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On 11 March, the noble Lord, Lord Myners, told us in a Written Statement that Jersey has now signed a tax information exchange agreement, following the patterns of a number of foreign offshore financial centres. He called it,
but it is only a step. Jersey now promises to provide information in response to requests from HMRC, and in the seven years since Jersey signed a tax information exchange agreement with the United States its authorities, I am told, have provided information to Washington in six cases. This all comes down to the level of the British citizen when they contemplate the origins of the current financial crisis. Northern Rock’s charitable trusts were in the Channel Islands. When my wife and I discussed tax planning with advisers from Barclays Bank—I have not yet got around to moving my account—their first suggestion was to set up a family trust in the Isle of Man so that we could avoid inheritance tax.
One small example of defrauding the tax authorities through offshore manoeuvres is provided by the mysterious case of Leeds United Football Club, the beneficial ownership of which is being contested in a court case in Jersey. The club, largely owned by Ken Bates, who is resident in Monaco, went bankrupt owing the revenue nearly £8 million, among other creditors. It was bought out of insolvency by Forward Sports Fund, a company registered in the Cayman Islands and administered in Switzerland; that, in turn, was owned by Astor Investments, a trust fund based in Guernsey and administered from the British Virgin Islands—a merry-go-round of tax havens created to disguise who owns what. It is being argued in court that the ultimate owner of these shell companies is Mr Bates himself, who has thus avoided a large tax bill and retained effective ownership. The noble Baroness, Lady Noakes, may care to note that the role of KPMG, as administrator in this case, has been sharply criticised.
The Government have repeatedly refused to give Parliament any estimate of the scale of lost revenue, but it recovered from one amnesty two years ago £400 million from 45,000 disclosures, which suggests that the overall figure is in the tens of billions and that a large number of individuals as well as companies are involved.
Fair taxation is a basic principle of a liberal democracy—I refer to progressive taxation, in which the rich contribute proportionately to the costs of national security services and welfare. We therefore want some reassurance from the Government that they will be as vigorous in dispelling the secrecy of British offshore financial centres as of foreign ones; that they will now clarify the constitutional and oversight relationship we have with these semi-autonomous entities; and that they will ensure appropriate contributions to the UK Exchequer in return for the services received. I note, for example, that Tax Research estimates that the
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11.52 am
Baroness Hooper: My Lords, as one who follows as closely as possible events concerning the overseas territories—I declare an interest as vice-chairman of the Overseas Territories All-Party Parliamentary Group—I was intrigued by the wording of the Motion before us today, although I was perhaps to some extent informed by comments made by the noble Lord, Lord Wallace of Saltaire, in the money laundering debate concerning the overseas territories last year. I therefore thank the noble Lord for giving us the opportunity to review the activities of offshore financial centres in the light of the current financial crisis.
I shall concentrate on the overseas territories rather than the Crown dependencies, about which I am less informed and on which I understand others will focus. As a starting point, and as the noble Lord, Lord Wallace, has already said, I agree that there must be clear international standards based on openness and transparency and with appropriate supervision. I add to that by saying that any such regulatory approach should be based on objective criteria, that there should be a level playing field, and that each case should be looked at on its own merits.
There is no doubt that successive governments have encouraged the overseas territories to be self-sufficient. A number of them have developed highly efficient and successful financial services, based on international best practice, and, as small jurisdictions, they can be simpler, cheaper and highly specialised. There is also no doubt that in this global commercial world, professional advisers and clients alike look to find the most favourable structure for their investments and projects. We all know that Ireland attracted a lot of writers and artists because of its intellectual property rules and the abolition of inheritance tax. We know that Bermuda specialises in shipping and insurance and that in the state of Delaware in the United States a company can be incorporated rapidly with the minimum of fuss and cost. Therefore, if choice is to be available I believe that this diversity is to be encouraged.
My final general point is to emphasise, as did the noble Lord, Lord Wallace, the distinction between tax avoidance and tax evasion. The former is legal, the latter a crime. Since this has already been mentioned and the issue was raised on Tuesday at Question Time, it is not necessary to dwell on it. In his reply at Question Time, the Minister referred to the Chancellor’s code of practice that has just been issued. I should like to hear more about that, including whether it covers banking operations in overseas territories and Crown dependencies.
The Turner review of global banking regulation, which has just emerged, says that,
- “it is important to recognise that the role of offshore financial centres was not central in the origins of the current crisis ... And many of the problems arose from the inadequate regulation of the trading activities of banks operating through onshore legal entities in major financial centres such as London or New York”.
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Professor Avinash Persaud, a member of the United Nations high-level task force on international financial reform, was quoted recently in the Financial Times as saying:
“The attack on offshore centres is a politically seductive distraction from the thorny task of making regulation better in large developed countries and will end up being a discriminatory attack on small developing countries with little voice”.
Today I am trying to redress the balance. I will refer to the British Virgin Islands as a case study, to make my point that each case should be looked at on its merits. I could equally well talk about Bermuda, with its well developed services, or Gibraltar, the only overseas territory in Europe.
The financial services sector of the British Virgin Islands is founded on five pillars: robust regulation, intergovernmental collaboration, effective enforcement, transparency and high levels of expertise. I emphasise in addition that there are no secrecy laws. The industry has developed and diversified, particularly over the past 20 years, to include specialist sectors such as mutual funds, insurance—both risk and captive—professional services provided by fiduciary and insolvency practitioners, and legal and accountancy services provided by globally recognised firms established in the jurisdiction. These services have been further enhanced by the award of category one status to the BVI shipping registry, and by the creation of an aircraft registry. As a result, financial services now account for more than half the GDP of the BVI, immeasurably raising the standard of living for all inhabitants and, together with the development of a successful tourism industry, enabling the territory to establish financial independence. Reputation is everything in financial services. The BVI has long recognised this and I maintain that the same goes for most of the overseas territories. There is the sad exception of the Turks and Caicos, which has already been referred to.
The noble Lord, Lord Wallace, also referred to the Foot review. I will quote a statement made the day before yesterday by Michael Foot from the BVI. I believe that his report covers the Cayman Islands, Bermuda and the BVI, and has been very positive. He said:
“The United Kingdom needs to remember that it gets a great deal of value and advantage out of jurisdictions such as the BVI. Funds and business flow from the UK here, they flow from here back to the UK. The value of having a clear English legal status, a creditor-friendly certain legal system, having political stability, of being able to bring together in a suitable context international investors around the world to form companies and operate elsewhere in the world, actually plays a critical role in benefiting the global economy, and I am hoping that in that the United Kingdom and the United States ... make increasing efforts to remedy the problems in their own economies ...and will be reminded again of the valuable role that offshore centres like this play in facilitating the operation of the global capital markets, flows of banking finance and other things”.
He also talked about the level playing field and stated that the jurisdictions he has been examining have met international standards effectively and on average score considerably higher than many much larger ones. He goes on to say that he is,
- “confident that the findings of my review will reflect the fact that jurisdictions like the BVI are well regulated, the regulator is well resourced and is resourceful and that that is a very sound basis on which to build your international standing”.
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While the concerns voiced by the noble Lord, Lord Wallace, must be considered, I believe that there is a real danger in targeting a specific group of countries, especially as financial centres no longer operate on a geographic basis; nor do such territories operate in isolation. Apart from anything else, it would drive the business to other, possibly less well regulated and open centres. The financial system must be viewed as a whole, and the focus must be on encouraging greater international co-operation and ensuring that all countries and jurisdictions build a capacity for adequate regulation and supervision, whatever the size and scale of their financial services industry.
The overseas territories used to be known as the dependent territories. In my opinion it would be very wrong if, in a knee-jerk reaction to the current financial crisis, those overseas territories that operate financial services were to be deprived of the independence that they have now earned.
12.02 pm
Lord Oakeshott of Seagrove Bay: My Lords, I declare my interest as a pension fund manager since I first joined Warburg’s in 1976; these days I manage British commercial property for pension funds, charities and investment trusts. When I buy a warehouse from Sainsbury’s, neither of us pretends that Tamworth is in the Cayman Islands to dodge stamp duty land tax. Tax havens are sunny places for shady people. No one sends their money to Monaco or the Cayman Islands because they are centres of excellence for fund management. I was going to add the British Virgin Islands, but in deference to the noble Baroness, Lady Hooper, I shall leave them out. From Antigua to Belize, you use a tax haven because you have something to hide, be it from the taxman, the authorities where you live or even your family. “Low tax and low disclosure” is the polite way in which the apologists for tax havens put it, but if you are Mobutu or Mugabe, Imelda Marcos or a Colombian with a big briefcase, a brass-plate company in an anonymous office block means that your millions leave no trace and tell no tales.
Gordon Brown is strutting the world’s stage as Mr Clean-up, the man to make tax havens and tax dodgers quake in their boots. Oh yeah? Why then did the Treasury say only yesterday that the asset protection scheme for banks to dump their bad debts on the taxpayer and the code of practice covering tax avoidance for the banking sector due next month are “separate issues”? That is the most unjoined-up government imaginable. Why has the budget of HMRC’s hard-pressed tax avoidance team, led by Mr Tailby, been cut by 5 per cent from 6 April? Barclays will be laughing all the way to the Cayman Islands. Our taxmen are like fat policemen running after a speeding Ferrari; they need all the help that they can get.
We all rejoice at the sinner who repenteth, but this is the same Gordon Brown who as Chancellor cuddled up to the bankers so hard that it hurt and who showed no interest in taxing or regulating hedge funds registered in the Cayman Islands and run by non-doms in Mayfair, or the private equity millionaires with their absurdly generous special tax breaks.
Lord Forsyth of Drumlean: My Lords, will the noble Lord allow me to intervene?
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Lord Oakeshott of Seagrove Bay: My Lords, I have only 10 minutes and I want to make my speech in my own way.
Why will the Prime Minister and the Treasury not use their power over the banks to stamp out tax abuse right under their nose in London? You do not have to take a Caribbean cruise; all you have to do is get on a boat down the Thames to Canary Wharf. The superb tax gap series in the Guardian shows how big British businesses, both publicly quoted and private, twist and turn to dodge tax in this country. Their glossy corporate governance reports say nothing about paying your fair share of tax to meet your obligations to the society where you operate. Being a good corporate citizen must mean more than putting on green lipstick and ticking the boxes on diversity.
Nearly nationalised RBS claims to have closed down its tax avoidance operations at head office but still actively promotes its operations in offshore tax havens and its private bank in Switzerland. Barclays has developed tax avoidance into a massive profit centre in its own right, with vast sums of the bank’s money touring tax havens on what in one case amounts almost to a three-day super saver return ticket from Canary Wharf, saving Barclays, not the taxpayer, mountains of tax.
Documents leaked to the Liberal Democrats, which appear to detail systematic tax avoidance on a grand scale by Barclays, were injuncted last week. The Sunday Times and the Guardian had already made them front-page news and these documents are widely available on the internet from sites such as Twitter, wikileaks.org, docstoc.com and gabbr.com. Yet the Guardian had to remove them from its website and cannot tell its readers where to find them. These documents describe deals worth billions of pounds set up by the bank in order to make money out of depriving the UK and foreign exchequers of revenue. Barclays would not last for one minute without the British taxpayer standing behind it, yet it is holding out one hand for taxpayers’ money while it picks taxpayers’ pockets with tax avoidance activities on the other.
Unlike Barclays, HMRC cannot match the best tax and legal brains that money can buy and unpick these deals. It is a sad day for democracy if a judge sitting in secret can stifle this essential public debate. Louis Blom-Cooper and three distinguished colleagues wrote to the Guardian:
“Barclays may properly be regarded as an operator in the private sector, but its corporate status, carrying with it all the advantages that incorporation confers on the bank, and performing a function so vital to the country’s economy, was such that Mr Justice Blake should have concluded that Barclays Bank was akin to that of a public authority and susceptible to the precepts of public sector activity. Perhaps the Court of Appeal will exhibit rather more boldness in supporting the Guardian’s valuable crusade against tax avoidance”.
Vince Cable has done his duty and sent all these documents to HMRC and the Financial Services Authority. I believe that it is mine today to tell—as I just have—Parliament about Barclays’ tax avoidance machine with its aggressive exploitation of tax havens and to tell the public, in their interest, where they can get chapter and verse and judge for themselves.
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Barclays has a whole department, the structured capital markets division, inside Barclays Capital, dedicated to dodging the taxman, and has been reported as paying Mr Roger Jenkins, who runs it, £40 million a year. Vince Cable and I are now being told of more, even murkier, deals. About a third of a billion pounds has been added to Barclays Bank’s bottom line by the following six “projects”, from what we can see. Barclays’ Project Knight, set up in 2007, with capital of more than $16 billion, involved making loans to American banks which now need federal funding: Wachovia, WaMu, Bank of America and BB&T. This allowed Barclays to benefit from “double-dip” tax credits, as they are called, and made the bank £100 million or more.
Project Faber, also in 2007, involved capital of £1.5 billion and made Barclays £29 million in tax profits. That involved using tax havens in the Isle of Man and the Caymans for subsidiaries to channel loans to Luxembourg banks. Project Brontos in 2007 was a scheme between Barclays and Italian banks to save Italian tax; it made Barclays £15 million in profits at a conservative estimate. Project Valiha, with capital of nearly £400 million, involved an elaborate trade with interest rate swaps that could be transferred to an American counterparty, alleged to be AIG, which gained Barclays £69 million in tax-free profits. Project Brazil, set up in 2005-06, made Barclays £30 million in tax profits from currency trades and, in Project Berry, a Barclays subsidiary buys index-linked gilts and lends them back to Barclays so that it can collect tax reliefs worth £134 million. How many more of those morbid mutants are on the books of Barclays’ structured capital markets group? Before the Treasury takes on any of the toxic assets of Barclays, we must know how much tax it has avoided, how and with whom, and what has passed through or is still hidden in tax havens.
The international jet-setters at the top of Barclays, grasping their multimillion pound bonuses, will not know what I am on about at all in what I shall talk about now. My noble friend Lord Wallace, however, rightly pointed to Barclays’ international roots. It is high time that the bank remembered its Quaker founders in East Anglia. They did not gamble or dodge tax; they saw themselves as stewards of people’s savings, which they lent prudently for productive purposes so that their fellow citizens could work and prosper. The Quaker motto is “Live simply”. Tax havens are a moral as well as an economic affront to Britain and to the whole civilised world—the unacceptable underside of capitalism. Our Prime Minister is a moral man, but he must now turn his words into deeds.
Lord Forsyth of Drumlean: My Lords, on the subject of morality and moral behaviour, could the noble Lord, Lord Oakeshott, tell us why the Liberal Party has not paid back the £2.4 million that it got from Michael Brown, a fugitive from justice? His money was paid, although apparently through a London company, from a Swiss subsidiary.
Lord Oakeshott of Seagrove Bay: My Lords, I would have thought that question cheap even by the standards of the House of Commons.
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Lord Oakeshott of Seagrove Bay: If that is not clear, my Lords, this debate is about tax havens and our country, not about any particular political party. I do not propose to get into that. Those who live in glass houses should not throw stones. That was a cheap and unnecessary intervention by the noble Lord, who has had plenty of time to make that sort of intervention when we have been discussing my Bill or other matters. It is quite inappropriate here today.
12.12 pm
Lord Bradshaw: My Lords, I shall turn back a little from the exchanges involving my noble friend, with whom I agree. I was involved in setting up the Saïd Business School in Oxford and in developing its curriculum. At the outset, we included in the curriculum short but important areas about the environment and ethics. After a couple of years, they were conveniently dropped from the syllabus, because the students were not interested in the environment or ethics; they just wanted to know how they could make the most money.
It occurred to me that company directors feel that they have a responsibility to their shareholders rather than the public at large; that accountants are concerned about the profits of those who employ them, not the general good; and that it appears that bankers—certainly, from the examples given by my noble friend—are mainly concerned with financial manipulation in the interests of the bank. They are the people who benefit from the very large sums of money that were referred to just now. I am also afraid that lawyers often act, not in the interests of truth, but in the interests of whoever employs them.
There was an interesting article in the Times yesterday, by Daniel Finkelstein—not someone whom I read often—which accused the Conservative Party of existing mainly on the interests of those who are “rich and secure”.
A huge number of people in this country, the overseas territories, the third world and developing countries are completely left out of the strata of society that we have had so graphically described to us. We all know that large amounts of aid that pass to developing countries find their way into the pockets of the people who lead those countries. We have had many debates about Zimbabwe, for example, which we hear about almost every month when the noble Lord, Lord Blaker, asks a Question. The money that has gone there has gone to tax havens, outside the country.
It ill behoves us to moralise about Robert Mugabe when this country and people here do business with the tax havens concerned. I am not trying to preach a Sunday sermon, but I am saying that moral behaviour starts at home. We cannot even excuse ourselves, as I thought the noble Baroness, Lady Hooper, did, by saying that a lot of other people do it; that is not really an excuse, if people who operate here operate under the mottos quoted just now. Of course the financial situation must be viewed as a whole, but we want to see this country taking a prominent position in campaigning and planning against these sorts of abuses which, in the end, are paid for out of the pockets of
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12.17 pm
Lord Burnett: My Lords, I congratulate my noble friend Lord Wallace of Saltaire on securing this debate at such an opportune time. I declare an interest, in that I am a lawyer and I do quite a lot of tax work.
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