SPANISH ALLEGATIONS AGAINST GIBRALTAR
43. The use of lurid language by the Spanish authorities
to vilify Gibraltar has a long pedigree. Our predecessors in 1981
traced back to 1908 descriptions of Gibraltar as a "source
of contraband damaging to Spain's economy," and the argument
that Gibraltarians were "parasitic" to 1948. They commented
that, from 1948 onwards, "Spanish writers and broadcasters
vied with each other in vituperating the Gibraltarians."
Unfortunately, the present Spanish Government has seen fit to
rekindle this type of inflammatory description. Talk of parasitism
and illegality has been common, and there have even been allegations
by Señor Matutes of toleration of criminal activities by
the Gibraltarian authorities, with suggestions of complicity in
murder and kidnapping.
This sort of language has had an effect in Spain, where, for example,
the normally sober El País contained an editorial
on 12 February which spoke of the "growth of a parasitic
economy, with illegal or irregular activities." Crude racist
abuse against Gibraltarians was published in the Spanish magazine
Cambio 16 that month. Another account which included allegations
of drug trafficking, money laundering, organised crime, kidnapping
and murderas well as non-compliance with EU lawappeared
in El Mundo, on 3 March 1999. This article was the subject
of a letter of rebuttal sent to the paper by the British Ambassador
to Madrid and published on 4 March.
Mr Caruana told us how this "crescendo of Spanish press opinion"
could adversely affect cross-border relations.
Most worryingly for Gibraltar, the defamation of Gibraltar has
an effect on the way it is regarded in countries like Germany
and Italy especially among those who might otherwise wish to do
business in Gibraltar. It also undoubtedly has some effect on
popular opinion in the United Kingdom. We turn in the following
paragraphs to the principal areas in which allegations have been
44. The allegations that Gibraltarians evade their
EU responsibilities and engage in illegal activities at the expense
of their Spanish neighbours is summed up in the long-standing
Spanish description of Gibraltar as a parasite feeding off Spain.
Ms Quin repudiated this forcefully,
as do we. Such language is deeply offensive and has no part in
modern Europe. In any case, as the Chief Minister told us during
our visit to Gibraltar, it is absurd to regard Gibraltar, into
which up to 4,000 Spanish workers commute daily, which takes 50%
of its imports from Spain, and whose population spend massively
in the Campo,
45. At the relatively trivial level, it is undoubtedly
true that the low levels of tobacco and alcohol prices in Gibraltar
will encourage individuals to attempt to evade duty on the exports
of small quantities. The British Government acknowledged this,
conceding that "there is still some tobacco smuggling from
Gibraltar to Spain, often by jet-ski to La Linea or by individuals
who cross the border with cartons of cigarettes strapped to their
Some residents of La Linea are reported to make a small livelihood
out of crossing the border repeatedly with a carton or two of
46. Of a wholly different scale is the running of
large quantities of tobacco from Gibraltar to Spain and of drugs,
particularly hashish, from Morocco to Spain. The law enforcement
authorities in Gibraltar acknowledged during our visit that the
problems in these areas had been bad up to 1995/96, and the British
Government spoke of "unacceptable levels in the mid-1990s."
This was the era of the so-called "Winston boys" who
were based in Gibraltar, and who used fast speed-boats in the
waters between Spain and Morocco. Under pressure from the British
Government, the Gibraltarian Government in 1995 introduced legislation
banning the importation of semi-rigid inflatable vessels into
Gibraltar, and there have been a series of measures since to clamp
down on smuggling.
The British Government told us that these measures "have
effectively eliminated the activities of Gibraltar-based fast
boats and rigid inflatables."
47. The Spanish Government has in the past expressed
scepticism that the controls on the fast boats are operating effectively.
A dossier of further allegations was handed by the Spanish Prime
Minister's office to No.10 Downing Street earlier this year. Mr
Caruana was trenchant in his criticism of this letter which he
regarded as "riddled with inaccuracies and in no way support[ing]
the Spanish allegations."
He told us that the British Government had replied in this vein.
At the time of their Memorandum to us, the FCO said that they
were "investigating the allegations and will reply."
Ms Quin told us that "vast bulk" of the Spanish allegations
were "completely unjustified," but that there were "one
or two areas where we are looking at further details."
The Prime Minister has undertaken that the allegations will be
considered "very carefully."
48. Responsibility for dealing with crime in Gibraltar
rests ultimately with the British Government, and Madrid's criticism
is thus a criticism of the British authorities. As one Gibraltarian
witness put it, "any attack levelled at Gibraltar based on
accusations of criminal activity is an attack on Great Britain."
We believe that it is right that any Spanish allegations should
be treated seriously and investigated properly. The RGP told us
that some Gibraltarians remained involved in the smuggling of
Moroccan hashish, and it is as likely that there will be criminal
elements in Gibraltar as in any other town of 27,000. However,
Madrid could itself do a lot more to help deal with smuggling
into Spain: we understand from the RGP that co-operation at a
local level across the borderboth with the Policia Nacional
and the Guardia Civilwas good, with about 300 requests
for mutual assistance logged each month. Further evidence of this
was given to us by the Gibraltar Government.
However, Madrid has frustrated the agreement of any formal co-operation
programmes. Madrid cannot complain that the law is not enforced
in Gibraltar if it refuses to recognise the law enforcement authorities
or to work with them. It will be particularly absurd for Madrid
to put any obstacle in the way of Gibraltar forming part of the
Schengen system (a matter we discuss in paragraph 78) if it wishes
to prevent cross-border smuggling.
49. The British Government also has a responsibility
to ensure that the RGP have the resources to do their job. We
were told that the police did not have the vessels they needed
to patrol properly. They were hoping for joint funding from the
United Kingdom and Gibraltar Governments for a new £400,000
fast patrol boat. Ideally, it would need two of these vessels
to be able to mount 24-hour patrols. We note that joint funding
of one vessel is being discussed between the British and Gibraltar
and Mr Caruana told us that the FCO had offered to contribute.
We recommend that the two Governments should ensure that funding
is made available for at least one fast patrol boat for the RGP.
50. As well as local cross-border co-operation, we
were also told by the British Government that the United Kingdom
law enforcement authorities had achieved a high degree of co-operation
with Spain, and that some of the Gibraltar-related drug seizures
by the Spanish police were made with the involvement of the British
We understand that organisations such as HM Customs and Excise
and the National Criminal Intelligence Service already work with
the Gibraltarian services. The Commissioner of the RGP previously
served with the Greater Manchester Police at Assistant Chief Constable
rank, and this should help foster relations between the British
and Gibraltarian police forces. Spain must be left in no doubt
that the criminal law in Gibraltar is as strict, and as strictly
and effectively enforced, as it is any other part of United Kingdom
51. Very serious allegations are also made by Spain
that Gibraltar is a centre for financial impropriety, and in particular
for money laundering. There may have been problems in the past,
as the Barlow Clowes affair revealed, but Gibraltar has since
done a great deal to raise standards. Supervision of financial
services in Gibraltar is the responsibility of the Financial Services
Commission, whose Commissioner is a former senior Bank of England
official, appointed by the Governor with the approval of the Foreign
Secretary. This Commission, as well as supervising the banking,
insurance and investment industries, has particular responsibility
to watch out for dishonesty or malpractice.
More specifically, the British Government told us that the Gibraltarian
legislation which deals with money-laundering is now up to EU
and United Kingdom standards and that a Financial Intelligence
Unit to receive disclosures about suspicious transactions had
been established. Gibraltar has also signed up to the recommendations
of the Financial Action Task Force (FATF), an intergovernmental
body established by the G7, and has agreed to undergo the mutual
evaluation process of the Overseas Group of Banking Supervisorsa
group affiliated to FATF.
The Gibraltar Government drew our attention to a US State Department
Assessment which refers to "the commitment of Gibraltar to
adhere to international anti-money laundering standards,"
and asserted that anti-money laundering legislation is "properly
52. As in the case of smuggling, we would expect
any Spanish allegations of money laundering to be passed to the
British authorities, and to be investigated thoroughly. We were
pleased to note that the FCO has "repeatedly asked Spain
to provide... any evidence they have, in a form that can be used,
of such activities."
Once again, however, Spain displays inconsistency in its approach
to money-laundering. While it attacks Gibraltar for allegedly
allowing the practice to take place, it has simultaneously obstructed
the application by the Gibraltar Financial Intelligence Unit to
join the international group of Financial Intelligence Units,
known as the Egmont Group.
We note again that it is ultimately the responsibility of the
Foreign Secretary to ensure that money laundering can no more
flourish in Gibraltar than in the United Kingdom. Any criticism
by Spain is therefore a direct criticism of Her Majesty's Government.
53. Another part of the Spanish accusations against
Gibraltar is that the territory is used for tax evasion. The development
of financial services has been one of the principal responses
in Gibraltar to the run-down of its garrison status. High rates
of direct taxation for residents have been coupled with tax advantages
for non-residents. The use of taxation policies to attract outside
investors is a strategy which has been offered by many other "offshore"
tax havens, such as the Channel Isles, Isle of Man and some Overseas
Territories other than Gibraltar, including the British Virgin
Islands and Cayman Islands. Ireland and Luxembourg have also adopted
low taxation policies to attract foreign investors. Low taxation
policies, and the flow of funds from one country or territory
to another, may be irritating for the country or territory from
which the flow comes, but this does not mean that the policies
of the low taxation territory of themselves result in tax
evasion. As the FCO put it to us, "it is for Spain to consider
her own tax laws, and to substantiate allegations of illegal activity
in the region."
However, the British Government also said that it was "willing
to work with Spain to the fullest extent possible in combatting
Again, the onus must be on Spain to demonstrate what illegality
is occurring, and to amend her own tax laws, as appropriate, in
respect of her own citizens.
54. The Government of Gibraltar argued that Spain's
attacks against its financial services industry were "unobjective
and politically motivated." It pointed out that Spain was
no more adversely affected by Gibraltar (which, in any case, was
EU-compliant) than it was by other tax havens; that Spain did
not complain about other offshore financial services centres,
and was indeed attempting to set up one of its own in the Canary
Islands; and that Spain has offered Gibraltar the opportunity
to keep its finance centre if Spain's sovereignty proposals were
Spain's case is thus not one of principle.
55. There is, however, one area in which Gibraltar
is not in compliance with EU law. That is in the transposition
into Gibraltarian law of the 4th and 7th Company Law Directives.
The two directives deal with company transparency, and it is only
when they become law in Gibraltar that Gibraltarian company law
will be in line with EU standards.
The earlier of the directives dates back to 1978, and it is legitimate
for other EU countries to criticise the great delay in its transposition
into Gibraltarian law. The British Government also attaches "particular
importance" to the implementation of the two directives.
The Government of Gibraltar told us that they envisaged transposition
of the directives "within the next few months," though
they pointed out that the directives would not require the disclosure
of the ultimate beneficial owner of shares, which could still
be held in nominee accounts.
We appreciate the difficulties which the 4th and 7th Company Law
Directives may cause for the private client sector in Gibraltarboth
the Chamber of Commerce and the Minister for Trade and Industry
predicted that business would transfer to jurisdictions like the
British Virgin Islands or the Isle of Man where the directives
would not have effect. However, to counter Spanish allegations
effectively, Gibraltar must be able to demonstrate that there
is no area in which it is dragging its feet. We recommend that
the Foreign and Commonwealth Office continue to press for the
early adoption of legislation in Gibraltar to bring into effect
the Fourth and Seventh EC Company Law Directives.
56. There are other problems over the horizon for
Gibraltar's low tax regime. These are the EU Tax Code of Conduct
and the OECD Harmful Tax Competition initiative.
The policy behind these two initiatives has wide ramifications,
and is not a matter for this Committee. However, any move to harmonise
tax rates or to lessen the advantages of tax havens will have
particularly adverse consequences for Gibraltar, as the Chamber
of Commerce and Gibraltarian Government made clear to us.
The British Government has declined to exclude Gibraltar from
the proposals, and any EU legislation will therefore apply in
Gibraltar. However, the Gibraltar Government has said that it
"will not implement or comply with" any voluntary code,
as the OECD Code will be. It has undertaken, however, "in
a manner and in a timescale compatible with the economic interests
of Gibraltar [to] move to repositioning our finance centre so
in the medium to long term it will, in fact, not offend the Tax
We heard some allegations in Gibraltar that the Treasury was not
as sensitive to Gibraltar's needs as were the FCO. We were, however,
assured that "UK officials maintain an ongoing dialogue with
officials of the Gibraltar Government" on EU-tax related
measures, and that they took their responsibilities in this area
The Chancellor of the Exchequer has undertaken not to act in a
way on tax harmonisation which is contrary to the United Kingdom's
interest, and we believe that the Treasury should be aware that
Gibraltar's interests are part of those national interests. We
note, however, that the Gibraltar Government intends to comply
with any EU legislation in this field where its commercial interests
are very much at stake. It is important for it to do so to avoid
further Spanish complaints of non-compliance with tax legislation.
57. We conclude that the series of allegations
which Spain makes against Gibraltar appear almost wholly to be
without substance. In many cases, it is not just the Government
of Gibraltar but the British Government as well which is traduced.
It is deeply regrettable that allegations are made that cannot
be sustained by a basis in fact. If concrete evidence of wrong-doing
were produced, the British Government should act promptly to deal
with the problem. But so long as allegations are unsubstantiated,
the British Government should continue to rebut them promptly
94 HC 166, Session 1980-81, para. 17. Back
Report of television broadcast of 1 March on Antena 3. Back
Translation of the article and of the rebuttal appear as Appendices
33 and 34 to the Minutes of Evidence (Ev. pp. 112-114 ). Back
The use of the term "parasite" was traced back to 1939
by our predecessor Committee (para. 17, HC 166, Session 1980-81).
The term is still in frequent use, as the Committee was told
during its visit to Gibraltar, and as, for example, the description
of "una economía parasitaria" in an editorial
in El País on 12 February 1999 demonstrates. Back
The Campo de Gibraltar is the area of Spain which forms the economic
hinterland of the Rock. Back
Ev. p. 8, para. 69. Back
Ev. p. 8, para. 68. Back
Ev. p. 8, para. 69. Back
See, for example, letter from Señor Alberto Aza, the Spanish
Ambassador in London, The Times, 19 April 1996. Back
Ev. p. 36, para. 39. Back
Ev. p. 8, para. 70 Back
See para 109. Back
Ev. p. 105 (Appendix 23). Back
Ev. p. 37, para. 46. Back
Ev. p. 12, para. 9. Back
Ev. p. 8, paras. 70 and 71. Back
Ev. p. 2, paras. 14 and 15. Back
Ev. p. 7, para. 63. Back
Ev. pp. 35-6, paras. 32 to 34. Back
Ev. p. 7, para. 62. Back
Ev. p. 7, para. 63. Back
Ev. p. 7, para. 66. Back
Ev. p. 36, para. 41. Back
Ev. p. 7, para. 64. Back
Ev. p. 6, para. 49. Back
Ev. p. 36, para. 42. Back
Ev. p. 8, para. 67. Back
Ev. p. 47, paras. 103-107. Back
Ev. p. 47, para. 107. Back
Ev. p. 13, para. 11. See also HC Deb 14 January 1999 cc. 285-6. Back
As was done by HM Ambassador in Spain, Mr Peter Torry, in his
letter to El Mundo of 3 March 1999. This letter is reproduced
in full as Appendix 34. Back