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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Want to send a positive Brexit message to Europe? Back Arsene Wenger for England manager

Boris Johnson could make a gesture of goodwill. 

It is hard not to feel some sympathy for Sam Allardyce, who coveted the England job for so many years, before losing it after playing just a single match. Yet Allardyce has only himself to blame and the Football Association were right to move quickly to end his tenure.

There are many candidates for the job. The experience of Alan Pardew and the potential of Eddie Howe make them strong contenders. The FA's reported interest in Ralf Rangner sent most of us scurrying to Google to find out who the little known Leipzig manager is. But the standout contender is Arsenal's French boss Arsene Wenger, 

Would England fans accept a foreign manager? The experience of Sven Goran-Eriksson suggests so, especially when the results are good. Nobody complained about having a Swede in charge the night that England won 5-1 in Munich, though Sven's sides never won the glittering prizes, the Swede proving perhaps too rigidly English in his commitment to the 4-4-2 formation.

Fabio Capello's brief stint was less successful. He never seemed happy in the English game, preferring to give interviews in Italian. That perhaps contributed to his abrupt departure, falling out with his FA bosses after he seemed unable to understand why allegations of racial abuse by the England captain had to be taken seriously by the governing body.

Arsene Wenger could not be more different. Almost unknown when he arrived to "Arsene Who?" headlines two decades ago, he became as much part of North London folklore as all-time great Arsenal and Spurs bosses, Herbert Chapman or Bill Nicholson, his own Invicibles once dominating the premier league without losing a game all season. There has been more frustration since the move from Highbury to the Emirates, but Wenger's track record means he ranks among the greatest managers of the last hundred years - and he could surely do a job for England.

Arsene is a European Anglophile. While the media debate whether or not the FA Cup has lost its place in our hearts, Wenger has no doubt that its magic still matters, which may be why his Arsenal sides have kept on winning it so often. Wenger manages a multinational team but England's football traditions have certainly got under his skin. The Arsenal boss has changed his mind about emulating the continental innovation of a winter break. "I would cry if you changed that", he has said, citing his love of Boxing Day football as part of the popular tradition of English football.

Obviously, the FA must make this decision on football grounds. It is an important one to get right. Fifty years of hurt still haven't stopped us dreaming, but losing to Iceland this summer while watching Wales march to the semi-finals certainly tested any lingering optimism. Wenger was as gutted as anybody. "This is my second country. I was absolutely on my knees when we lost to Iceland. I couldn't believe it" he said.

The man to turn things around must clearly be chosen on merit. But I wonder if our new Foreign Secretary Boris Johnson - albeit more of a rugger man himself - might be tempted to quietly  suggest in the corridors of footballing power that the appointment could play an unlikely role in helping to get the mood music in place which would help to secure the best Brexit deal for Britain, and for Europe too.

Johnson does have one serious bit of unfinished business from the referendum campaign: to persuade his new boss Theresa May that the commitments made to European nationals in Britain must be honoured in full.  The government should speed up its response and put that guarantee in place. 

Nor should that commitment to 3m of our neighbours and friends be made grudgingly.

So Boris should also come out and back Arsene for the England job, as a very good symbolic way to show that we will continue to celebrate the Europeans here who contribute so much to our society.

British negotiators will be watching the twists and turns of the battle for the Elysee Palace, to see whether Alain Juppe, Nicolas Sarkozy end up as President. It is a reminder that other countries face domestic pressures over the negotiations to come too. So the political negotiations will be tough - but we should make sure our social and cultural relations with Europe remain warm.

More than half of Britons voted to leave the political structures of the European Union in June. Most voters on both sides of the referendum had little love of the Brussels institutions, or indeed any understanding of what they do.

But how can we ensure that our European neighbours and friends understand and hear that this was no rejection of them - and that so many of the ways that we engage with our fellow Europeans rom family ties to foreign holidays, the European contributions to making our society that bit better - the baguettes and cappuccinos, cultural links and sporting heroes remain as much loved as ever.

We will see that this weekend when nobody in the golf clubs will be asking who voted Remain and who voted Leave as we cheer on our European team - seven Brits playing in the twelve-strong side, alongside their Spanish, Belgian, German, Irish and Swedish team-mates.

And now another important opportunity to get that message across suddenly presents itself.

Wenger for England. What better post-Brexit commitment to a new Entente Cordiale could we possibly make?

Sunder Katwala is director of British Future and former general secretary of the Fabian Society.