UK public enquiries and Royal Commission tend to have a habit of going on for ever. And by the time one actually gets round to publishing a report on its findings the reasons why it was established, or the questions which it was meant to explore, if not answer, can sometimes be forgotten. Nonetheless, there is a case for arguing that the UK government should establish a public enquiry or Royal Commission on offshore financial centres in the wake of the findings “revealed” by the so-called Paradise Papers.
For whatever their shortcomings in terms of timekeeping there is at least one important corollary. The scope and range of a public enquiry and/or Royal Commission’s investigation can be all encompassing.
It might take a few years. But questions relating to what an offshore financial centre actually is, what it does, who uses it and whether or not its activities serve any useful purpose will, if nothing else, be fully explored and supported with written and oral evidence provided by a huge range of sources.
Take the first question, for example.
Opponents of offshore financial centres such as members, associates or affiliates of the International Consortium of Investigative Journalists (ICIJ), such as The Guardian, along with members of the British Labour Party seem to take a very myopic view.
Offshore financial centres, in their view often tend to be either British Crown Dependencies (e.g. Guernsey, Jersey and the Isle of Man) or British Overseas Territories (e.g. Bermuda, the British Virgin Islands, the Cayman Islands and Gibraltar etc.). Furthermore they are opaque and secretive tax havens that shelter the wealth of very rich individuals and their families along with the profits of big multinational corporations.
The reality is, of course, very different.
The global universe of offshore financial centres is very much larger than the Crown Dependencies and Overseas Territories. Indeed it could be that there are almost as many “offshore” financial centres as there are sovereign countries or independent jurisdictions. Someone’s “onshore” financial centre will turn out to be someone else’s “offshore” centre.
And they can be just as actively engaged in those activities in which the Crown Dependencies and Overseas Territories are alleged to engage.
According to Gabriel Zucman, an associate professor at the University of California Berkeley, and one of the leading global experts on offshore financial centres, the European Union’s offshore financial centres or “tax havens” are no slouches when it comes to helping big corporations evade taxes.
“Our research shows that six European tax havens alone (Luxembourg, Ireland, the Netherlands, Belgium, Malta and Cyprus) siphon off a total of EUR 350 billion every year,” he wrote in an article in The Guardian on 8 November ("The Desparate Inequality Behind Global Tax Dodging"). “This is the profit generated in mostly EU countries which ends up after being manipulated by armies of accountants in Luxembourg or the Netherlands being taxed at bargain rates, typically between zero percent and five percent. Globally our data suggests more than EUR 600 billion is artificially shifted by multi-nationals to the world’s tax havens each year.”
Furthermore, many of these financial centres or “tax havens”, especially those located in rich countries tend to be much more opaque and secretive than the Crown Dependencies and Offshore Territories.
The situation may have changed.
But it wasn’t all that long ago that some constituents of the United States, most notably Delaware, appeared to operate “an anything goes” policy when it came to establishing trusts and other vehicles for holding financial and other assets for use by non-US citizens. And the situation may not be any different in other rich countries that appear outwardly respectable.
“On some measures of tax and corporate transparency and combating money-laundering Jersey, the Cayman Islands and some other havens score better than many rich countries,” says an article in the current issue of The Economist ("Sun-kissed Storries, The Economist, 11 November").
“Plenty of dubious or downright nefarious things happen offshore. But it would be a pity if the Paradise Papers were to reinforce the cliché that the culprits are palm-fringed islands, when it is the much larger, onshore financial centres, such as London, New York and Miami, that offer the most attractive combination of respectability and secrecy - making them magnets of unparalleled power for the world’s tainted money.”
So who uses offshore financial centres or “tax havens” in addition to crooks?
The answer is just about everyone, especially if they invest offshore, i.e. hold investments in companies, corporations or other investment vehicles that are domiciled and operate outside the investor’s domicile.
“Thousands of private-equity and hedge funds are registered in tax havens,” notes The Economist. “This is often to avoid an extra layer of taxation in the fund’s country of domicile, not to dodge tax owed in the investor’s home country. Most if not all large pension schemes...invest some of their money in such offshore vehicles.”
All this means that many of those that have been most vocal in expressing their abhorrence to the “revelations” contained in the Paradise Papers are just as culpable, as a public enquiry or Royal Commission would reveal.
And that is before a putative enquiry/Royal Commission looked at the tax saving activities of some of the leading protagonists attempting to fuel the sense of outrage against Appleby, the Bermuda-based law firm behind the Paradise Papers and its clients.
Perhaps The Guardian should have pride of place here.
For The Guardian, or rather the Guardian Media Group, is no slouch in using offshore financial centres in avoiding tax. It apparently avoided paying any tax on the £300 million it earned in 2008 from the sale of Auto Trader through using a web of tax shelters in the Caymans. And it also takes full advantage of the facility of being able to move profits from high tax jurisdictions to lower ones like Apple and Alphabet.
Perhaps the Guardian Media Group is not an Appleby client, however. So its army of investigative journalists might not have come across these findings.
But Trinity Mirror, the owner and publisher of The Mirror, which has also criticised “tax dodge parasites” is, however. Appleby looks after its employee benefit trust.
Offshore financial centres also have legitimate uses to protect individual’s assets from hostile and rapacious governments, something Margaret Hodge, one of the most ferocious critics of tax evasion should know only too well as the beneficiary of a Liechtenstein trust previously held in Panama.
A public enquiry or Royal Commission would get to grips with all this and more.