25 Aug 2011

Filthy rich: the truth about tax havens

As George Osborne agrees a deal to recoup £5bn in unpaid tax from UK nationals banking in the secretive Swiss system, Channel 4 News pries open the vault doors of the world’s biggest tax havens.

Filthy rich: the truth about tax havens (Getty)

For years, wealthy UK nationals have been able to stash their untaxed earnings in Swiss banks, relying on the country’s notoriously secret banking system to avoid the knock on the door from Her Majesty’s Revenue and Customs.

But now the UK Government says it has done a deal to tackle this type of offshore tax evasion.

Under the new deal, existing funds held by UK taxpayers in Switzerland will be subject to significant one-off deductions; a new tax will be put in place on UK funds in Swiss banks in future; and there will be more information sharing between the jurisdictions.

We will be as tough on the richest who evade tax as on those who cheat on benefits. Chancellor George Osborne

The Government hopes it will reap up to £5bn from the agreement.

Chancellor George Osborne said: “We will be as tough on the richest who evade tax as on those who cheat on benefits. The days when it was easy to stash the profits of tax evasion in Switzerland are over.”

Read more from Economics Editor Faisal Islam: will Osborne's Swiss tax raid work?

But are these days really over? Hardly, says tax haven expert Nick Shaxson.

“It’s a pretty shabby and cynical deal really,” Mr Shaxson, author of Treasure Islands: Tax Havens And The Men Who Stole The World, told Channel 4 News.

“For a bit of money, it’s giving blanket impunity for people evading taxes, which is a criminal activity. At a time of austerity and soul-searching in the UK over the riots and the moral breakdown at the top and bottom of society, we now have this spectacularly badly timed deal, where secrecy will be preserved and those breaking the law will go unpunished.”

He says it also risks derailing a wider agreement being worked on in Europe to improve financial transparency across the board. But a spokeswoman for the Treasury defended the deal, saying it recouped money where many had believed the UK would never get it back. She also said the deal was not “mutually exclusive” with the wider European plans, and stressed that £5bn was a “significant” amount of money.

Monte Carlo and other rich playgrounds are seen as tax havens (Getty)

Tax havens

But Mr Shaxson said the really disturbing thing is the place this deal has in the wider web of financial secrecy which stretches across the world and facilitates the actions of criminals, corrupt companies, and dictators. He believes the UK is at the heart of this web.

“Generally it has been big countries accusing palm-fringed islands in the Caribbean of nicking all their money – that’s legitimate but these same countries pointing the finger are engaged in the same practices. There’s huge hypocrisy,” he told Channel 4 News.

The only objective ranking of tax havens, the Financial Secrecy Index, has the US state of Delaware at its head. In the 2009 index, its followed by Luxembourg, Switzerland, the Cayman Islands, and then the City of London.

“Tax havens are not just tax,” said Mr Shaxson. “Secrecy is another thing and lax financial regulation – come here and we won’t bother you too much. The UK is huge in that respect, particularly in allowing Wall Street banks to come to London and do what they are not allowed to at home.

Generally it has been big countries accusing palm-fringed islands in the Caribbean of nicking all their money. Expert Nick Shaxson

“The UK has a special place because a lot of traditional tax havens are British linked – Jersey, the Cayman Islands, Gibraltar. It’s also lax on criminal money – there is all sorts of dirty money from all around the world in the UK and a deliberate turning of a blind eye to this kind of thing in many tax havens. The non-domicile issue is another important one.”

Tax havens - not always where you'd expect (Getty)

But the system which saw dictators like Libya’s Colonel Gaddafi hoard assets and cash in London can be fixed, an expert told Channel 4 News.

Tax evasion campaigner John Christensen – who taught Gaddafi’s son Saif economics while he was at the London School of Economics before pulling out when he realised Saif had “absolutely no academic ability” – said it can change.

“There’s a lot that can be done immediately,” said Mr Christensen, the director of the Tax Justice Network.

“If there was a strengthening of global information sharing arrangements, tax havens would lose a great deal of business.

“The second thing that could be done is requiring proper disclosure of who is behind offshore companies and trusts. There’s a lot that can be done. It’s just a question of political will.”

Treasury statement
“The UK Government has been at the forefront of international efforts to tackle tax evasion. Improving transparency and exchange of information between tax authorities is the key to this.

“Over the past year, we have seen unprecedented progress on tax information exchange, with over 500 Tax Information Exchange Agreements and Double Taxation Agreements having been negotiated to the international standard.

“In addition, the Global Forum on Tax Transparency has been conducting a robust peer review process to ensure that countries are fully implementing their commitments. The agreement with Switzerland is the latest step in HMRC’s crackdown on tax evasion. There are increasingly few places for evaders to hide their money.”