The UK is responsible for its tax havens

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The House of Commons' Public Accounts Committee (PAC) has reported on the UK's Crown Protectorates a day after the Treasury Select Committee announced it was to look at tax havens.

The PAC report is damning. In summary it says:

Regulatory standards in most Territories are not yet up to those in the Crown Dependencies. Limited capacity also reduces the ability of Territories to investigate and prosecute money laundering. The Department has written to UK agencies, such as the Financial Services Authority, the Treasury and the Serious Organised Crime Agency, to emphasise the need for their involvement.

The reference to the Crown Dependencies is, I hope, ironic. As I have shown, in Jersey not a single report of suspect money laundering was reported in 2006. It's not a standard to aspire too.

What is telling is this though: the report makes clear that the UK has absolute responsibility for the fraud that takes place in its territories. And what the report also makes abundantly clear is that it is totally failing in that responsibility. The most damning sentence is this:

Territories' financial services lack the investigative capacity to scrutinise suspected money laundering activity fully and Governors have not used their reserve powers to rectify this. In such a sensitive aspect of the global financial system it is complacent to allow territories for which the UK is responsible entirely to manage the risk themselves.

The message is blunt, and simple: The UK has a duty to intervene.

And, as the report also says, it's the duty of these places to pay for that intervention. It is, the report notes, absurd that:

The UK continues to subsidise wealthier Territories such as Bermuda and the British Virgin Islands, in the latter case providing over £600,000 of free services each year to regulate civil aviation on their behalf. Unless there are compelling reasons to the contrary, the UK should charge for services such as aviation regulation where Territories are able to pay from their own resources.

In other words, these places should raise tax to pay for the regulation they need.

In one sense this report gives indication that the argument on this issue is over, all that is needed now is action. It is glaringly obvious that the UK is now responsible for the tax evasion, fraud and crime that occurs in its Protectorates and Dependent territories (the latter all being dependent on UK police support for their money laundering monitoring) in which case we can and should take the requisite action to ensure they either meet international standards, or we should shut them down.

But will the government have the nerve to do so?

This is not just a practical question. It's a moral one. Tax havens cause poverty in the developing world. Will Gordon Brown accept the responsibility for shutting down these havens for which he is responsible? Almost nothing he could do could do more for development. It's time for him to act.