The end of the havens?

Article Type: Editorial From: Journal of Money Laundering Control, Volume 12, Issue 3

The international press has long manifested its dislike for tax havens and offshore financial centres – lumping them together and focussing on their facilitation of money laundering, tax evasion and other financial crimes. The delight that journalists and media commentators exhibit when a senior official or minister, let alone party donor, is discovered to have used an offshore facility knows no bounds. Of course, hypocrisy is nothing new for those who pontificate on financial probity. However, rarely does the public vilification retain any sense of proportionality. The same is equally true in regard to the frenzy that has been stirred up, particularly by the French, but also to some extent the British Government, in the context of the G20 meeting in regard to those tax havens that have not proven themselves willing to disclose information to the fiscal authorities of other states.

There was a time when at least offshore financial centres were extolled, not least by the Foreign and Commonwealth Office, Treasury and the precursor to the Department of Overseas Development, as an excellent way of supporting the development of smaller jurisdictions bereft of assets other than the odd banana tree. Indeed, the Commonwealth Secretariat and in particular the Commonwealth Fund for Technical Development, drawing on UK taxpayers’ funds, actually promoted and assisted in the development of such centres – as did the IMF and a host of other inter-governmental and national institutions. Indeed, it should not be forgotten that the majority of certainly what became the more problematic centres were territories of the UK, the USA and The Netherlands. While enthusiasm for tax havens – pure and simple, dissipated somewhat sooner, it should not be forgotten that President Bush, just before 9/11 opposed the OECD’s initiatives particularly in regard to certain Caribbean tax shelters used by large US corporations. The extent to which typical offshore financial centres facilitated serious criminal activity, in particular by providing anonymity and laundering services in recent years is a matter for debate. However, the perception of many is that organised crime and fraudsters in particular have found them invaluable. Indeed, even Lord Templeman stated the courts must prevent ill-gotten gains “being whisked away to some Shangri-La which hides bribes and other corrupt moneys in numbered bank accounts”(AG for Hong Kong v. Reid (1994) 1 All ER 1).

In the early days, there is little doubt that some, perhaps most, such jurisdictions either as a result of incompetence, naivety and corruption did become seriously involved in money laundering and hiding the financial activities of criminals and terrorist. Indeed, some enacted laws which went well beyond affording confidentiality and secrecy to blocking overseas investigations. Some went as far as to trade on their willingness to refuse co-operation and effectively prostituted their sovereignty. The robust enforcement actions of in particular US agencies, especially in their “wars”against drugs, terror and whatever, combined with a variety of international initiatives have today encouraged such states to take a far more responsible approach. Indeed, as recent events have shown in the Turks and Caicos Islands– it is perhaps the territories of those countries that have been most vocal that have degenerated into the worst examples of corruption and criminal penetration. What has been to the fore over the last decade, however, in the majority of initiatives, with the exception of those relating to terrorist finance, is concern about tax evasion. This has now come to term, in the announcement of the G20 that the “era of banking secrecy is over” and the G20 states will “take action against non-cooperative jurisdictions”.

President Sarkozy was perhaps the most determined to see action taken against the tax havens. Indeed, last September he called for the creation of a financial Interpol and many have seen the establishment if a plethora of financial intelligence units as a step in this direction. The fact that there is little evidence that even the most egregious activities of the relatively few offshore tax havens played any significant role in the present financial crisis –as compared with the incompetence of the regulators and the greed of the banking establishment, the G20 meeting proved an ideal opportunity for announcing their demise. The inclusion in the named list of Hong Kong, while antagonising the Chinese, was a particularly quaint dig at “Anglo-Saxon” business practices.

With the exception of purely fiscal investigations the offshore havens have never presented a serious obstacle to the determined and well resourced investigator. Indeed, the intelligence community quite likes them. As experience has shown in the Cayman Islands, putting an agent in, for example the FIU– as MI6 allegedly did, is very cost effective! Indeed, the argument,rather like those in the Met who opposed anti-money laundering legislation, is that all this talk of controls and sanctions simply drives the illicit activity further underground. While a company can in many jurisdictions be incorporated on the phone or purchased in a few seconds, by lawyers acting under the aura of privilege, those who wish to operate discreetly will always do so. Perhaps, as one Bank of England official remarked at a recent international conference,perhaps the most recent initiative is simply an example of not allowing a crisis to go to waste! Really, rather like the Food Standards Agency new found dislike of insider dealers – it is all a matter of cosmetics for the warts of capitalism.

Barry Rider