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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Most Leave voters back free movement – you just have to explain it

The argument during the referendum was never about free movement, but about immigration in general. 

This week, a piece of YouGov polling flipped on its head a widely held belief about the public’s attitude to immigration in the context of Brexit. The headline question was:

“In negotiating Britain’s departure from the European Union, do you think our government should offer EU citizens the right to travel, work, study or retire in Britain, in exchange for EU countries giving British citizens the same rights?”

Of the respondents, 69 per cent, including 60 per cent of Leave voters, responded that they should.

The poll has been overlooked by the bulk of the press, for whom it contradicts a very basic assumption – that the end of free movement, and the implicit acceptance of the narrative that high net migration had strained services and wages, was an electoral necessity for any party wanting to enter government. In fact, the apparent consensus against free movement after Brexit owes much less to deeply-rooted public opinion, and much more to the abject failure of progressives and mainstream Remain campaigners to make the case for it.

“If you’re explaining, you’re losing,” goes the old maxim of political communications. And this is accurate if you inhabit a world of tight, professional politics and your job is to capture votes using already widely understood concepts and a set of soundbites. So much of conventional political strategy consists of avoiding difficult or complex subjects, like free movement. This is especially the case if the exact meaning of the words requires defining. The job of radical politics is to change the terms of the debate entirely. That almost always means explaining things.

The strategy of Britain Stronger in Europe during the EU referendum campaign was a case in point. It honed down on its key message on economic stability, and refused to engage with the migration debate. As a result, the terms of the debate were set by the right. The argument during the referendum was never about free movement, but about immigration in general. If YouGov’s polling this week is correct, a majority of the British public support free movement – you just have to explain to them what it means.

That distinction between immigration and free movement was pivotal in the referendum. Immigration is a big, amorphous concept, and an influx of people, covering far more than Britain’s relationship with Europe. It makes an excellent scapegoat for the government’s failure to provide housing and public services. It has been so expertly blamed for bringing down wages that this has become received wisdom, despite almost nowhere being true. Free movement, on the other hand, can be understood more easily in terms of rights and security – not just for migrants in the UK, but for British citizens and workers.

As YouGov’s poll question explains, free movement would be a reciprocal agreement between post-Brexit Britain and the EU, enhancing UK citizens’ rights. We would get the right to live and work freely over an entire continent. Even if you might not want to exercise the right yourself, studying abroad might be something you want to preserve for your children. Even if you might not retire to France or Spain, you might well know someone who has, or wants to.

Perhaps most importantly, free movement makes British workers more secure. Migrants will come to the UK regardless of whether or not free movement agreements are in place; without the automatic right to work, many will be forced to work illegally and will become hyper-exploited. Removing migrants’ access to public funds and benefits – a policy which was in the Labour manifesto – would have a similar effect, forcing migrants to take any work they could find.

At present, Labour is in danger of falling into a similar trap to that of the main Remain campaigns in the EU referendum. Its manifesto policy was for an “economy first Brexit”, in other words, compromising on free movement but implying that it might be retained in order to get access to the single market. This fudge undeniably worked. In the longer term, though, basing your case for free movement entirely on what is good for the economy is exactly the mistake made by previous governments. Labour could grasp the nettle: argue from the left for free movement and for a raft of reforms that raise wages, build homes and make collective bargaining and trade unions stronger.

Making the case for free movement sounds like a more radical task than making the case for immigration more generally – and it is. But it is also more achievable, because continued free movement is a clear, viable policy that draws the debate away from controlling net migration and towards transforming the economy so that everyone prospers. Just as with the left’s prospects of electoral success in general, bold ideas will fare better than centrist fudges that give succour to the right’s narratives.