The Mossack Fonseca leak may not tell us much we didn’t already know about how the rich use tax havens to hide their wealth. But the sheer scale of the leaks, weeks before the anti-corruption summit in London, has turned tax havens into a global issue.
Her Majesty’s Revenue and Customs has responded by boiler plate assurances of resolute action. But the truth is that the UK is up to its oxters in this scandal. So long as Britain governs tax havens such as the Cayman Islands, British Virgin Islands and Jersey, how can we avoid responsibility for the money launderers, drug dealers and corrupt dictators who use them?
Indeed, such is the reputational damage to Britain, you wonder why we collude with these “treasure islands” as the writer Nicholas Shaxson calls them. Russia doesn’t have any. It’s like being in charge of a brothel and saying that what goes on there has nothing to do with you; which of course is exactly how the law firm Mossack Fonseca justifies its dubious activities.
The British banks, RBS included, used tax havens to create the shadow banking system in the pre-crash years. These are no-rules, off-shore casinos where banks could circumvent financial regulation and avoid national taxation. It didn’t end well. But even following the financial crash, the shadow banking system still dwarfs the legitimate, regulated one. According to City University’s Economy Research Centre, half the global stock of money passes through offshore jurisdictions.
Another benefit to Britain was selling arms. We’re one of the world’s great weapons manufacturers and much of the arms trade is conducted via offshore accounts. This is sometimes for legitimate reasons. The destination of arms is obviously highly sensitive. As the Night Manager depicted, secrecy can breed corruption.
It will be for organisations such as the Serious Fraud Office and the FBI to pursue the Mossack “names” for actual law-breaking; good luck with that, as most of the big guns are in foreign jurisdictions.
The list of 72 present and former heads of state reads like a roll call of every dictator, African potentate and dodgy elected politician you can think of, from Russian president Vladimir Putin’s associates through the late Libyan dictator, Muammar Gaddafi, to the Prime Minister of Iceland, Sigmundur Gunnlaugsson.
There is an amusing TV interview with the Icelandic PM in which he’s chased around the room by interrogators determined to have an answer. Iceland does things like that. It remains the only country in the world to have prosecuted bankers for causing the 2008 crash. Yet the banksters are still at it.
In countries such as Mexico, wealthy people often claim they need shell accounts and phoney companies to avoid becoming targets of criminal extortion. Russian oligarchs say they started using tax havens in the 1990s because money wasn’t safe anywhere in the former Soviet Union.
Well, tough. It’s actually not that hard to keep wealth discreet in most countries. And, I’m afraid, one of the inevitable consequences of being wealthy is that you do attract unwanted attention. It was ever thus. It is no reason to justify practices that are clearly devised to avoid tax.
In fact, you’d think that every individual or company that sets up an account in Cayman would automatically be under investigation. It’s like putting “tax avoider” after your name. But that’s not how HMRC plays it. Look how Google, Apple and Amazon have been permitted to set up industrial-scale tax avoidance schemes using tax havens – or “fiscal paradises” as they’re called in French. Only now and again do they get their knuckles rapped – usually after a good lunch.
Some say that the tax havens such as Panama are old hat, and that countries like America are setting up their own internal “havens”. Many have noticed the absence of big American names from the Mossack Fonseca leak. Some conspiracy theorists on the internet believe that the United States government has somehow redacted the leaks and even used them to attack the Russians, as if this were some cold-war financial black op.
The more prosaic reason is that, after America invaded Panama in 1989, it ensured that laws were passed preventing the Latin American country from concealing the identities of US investors. This goes to show that it can be done. Firms such as Mossack can only conduct their dirty deals because of tacit government support. But Britain doesn’t need to invade the Caymans. It just needs to get the Queen to appoint a governor who doesn’t turn a blind eye.
From Herald 4/4/16