Last week's US Senate report into industrial-scale money laundering at banking giant HSBC reads like a John Grisham novel. Terrorists vie with Mexican drug lords for a place in the report's often breathless narrative that is as absorbing as it is alarming.

But while the headlines have been about cocaine cartels, the most troubling aspect of the Senate's investigation is that the criminal, often violent, activities of the drug lords were facilitated by a byzantine, albeit legal, infrastructure that made tracking their activities near impossible.

This is particularly true of the subsidiary set up in the Cayman Islands by HSBC's Mexico division that handled some 60,000 accounts. According to the report, the drug lords used these accounts to fuel their jet-set lives. But, staggeringly, HSBC's oversight was so lax it knew nothing about who was behind 41% of the accounts.

This lack of transparency is troubling. Tax avoidance is big business. A report by the TUC found that the UK's four largest banks – HSBC, Barclays, Lloyds and RBS – have some 1,200 subsidiaries in tax havens. At a time when the banks are in the dock following a spate of scandals that have exploded the arguments for "light-touch regulation", the lack of oversight afforded by structuring transactions through tax havens threatens further scandals.

As we report today, new research by the campaign group Tax Justice Network suggests a global plutocracy has exploited gaps in cross-border tax rules to hide an extraordinary $21tn of wealth offshore in tax havens.

This gargantuan sum is difficult to comprehend, but it becomes more understandable at a parochial level. According to an earlier report by the PCS union, the Tax Justice Network and War on Want, the use of tax havens costs the UK taxpayer at least £16bn a year, double the annual budget of the Department for International Development.

That many of the tax havens depriving UK taxpayers of billions of pounds are crown dependencies and British overseas territories should be a subject of acute national embarrassment. It should also be a source of profound concern. Tax havens perpetuate wealth inequalities by depriving governments of legitimate revenues that should be used to address social problems. As Carl Levin, who chaired the Senate committee into the HSBC scandal, said: "Ultimately, the rest of us are forced to pay more on our tax bills to make up for those who shirk their taxpaying responsibilities."

Tax havens also allow companies to avoid accountability through their opaque structures. And, as the Senate report highlights, by facilitating money laundering, they perpetuate criminal behaviour including corruption, piracy, terrorism, drug trafficking, human trafficking, counterfeiting, bribery and extortion.

What is to be done? Experts suggest the UK should embrace a range of remedies, from pressing for automatic information-sharing agreements with other countries to increasing the level of corporate transparency in its own crown dependencies and overseas territories.

A publicly available registers of trusts – the vehicles commonly used for tax avoidance in tax havens – would also be a positive step. So, too, would a decision by the UK government to support "country by country" reporting, whereby companies are required to show the profits and the tax they pay in each country within which they operate, an accounting initiative that would encourage transparency and accountability and highlight when tax havens were being used.

Politicians must also step forward. Ed Miliband has made the right noises by calling for Jersey, Guernsey and the Isle of Man to reveal the identity of British tax evaders with money hidden on the islands. But more needs to be done to make more accountable those in the City who push tax havens. Highly remunerated executives must be held responsible for what happens on their watch in these often poorly supervised territories. For this reason, tax campaigners are pushing for a new law that recognises a crime of "wilful blindness". Under this scenario, executives and their financial advisers would be held accountable if they failed to ask searching questions of those clients for whom they opened dubious accounts in tax havens.

Admittedly, what constitutes wilful blindness would be difficult for legislators to define. But HSBC's chronic failure to know its customers in the Cayman Islands might just provide a definitive case study.