t allowed to take notes, photocopy documents or remove anything from the room. Operating in these conditions, how can a lawyer possibly be certain that they are not ironing out tax efficiencies for a Middle Eastern despot or a mafia don?

There have been tentative moves towards greater tax transparency – the Liechtenstein Disclosure Facility offers an amnesty of sorts for those who want to come clean on their tax liabilities on their money kept in Liechtenstein, for instance, and Switzerland has made a few concessions on banking secrecy. But these are only tentative moves. As one of the world’s leading financial centres, Britain does have the power to push forward moves towards greater transparency. But this requires real political commitment, and that's still lacking.

Protestors dressed as a businessman do a 'high five' on a protest site named by participants as the 'Isle of Shady Tax Haven' in London on June 14, 2013. Photo:Getty.

Sophie McBain is a freelance writer based in Cairo. She was previously an assistant editor at the New Statesman.

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Who "speaks for England" - and for that matter, what is "England"?

The Hollywood producer Sam Gold­wyn once demanded, “Let’s have some new clichés.” The Daily Mail, however, is always happiest with the old ones.

The Hollywood producer Sam Gold­wyn once demanded, “Let’s have some new clichés.” The Daily Mail, however, is always happiest with the old ones. It trotted out Leo Amery’s House of Commons call from September 1939, “Speak for England”, for the headline on a deranged leader that filled a picture-free front page on David Cameron’s “deal” to keep Britain in the EU.

Demands that somebody or other speak for England have followed thick and fast ever since Amery addressed his call to Labour’s Arthur Greenwood when Neville Chamberlain was still dithering over war with Hitler. Tory MPs shouted, “Speak for England!” when Michael Foot, the then Labour leader, rose in the Commons in 1982 after Argentina’s invasion of the Falklands. The Mail columnist Andrew Alexander called on Clare Short to “speak for England” over the Iraq War in 2003. “Can [Ed] Miliband speak for England?” Anthony Barnett asked in this very magazine in 2013. (Judging by the 2015 election result, one would say not.) “I speak for England,” claimed John Redwood last year. “Labour must speak for England,” countered Frank Field soon afterwards.

The Mail’s invocation of Amery was misconceived for two reasons. First, Amery wanted us to wage war in Europe in support of Hitler’s victims in Poland and elsewhere and in alliance with France, not to isolate ourselves from the continent. Second, “speak for England” in recent years has been used in support of “English votes for English laws”, following proposals for further devolution to Scotland. As the Mail was among the most adamant in demanding that Scots keep their noses out of English affairs, it’s a bit rich of it now to state “of course, by ‘England’. . . we mean the whole of the United Kingdom”.

 

EU immemorial

The Mail is also wrong in arguing that “we are at a crossroads in our island history”. The suggestion that the choice is between “submitting to a statist, unelected bureaucracy in Brussels” and reclaiming our ancient island liberties is pure nonsense. In the long run, withdrawing from the EU will make little difference. Levels of immigration will be determined, as they always have been, mainly by employers’ demands for labour and the difficulties of policing the borders of a country that has become a leading international transport hub. The terms on which we continue to trade with EU members will be determined largely by unelected bureaucrats in Brussels after discussions with unelected bureaucrats in London.

The British are bored by the EU and the interminable Westminster arguments. If voters support Brexit, it will probably be because they then expect to hear no more on the subject. They will be sadly mistaken. The withdrawal negotiations will take years, with the Farages and Duncan Smiths still foaming at the mouth, Cameron still claiming phoney victories and Angela Merkel, François Hollande and the dreaded Jean-Claude Juncker playing a bigger part in our lives than ever.

 

An empty cabinet

Meanwhile, one wonders what has become of Jeremy Corbyn or, indeed, the rest of the shadow cabinet. The Mail’s “speak for England” leader excoriated him for not mentioning “the Number One subject of the hour” at PM’s Questions but instead asking about a shortage of therapeutic radiographers in the NHS. In fact, the NHS’s problems – almost wholly caused by Tory “reforms” and spending cuts – would concern more people than does our future in the EU. But radiographers are hardly headline news, and Corbyn and his team seem unable to get anything into the nation’s “any other business”, never mind to the top of its agenda.

Public services deteriorate by the day, George Osborne’s fiscal plans look increasingly awry, and attempts to wring tax receipts out of big corporations appear hopelessly inadequate. Yet since Christmas I have hardly seen a shadow minister featured in the papers or spotted one on TV, except to say something about Trident, another subject that most voters don’t care about.

 

Incurable prose

According to the Guardian’s admirable but (let’s be honest) rather tedious series celeb­rating the NHS, a US health-care firm has advised investors that “privatisation of the UK marketplace . . . should create organic and de novo opportunities”. I have no idea what this means, though it sounds ominous. But I am quite certain I don’t want my local hospital or GP practice run by people who write prose like that.

 

Fashionable Foxes

My home-town football team, Leicester City, are normally so unfashionable that they’re not even fashionable in Leicester, where the smart set mostly watch the rugby union team Leicester Tigers. Even when they installed themselves near the top of the Premier League before Christmas, newspapers scarcely noticed them.

Now, with the Foxes five points clear at the top and 7-4 favourites for their first title, that mistake is corrected and the sports pages are running out of superlatives, a comparison with Barcelona being the most improbable. Even I, not a football enthusiast, have watched a few matches. If more football were played as Leicester play it – moving at speed towards their opponents’ goal rather than aimlessly weaving pretty patterns in midfield – I would watch the game more.

Nevertheless, I recall 1963, when Leicester headed the old First Division with five games to play. They picked up only one more point and finished fourth, nine points adrift of the league winners, Everton.

 

Gum unstuck

No, I don’t chew toothpaste to stop me smoking, as the last week’s column strangely suggested. I chew Nicorette gum, a reference written at some stage but somehow lost (probably by me) before it reached print.

Editor: The chief sub apologises for this mistake, which was hers

Peter Wilby was editor of the Independent on Sunday from 1995 to 1996 and of the New Statesman from 1998 to 2005. He writes the weekly First Thoughts column for the NS.

This article first appeared in the 11 February 2016 issue of the New Statesman, The legacy of Europe's worst battle