Pin-Striped Pirates

Why does the UK retain a handful of colonies? To destroy the world’s taxation systems.

By George Monbiot. Published in the Guardian, 16th December 2008.

If you want to know why Britain has never completed the process of decolonisation, look at two lists side by side. One is the official register of tax havens, compiled by the OECD(1). The other is the list of British overseas territories and crown dependencies(2). Over a quarter of the world’s tax havens are British property. More than half of Britain’s colonial territories and dependencies are tax havens. Strip out Antarctica, the military bases and the scarcely-habited rocks and atolls, and of the 11 remaining properties, only the Falkland Islands is not a recognised haven. The obvious conclusion is that Britain retains these colonies for one purpose: to help banks, corporations and the ultra-rich to avoid tax.

These figures scarcely do justice to the UK’s responsibility for this menace. The website Shelter Offshore, which helps people to avoid their obligations to society, has just published its list of the world’s “top 5 tax havens”(3). Jersey, Guernsey and the Isle of Man come first. “These highly respectable British offshore tax havens,” the site tells us, “can be very attractive indeed”, offering “superior levels of investor privacy”. Privacy is the polite word for the secrecy and obstruction that helped to bring down the world’s financial systems.

Last month the British government announced that it will introduce new laws to prevent piracy: the armed forces will be allowed to detain ships and arrest suspected robbers on the high seas(4). Yet the same government offers an attractive portfolio of tropical and temperate islands in which pinstriped pirates can bury their treasure.

That comparison is unfair – to pirates. The freebooters who use these havens are responsible for thousands of times more deaths even than the notorious Abdul Hassan, known on the Somali coast as “the one who never sleeps”(5). Because of the secrecy surrounding the treasure islands, no one knows how much money they divert from developing countries. Christian Aid’s estimate – of $160 billion a year – is the lowest figure(6), though 60% greater than the international aid the poor world receives(7). The Pope suggests $255bn(8); the US research group Global Financial Integrity proposes $900bn(9). In all cases we’re talking about the means by which hundreds of thousands of lives could have been preserved in the world’s poorest countries. But Britain’s network of tax havens permits multinational companies, dodgy businessmen and corrupt leaders to snatch money from the poor.

Gordon Brown wrings his hands over the plight of the poor, and urges impoverished countries to earn more money through trade. But by keeping our tax havens open for business, this mumbling Christian hypocrite ensures that even when the poor nations do trade successfully, they are unable to keep hold of the income.

This authorised theft, of course, affects us too. We are robbed twice by these gangsters: once when they avoid the taxes the rest of us have to pay, again when the tax havens’ secret banking arrangements cause the crises which oblige us to rescue the banks. As the Tax Justice Network points out, the banking system collapsed because it became indecipherable. The banks lost confidence in each other when they could no longer tell who owns what or who owes whom, and could no longer trust each other’s financial statements(10). Nothing has done more to promote this distrust than the lucrative secrecy the tax havens offer to their clients.

Organised crime also depends on tax havens. The OECD uses four criteria to determine whether a place is a haven: it imposes no tax, there’s a lack of transparency, it has laws preventing the effective exchange of information with other governments, and the money which changes hands bears no relation to the business done there(11). The last three criteria are all essential prerequisites for large-scale crime. In fact it’s doubtful whether the traditional piracy now flourishing off the Horn of Africa would be possible without the more respectable piracy taking place in the English Channel, the Irish Sea and off the Spanish Main. Anyone who wanted to stamp out drug smuggling, kidnapping, gun-running and fraud would start by shutting down tax havens.

But the crime havens have become so respectable that even the British government is now depriving itself of revenue. It has become the major shareholder in the Royal Bank of Scotland, which has offshore subsidiaries in Jersey, Guernsey, the Isle of Man and Gibralter(12). Have the bank’s new owners, in return for our generosity in bailing it out, demanded that it shuts these operations? No. And that’s not the worst of it. The Inland Revenue, responsible for collecting tax in this country, signed a private finance initiative deal transferring its buildings to a company called Mapeley Steps(13). Mapeley Steps, which is registered in one tax haven (Bermuda) is owned by Mapeley, registered in another (Guernsey). Mapeley has boasted of paying no income or corporation tax in any jurisdiction(14).

Why does the government keep these havens open? There’s an answer in Geraint Anderson’s book Cityboy – a crude but gripping exposure by a former research analyst at a City bank. “Eighteen years out of power has made these jokers so paranoid about being viewed as old Labour that every time Cityboys and entrepreneurs asked for business-friendly reforms they rolled over and allowed tax and regulatory changes”(15).

There is a standard British procedure for dealing with problems like this: by which I mean problems that generate bad publicity but which you don’t want to address. You commission a review and you choose the right man to conduct it. Confronted with a vocal international campaign and a new US president determined to tackle this issue(16), the government has selected a man called Michael Foot (not the former Labour leader).

Until last year, Foot was the inspector of banks and trust companies for the Central Bank of the Bahamas in Bermuda, a British tax haven(17). Though the review was launched only a fortnight ago, he already seems to have decided what it will say. Speaking about tax havens to the magazine Accountancy Age, he claimed that they had been given a clean bill of health by the IMF, and observed, “I can’t see where the regulation failure is supposed to be.”(18) The Tax Justice Network maintains that throughout his long career in Bermuda, at the Financial Services Authority and elsewhere, he has never raised any public concerns about systemic problems in the financial sector(19). The identity of the person the government appoints is an index to the outcome it desires. Foot sounds like just the man for the job.

Even as it was commissioning this review, Brown’s government tried to undermine international efforts to address the problem. Teaming up with that revolting little monarchy Liechtenstein, the UK sought to strike out a paragraph from the Doha trade agreement which aimed to eradicate tax evasion(20). Thanks in part to British lobbying, the draft commitment was substantially weakened(21).

Were Britain to release its remaining colonies, they would quickly succumb to pressure from the Obama government and the European countries trying to stamp out international evasion and organised crime. We hold onto the Falkland Islands for their oil and fish. We hold onto the other territories for something far more valuable: secrecy.

www.monbiot.com

References:

1. OECD, viewed 15th December 2008. Jurisdictions committed to transparency and effective exchange of information. http://www.oecd.org/document/48/0,3343,en_2649_33745_29874096_1_1_1_1,00.html

2. Foreign and Commonwealth Office, viewed 15th December 2008. List of Crown Dependencies & Overseas Territories. http://www.fco.gov.uk/en/about-the-fco/publications/treaties/uk-overseas-territories/list-crown-dependencies-overseas

3. Shelter Offshore, 12th December 2008. Top 5 Tax Havens.

http://www.shelteroffshore.com/index.php/offshore/more/top-5-tax-havens-10221/

4. The Prime Minister’s spokesman, 19th November 2008. Morning press briefing. http://www.number10.gov.uk/Page17574

5. http://www.guardian.co.uk/world/gallery/2008/nov/18/piracy-somalia-gallery?picture=339805480

6. Olivia McDonald, 9th December 2008. Casting the first stone. http://www.guardian.co.uk/commentisfree/2008/dec/09/corruption-bribery-investigation

7. eg. http://uk.reuters.com/article/businessNews/idUKTRE4955HA20081006?sp=true

8. Nick Mathiason, 7th December 2008. Pope attacks tax havens for robbing poor. The Observer.

http://www.guardian.co.uk/world/2008/dec/07/pope-benedict-vatican-tax-havens-credit-crunch

9. Nick Mathiason, 30th November 2008. Tax evasion robs developing countries of $900bn a year. The Observer. http://www.guardian.co.uk/business/2008/nov/30/tax-evasion-developing-economies-aid

10. Richard Murphy and John Christensen, 10th October 2008. The threat lying offshore. The Guardian. http://www.guardian.co.uk/commentisfree/2008/oct/10/tax-banking

11. OECD, viewed 15th December 2008. Tax Haven Criteria. http://www.oecd.org/document/23/0,3343,en_2649_33745_30575447_1_1_1_1,00.html

12. Private Eye, 5th December 2008. Offshore Alistair. In The Back, page 26.

13. Stefan Armbruster, 23rd September 2002. Revenue sell-off to tax haven firm. BBC News Online. http://news.bbc.co.uk/1/hi/business/2263208.stm

14. Jim Pickard, 10th May 2006. Tax-free Mapeley to reject Reit status. Financial Times.

http://www.ft.com/cms/s/0/8dcb9c78-dfc1-11da-afe4-0000779e2340.html

15. Geraint Anderson, 2008. Cityboy: Beer and Loathing in the Square Mile, page. Headline, London.

16. Nick Mathiason and Heather Stewart, 9th November 2008. Obama backs crackdown on tax havens. The Observer. http://www.guardian.co.uk/business/2008/nov/09/barack-obama-tax-havens-crackdown

17. HM Treasury, 2nd December 2008. Independent Review into British Offshore Financial Centres. Press release. http://www.hm-treasury.gov.uk/press_130_08.htm

18. Michael Foot, quoted by Judith Tydd, 11th December 2008. Regulation can tackle havens, says review chief. Accountancy Age.

http://www.accountancyage.com/accountancyage/news/2232397/regulation-tackle-havens-review-4393131

19. John Christensen, Tax Justice Network, pers comm.

20. Tax Justice Network, 30th October 2008. UN Tax Committee – why it matters; UK backs Liechtenstein. http://taxjustice.blogspot.com/2008/10/un-tax-committee-why-it-matters-uk.html

21. Tax Justice Network, 11th December 2008. Doha: a cup half full.

http://taxjustice.blogspot.com/2008/12/doha-makes-progress-on-tax-justice.html