August 28, 2009
Radical Steps?
At the end of September, the G20 is meeting in Pittsburgh. When it met in April the issue of tax havens was high on the political agenda. Much fuss was made, but the results were meagre: an OECD pledge that in order to be “white listed” jurisdictions were merely required to sign pitifully ineffectual Tax Information Exchange Agreements (TIEAs) with just 12 other nations – including microstates like the aeroe Islands or even other tax havens.
Yet Tax Havens will again be on the agenda at the September G20 – and rightly so. There are two things in particular that tax justice campaigners should focus on demanding from the G20: a commitment to Automatic Information Exchange, and Country-by-Country reporting.
Click the links, and get educated. These things matter. If the G20 adopts them, then the world will be a drastically different – and better – place.
But what can our British leaders do at the G20, apart from (we would hope) arguing for these two measures? Well, they could lead by example. For they are better positioned than anyone else to do so.
Now in an ideal world, tax havens would simply be abolished. Assuming the unrealistic possibility of being able to act unilaterally against other jurisdictions without devastating diplomatic consequences, I would advocate Britain simply invading and closing these places down on the grounds that they are a menace not just to our society, but that of the world. We do not tolerate burglars to rob our homes; why tolerate tax havens to steal our revenues, launder illicit financial flows and promote global economic instability?
The world, however, is not so simple. Yet it does not follow that Britain is therefore powerless to act directly against the globe’s tax havens. It could, if only the will was there: for some of the most prolific and worst-offending tax havens in existence are constitutionally dependent upon the UK. If the UK chose to revoke their effective autonomy, then the world of tax havens would suddenly find itself minus some of its biggest players.
The three UK Crown Dependencies – the Isle of Man, the Bailiwick of Jersey and the Bailiwick of Guernsey (incorporating the isle of Sark) – are all major tax havens. Of the UK’s 14 Overseas Territories, Anguilla, the Cayman Islands, Montserrat, the Turks and Caicos Islands, Bermuda, the British Virgin Islands and Gibraltar are all tax havens.
Of that list, Jersey, Guernsey, the Isle of Man and especially the Cayman Islands are some of the most important tax havens in existence, with Cayman in particular self-defining as a major international financial centre.
Yet none of these territories are independent. They are all, ultimately, dependent upon the British Parliament, and exercise autonomy only upon the continued whim of UK Governments. If the political will to revoke their independence existed, it could be done.
Indeed it is being done in the case of the Turks and Caicos Islands, the government of which has been taken over by the British Parliament via statutory instrument, on the grounds of endemic corruption, societal collapse and a responsibility of the UK parent Government to mitigate the worst consequences of the Islands’ failure.
The truth is, the UK is uniquely placed in world affairs. Virtually overnight it could eliminate a swathe of tax havens by revoking their autonomy and legislating to end their banking secrecy. In doing so it would send a clear, unambiguous and bold message to the rest of the world: tax havens will not be tolerated.
Britain could lead by example, and in doing so have far reaching impacts. Not only would it help protect its own revenue, but it would also help protect that of other nations – particularly developing countries who, because of endemic capital flight operating through the world’s tax havens, suffer to a degree considerably worse than the UK.
And let us not forget that tax havens were at the heart of the complex financial mechanisms, the off-balance sheet financing and the overly risk-laden financial order that collapsed from 2007-8 and dragged the global economy into chaos. Eradicating the UK’s network of tax havens would be a bold step in remaking the world financial order into a safer, better regulated and less risky place. Given the magnitude of the present downturn, and the stated aims of the G20 being to promote economic recovery and global stability, what better step could Britain take than to clean up its own back yard?
As the G20 approaches, and the rhetoric from Downing Street spills forth, we should all bear this in mind: that Britain can do more than any other individual nation to end the world of offshore abuse. Everything that Gordon Brown says should be measured against that benchmark.
