Wednesday, 11 May 2016

Today's UK conference on corruption is a step in the right direction, if a small one.

Paul Sweeney:   Mr David Cameron, the British Prime Minister, calling Afghanistan and Nigeria corrupt, as he hosts an anti-corruption conference, today Thursday 12th May 2016, is a good case of “the pot calling the kettle black.” 

Yet that Britain is holding the conference is welcome.

However, it is worth focusing on some of the big powers and how they are a key part of the system which facilitates corrupt leaders in developing countries who steal billions of their citizens' taxes; major criminals; tax evaders and multinationals tax avoiders in hiding vast sums of cash. 

The extent of the corruption was highlighted by the Panama papers recently. And that was the papers of only one company, although it is a very important tax cheaters’ company.

Britain is, according to Tax Justice Network, the 15th of most secretive tax jurisdiction in the world. And when the British Overseas Territories are added it’s up near the top. 

Britain has total legislative control over the British Virgin Islands. In this tax haven with only 28,000 citizens, there are 450,000 companies. It has a zero rate of corporation tax. Its national anthem is “God Save the Queen”.

The BVI government normally has no idea who owns its tax-free companies. The only significant information supplied to the official registry is the name of the company's agent. He will not tell anyone anything.

Michael Foot, the UK Financial Services Authority managing director reported to the then Labour chancellor, Alistair Darling, in a Treasury paper published in 2009, saying that to abolish the BVI's secrecy regime "would be likely to result in a loss of business" according to the Guardian. He was against transparency, although he conceded it was "attractive in principle". He said the UK should "press for improvements" in disclosure by all overseas tax havens simultaneously!  

If Britain was serious about corruption, the drugs epidemic, tax evasion and tax avoidance and growing inequality, which feeds on these, it could simply close down these tax-cheating facilitating territories. 

Mr Cameron did announce recently that the overseas territories and crown dependencies – such as the British Virgin Islands and Jersey – had agreed to provide UK tax and law enforcement agencies with full access to company ownership details. 

However, they must allow public access to registers especially on beneficial ownership.

But the US is not much better. It has a nominal tax rate of 35% which today is one of the highest in the developed world. This is because the average nominal rate in the EU has fallen from 35% just over a decade ago to just 24% in 2012 and is still being cut by governments, in their futile “tax wars” with each other. 

The US attracts vast offshore wealth with its low tax regimes within different states like South Dakota. The FT quoted a Swiss lawyer who said “America is the new Switzerland”!  The wealthy stash vast wealth in secretive trusts in South Dakota and other states. It is the magnet for corrupt South American politicians and drug barons who put their money there. Half of its offshore funds come from there.

Boston Consulting rates the US as the biggest financial centre for wealth with the UK, and then Switzerland following. Then is Hong Kong and then next is Dublin lumped with the Channel Islands, per the Financial Times (7th May 2016). 

The FT points out that France and other countries have imposed tough rules on trusts. This needs to be done internationally to at least inform who are their beneficial owners.

Mr Sapin, French Minister for Finance called on Britain to go to the end in stamping out secrecy in its overseas territories. He said “there was a new international drive to clamp down on tax secrecy and corruption because it was clear that there was massive global loss from tax evasion – “for developing countries, but also clearly for countries that are very, very developed” (Guardian 11th May 2016).

The news that Deutsche Bank, UBS and Barclays are closing up to 35,000 client accounts because they are too risky under money laundering rules is welcome. Maybe progress can be made.

In conclusion, the level of tax evasion and tax avoidance, the vast hidden wealth idling in offshore tax havens, not being productively invested and shared through taxation, is too great a scandal to be tolerated any longer. 

The UK conference is a step in the right direction, if a small one.

Paul chairs TASC Economists Network

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