I seem to have touched a raw nerve in Jersey and Guernsey with a recent blog (There are lies, d***ed lies and some in the offshore financial services industry).
Maybe it's the word 'lied' they don't like - but let's be clear, the analogy was with the capacity of statistics to convey misleading information, for those who had not noticed, but either way comments have made it to the site, and one or two have not as well. As is normal, of course, those commenting have sought to hide their identities, and so their credibility is in doubt, but JTM started the ball rolling with this:
I think your allegations still have no material back up. Give us actual proof of tax evasion that is happening now, report it to the Authorities and then people may take you seriously. We already follow anti-tax evasion procedures so at the moment I can only view your finger pointing as hearsay.
I know for a fact that it does not happen in my firm.
Well maybe it does in your firm JTM. I did say 'some'. Mol added:
Maybe you have the wrong end of the stick. Maybe the Jersey police are noting the amount of SAR's that they have forwarded overseas..
I know for certain that Jersey firms have filed SARs and likewise in Guernsey STRs during 2006 totalled over 500
There are tax avoidance schemes which are not tax evasion, until such time as they are deemed tax evasion then they are not illegal.
JTM supported him:
MMol is right about the Police dealings with STRs we were told at a presentation by the Police on anti-money laundering.
Richard seems to be clutching at straws in order to try and stir gossip in telling people that Jersey is run by cowboys and supports tax evasion.
This is total rubbish and Richard's comments should not be taken too seriously. He should either prove there is USD400M being evaded in tax or otherwise shut up.
Two people provided links to Guernsey's money laundering report for 2006 as evidence to support their case.
So, let's deal with the real evidence.
First, £400 million of tax has been collected from 45,000 people who had made payment to /HM Revenue & Customs under the so called tax amnesty that expired on 26 November. Over 60,000 made declaration of liability. The Revenue believe 100,000 have liability from just five banks. As the FT noted:
The tally could be swollen to as much as £500m once outstanding payments are received from 300 people with particularly big and complex offshore holdings who have been given extra time.
The Revenue is now chasing customers of another 170 institutions. The figure is expected to rise considerably when they are brought into the net. Serious tax evaders do not use mainstream banks. In addition, serious tax evaders would not have used the amnesty as they got no immunity form prosecution.
And let's be clear, this money came almost entirely from the Crown Dependencies. Using the ratio of relative deposits established by Marty Sullivan it's likely to be split 50% Jersey, 20% Isle of Man and 30% Guernsey.
So we have at least 45,000 people in just five banks admitting they have evaded tax totalling about £500 million, including a 10% penalty. Call that £450 million of tax. Most will be at 40%. So the interest not declared amounted to £1 billion or so. At 5% that's £20 billion of funds required to generate this if all paid in one year. I accept that's unlikely. Suppose the average holding period is five years. That's still £4 billion of funds held on which tax is evaded. Hard to miss, I'd say.
But in 2006 not one person in Jersey filed a suspicious activity report suggesting criminal money laundering - which is where tax evasion would appear in the register if it were to do so. I accept by the way that such allegations were investigated - but all the reports came from outside Jersey. That's why I can say with confidence that the financial services industry in Jersey is not reporting tax evasion.
And the combined evidence from HM Revenue & Customs and Marty Sullivan is that evasion is rampant.
I feel little less sanguine about Guernsey. There the rate of declaration of suspicious transactions is falling. It peaked at over 700 in 2001 and is now a little over 500. Of these about 35% relate to forgery, fraud and false accounting. Apparently tax evasion would fall in there. We may be talking at maximum 190 reports. And if we kook at the same distribution of reports in Jersey we see that forgery and basic fraud was well reported, money laundering was not. Forgery and fraud includes credit card theft, identity fraud and commonplace false accounting in the local economy after all. If I'm generous there may have been 10 tax evasion reports in Guernsey. And I'm being generous to conclude that.
So, to put it bluntly tax evasion reports are not taking place, as I said, and if they are we can count them on two hands. In which case those who say they are doing plenty of them have a problem in justifying how they don't get to the authorities.
And in my opinion the authorities should be inundated with such reports. The reason is simple. Since 2005 the EU Savings Directive has applied in the Crown Dependencies. Every bank has had to ask its depositors if they want to declare their interest in their home country or not. I gather about 70% have asked that the interest not be declared and that tax be withheld. Now if I was the responsible money laundering officer (and I am a money laundering officer) I would immediately presume that those who said they did not want the interest disclosed were not declaring the interest in their home state. If they were not, why ask for the interest not to be declared after all? The only exception might be for sums of interest less than £1,000 in total held to ensure tax was not deducted on the earnings of some pensioners to save tax being deducted at source in some states. With this exception I am of the opinion that every holder of every account where non-declaration occurred should have been subject to a suspicious activity report - because the money laundering officers must at least have doubt as to whether the person receiving the cash was declaring it as required by law in their home state in that case. And doubt is enough to require submission pf a report. Evidence is not required. And failing to declare a suspicion is itself an offence.
But this is not happening. And therefore I do suggest the entire financial services industry offshore is complicit in failing to declare its suspicions that money laundering in the form of tax evasion is taking place.
So I stand by my suggestions. Now please say why I am wrong.
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I encountered this
Tax Competition With Parasitic Tax Havens
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=902577
You are obviously commenting about banks, and as I work in Trust this is slipping into a tangent and away from my daily line of work. But I know for a fact that last year the authorities were inundated with such reports and anybody holding an offshore account which could be evading the EU savings directive must provide proof of tax advice, if they do not do this then such people are reported, remember that it may be confidential and if ongoing enquiries are being made then it is hardly going to be made public, remember tipping off. I don’t actually see why such reports with figures are in the public interest in any case, or is it just to shut up the sceptics like yourself? You have said that no such STRs are made, and I have attended Police presentations only this year and they have told us that they are, so, I really do not know where this is going now because if what you are saying is correct then the Police are lying.
JTM
So we have reached agreement. Someone seems to be lying.
And I assure you, it isn’t me.
Richard
In order to submit a report you need the hard evidence..
You can’t just submit a report on a client without first being suspicious or being made aware that your client is evading tax. Whether that be the client themselves openly admitting to it (which I hasten to add is now extremely rare) or whether your suspicions are raised by maybe them only ever drawing money out of the hole in the wall, or requesting cash collections (which again are extremely rare these days)
All clients now pay with holding tax under the EUSTD, those clients who are evading tax are obviously being extremely careful how they manage their accounts in the offshore centres so as not to raise any suspicion or suggestion of tax evasion.
Its most definitely not as easy as you think..
Tell me how you would deal with it??
Mol
Your answer is ludicrous
Paying tax at 15% under the EU STD is not evidence that the client is not tax evading.
It is sufficient evidence in itself to suggest they are tax evading. Why opt for tax deducation and complicate your home tax affairs but for reason that you have no intention of paying the additional tax due in your home state.
The answer is simple and obvious. Prima facie opting for tax withholding is evidence of intent to deny information to a home state – and therefore of intent to tax evade.
EVERY person opting for tax withholding needs an SAR (STR in Guernsey).
Why aren’t you doing them?
Richard
I think you’ve read my answer completely wrong. I’m not saying that the EUSTD is there to stop tax evasion.
I’m saying you would not be doing your job correctly reporting every single person in an SAR / STR to the relevant agencies. You would not be disclosing in good faith any form of knowledge or suspicion.
If you want some interesting hot off the press stats from the Jersey FIU which shows that over 400 SARs were submitted in relation to tax here goes:
2007 has been the busiest year for JFCU since 2002, with 1424 STR’s being received between 1st Jan and 30 Nov of 2007. 33% of disclosures in 2007 related to taxation this being linked to the UK tax amnesty, 16% were a result of police action (Liaison Notices, Police enquiry and production orders). The remaining 51% of STR’s were disclosed in relation to Due Diligence, cash in and out, media… showing the industries continuing vigilance and awareness of Money laundering.
As with previous years, the majority (65%) of all STR’s have been disclosed by Banks, 24% coming from Trust Companies, 3% from Investment Businesses and 3% from Fund Managers. Over the last 3 years there has been an increase in disclosures from Fund Managers reflecting the growing importance of the industry and their understanding of money laundering issues.
169 institutions made disclosures between 1st Jan to 30th Nov 2007, 60% of which came from 10 institutions. 71 institutions made one disclosure each throughout the year, accounting for 5% of all disclosures.
When speaking about EUSTD you might be shocked to know that a large percentage have elected to exchange their information.. Why would these people be considered as tax evaders when they have openly opted to allow their information to be passed onto the relevant authorities??
Mol
Please do not be ridiculous. Of course if people agree to information exchange there are no grounds for suspiscion. That is my entire point. In every case where agreement is not given there are prima facie reasons for reporting.
That wouldbe disclosure in good faith.
It is required by your law.
It is illegal not to report.
How do you defend not doing so?
And how come 400 STRs were submitted when maybe 10,000 people declared evaded cash from Guernsey? And why submit only when it was known that the game was up? Reporting after the event is not reporting at all. It’s an admission of past guilt.
You have not addressed my points at all.
Will you now do so?
Richard
You have a choice of exchanging information or asking your banker to retain the tax and provide you with a certificate which you can then produce to HMRC to recover some of those taxes.
It is and has always been the responsibility of the account holder to declare / disclose.
Are you telling me that we should consider that all UK account holders are money launderers?? What about the individuals which are not ordinarily resident in the UK for tax purposes? We have alot of those in the CI. Are you suggesting that we (the bankers) should investigate these people and have an understanding of their tax affairs? If so, then of course you would expect all bankers to be qualified UK tax experts would you not?
All individuals are advised to seek advice on their tax affairs, we as bankers are not qualified tax advisors and do not hold ourselves out to have anything more than basic knowledge.
For those account holders in the CI who have adopted a wait and see if HMRC can find us approach, then of course they will be found out, the mist is clearing and where we (the banker) notice any suspicious activity or request for increased confidentiality then this is cause for alarm which would then result in an STR and subsequent disclosure to the authorities.
Where STRs / Disclosures have been submitted, you are not talking of just an hour or a days worth of investigation on that account. Sometimes it may take 2 to 3 weeks to gain enough information on that one account that can then be provided to the FIS / FIU.
Again I refer back to the amount of Compliance and FIS / FIU staff you seem to think we have in the CI. 400 STRs if that is the figure, is quite a significant amount – some may have taken a week to prepare some more like a month. Before those STRs / disclosures are made there would have been time to communicate with the account holder and ask for copies of tax advice to satisfy ourselves that they are not evading tax.
As a matter of course we (the banker) will always ask for copies of tax advice where we might have a hightened degree of awareness over the account. If the copy of the tax advice is received and appears to be legitimate then what would you then expect us to do?
Mol
Your comment is staggering
You say that before submitting an STR there “would have been time to communicate with the account holder and ask for copies of tax advice to satisfy ourselves that they are not evading tax.”
Don’t you undertsand the concept of “tipping off”? This is giving those people notice that they are under investigation. That is itself an offence under proper money laundering rules punishable as a crime.
If that is what you do you are by definition complicit in the process of money laundering in my opinion since, as you note, this is not standard practice and will therefore act as a signal to the account holder that an investigation is under way.
The rest of your posting reveals a simialr lack of understanding. You need have no knowledge at all of the taxpayers affairs, whether in the UK or any other EU state. All you need do is have suspiscion that they may be money laundering. That is why these reports are called suspiscious transaction reports. And an account holder’s request that information not be disclosed about interest paid to their home tax authority is, in my opinion, a reasonable basis for believing that money laundering is happening because the probability of evasion in that case is high. That is not just sufficient basis to report, it is a basis for requiring a report. You need know no more. Failure to report is, of course, a criminal offence.
This would take no time at all to investigate. I’m sure a bulk submission would also be allowed, say on an Excel spreadsheet. All it would take would be for the bank to list all EU residents who have not agreed to disclose details of their interest earned to their home countries providing name. address and the amount paid and the obligation to report suspected money laundering in the form of tax evasion would be fulfilled.
How can you deny that this is the bank’s duty?
Richard
[…] second correspondent is as absurd. He wrote this when I suggested all banks in the Channel Islands should report all people who have refused to […]
Your reply is staggering in itself..
You obviously don’t understand the concept of tipping off.
We as bankers have a relationship with our clients. If something they do or say puts us in an uneasy position or takes us out of our comfort zone then we are obliged and should in all cases ask questions in order to allay any uneasiness.
If the client doesn’t provide us with sufficient information / documentation / evidence to satisfy us and put us back in our comfort zone then we go into the state of “suspicion” which is when we would be likely to submit an STR.
How on earth do you think that asking questions of the client is tipping off?? You can only be tipping off if you know or suspect that there might be an investigation ongoing into that client. If you have not submitted an STR / disclosure or received a production order then how on earth could you prove that you would be tipping off??
By asking the client for copies of tax advice we are covering ourselves and ensuring that we understand the clients financial affairs a little better. If that client fails to provide information requested then that would put us into a suspicious mind and then an STR / disclosure would ensue.
If we did not ask the clients for information and did not have sufficient evidence in order to disclose then we would not be doing so in good faith.
Do you not understand the concept of tipping off?? I’m quite happy to give you a more detailed overview if you like
A person commits the offence of tipping off if he or she knows or suspects that a report has been made relating to knowledge or suspicions of a money laundering offence and he or she makes a disclosure to the alleged offender (either directly or indirectly) so as to prejudice any investigation which might be conducted following the report.
So can you explain to me (apart from the cases where you might STR / disclose etc) how we would be tipping off if we asked a client questions relating to their tax affairs or conduct of their account?
Final comment so far in this about to be epic.. If we do not disclose in good faith then we are not covered by AML legislation..
SO in essence you are asking us to disclose where we do not have sufficient grounds to disclose and where we could potentially end up being the ones sued and ultimately sent to prison??
Why should we not be allowed the time to ask our clients the questions?? Are we meant to be business prevention businesses? The majority of finance in the CI is private banking. Private banking means that you are given a more personal service and have a relationship manager who is there to assist you and understand your financial affairs. Would it not make more sense for us to allay our fears or at least attempt to allay them?
Has something changed – are people guilty until proven innocent?
Mol
I disagree with your interpretation if tipping off. So might the Jersey Financial Services Commission. It says at http://www.jerseyfsc.org/pdf/aml_and_dp_guide.pdf :
In order to prevent individuals and financial services businesses from warning the subjects of SARs that they have made a SAR, money laundering legislation also criminalises ”tipping off”. Inter alia, where a person knows or suspects that a SAR has been made to a police officer, it is an offence to disclose to any other person information which is likely to prejudice any investigation which might be conducted following the making of the SAR. Under the Terrorism (Jersey) Law 2002, an objective test is used to determine whether the offence is committed; a person need only have reasonable cause to suspect that the SAR either had been made or will be made to commit the offence of tipping off. The most obvious example of a disclosure likely to prejudice an investigation is letting an individual know that the authorities are interested in him so that he has time to destroy evidence.
The abnormal appraoch you describe to ask a client to justify their action is enough, in my opinion, to constitute tipping off due to the fact that you acknowledge that a request for information on a customer’s tax affairs is rare.
The UK 2002 Proceeds of Crime Act makes clear that ‘tipping-off’: it is a criminal offence for anyone to do or say anything that might ‘tip-off’ someone else that they are under suspicion of acquiring, retaining, using or controlling proceeds of crime. That applies whether or not any report has been made to NCIS.
I think you contravene this principle which is also in Channel Islands law.
As such I think your approach contravenes the law and may be illegal.
Worse, it is an action taken not in good faith but blatantly in bad faith, to protect the customer. Reporting all customers of a Channel Islands bank who have not asked for information exchange on interest paid would be obviously an action taken in good faith, and is REQUIRED by law in my opinion. Your comments are simply cover for what I consider your criminal conduct.
That you do not undertsand this is apparent from your last comment. It is not your duty to prove tax evasion. It is your duty to report suspsicion of tax evasion. It is obvious you are not doing so. That is criminal conduct on your part. Your failure to appraise yourself of this requirement is also, quite literally, criminal.
What further evidence need I present of the failure of the fiancial services industry in the Channel Islands to fulfil its legal obligations than this?
And I make this point: it is the corruption you endorse through your criminal conduct which will eventually destroy your industry and harm many innocent people in the Channel Islands. But that will be necessary to stop the wilful connivance of the industry by turning a blind eye, as you clearly do, to the criminal activities, including tax evasion that are taking place within your companies, and which you do not report, meaning you commit criminal activity daily.
I rest my case. You said this was your final comment. I do likewise. My case is proven.
Richard
It was my final comment so far.
As a matter of course I think you will find shortly that alot of the CI banks with remove the withholding tax option, moving to full disclosure.
This is because we understand there is a “grey” area which can potentially cause problems. Its not as clear cut as you are trying to describe on this blog.
There are countless issues that may arise which you have not considered and your insistence that we should automatically disclose on all UK clients is absurd. For a start SOCA / HMRC would be unable to deal with the onward disclosures from the relevant FIS/FIU’s they would just enter the abyss. They would not be happy with receiving huge amounts of information on clients which they would then have to investigate only to find those clients are completing their tax returns accurately. How do you expect that they would cope with the extra workload of which a large proportion would be wasted time and energy?
If you had it your way and ALL UK clients were disclosed on, how would you then expect us to then manage the clients accounts once they have been disclosed. We have to continue to manage the relationship as if we don’t that could put us into a tipping off position.
Once a disclosure has been made then that account will be monitored constantly. Every transaction / discussion with the client would need to be disclosed to the relevant FIS/FIU the amount of work would be monstrous.
So for you to say that disclosure is the only way to go really is absurd. If we ask the client for a copy of tax advice and they refuse then we would immediately disclose. If they provide us with all information requested then why on earth would we want to disclose??
It would be great if we could get some input here from a representative of one of the FIS/FIU’s or the HMRC to give their thoughts and guidance
Mol
You clearly know what you’re talking about, so why are you making so many excuses which only show how hard the finncial services industry in Jersey works to avoid its obligations?
Of course the UK would like all the information that should have been disclosed by you. That’s why it set up the manesty scheme. It can handle the work.
And to say that to report would block up the system is not a reaosnable excuse for not reporting what you know is due, and which it is your duty to report on pain of criminal prosecution.
And surely you know that reporting does not stop a transaction proceeding? Consent can be given, and no doubt could be negotiated in bulk in this case, without difficulty of tipping off arising.
So your comments are simply excuses for criminal conduct. But there is an issue on which we agree – it would be good to have HMRC and FIS/FIU input. Why don’t we arrange a meeting with them, you and me and them? I will not disclose your identity publicly.
Richard
[…] correspondence with a member of the financial services community in Guernsey is […]
[…] taking place (and at best 100 or so money laundering reports were made in this respect in 2006 and about 400 in 2007) then a crisis would be recognised. I’d expect there to be a public outcry. I’d […]