We no longer need to say, as we once did, that tax havens (or secrecy jurisdictions as we prefer to call them) are a problem: we have proven that to be true. Day by day more and more people are convinced that action needs to be taken against tax havens. Gordon Brown has now been added to the list of Barack Obama, Angela Merkel and Nicholas Sarkozy.
But almost hourly people call me and ask “what can be done?” It is a reasonable question: some tax havens like Switzerland and Luxembourg are sovereign states. All have the right to pass legislation. It is that right that lets them deliberately undermine the regulation (whether with regard to tax, financial regulation, inheritance, trade or more besides) of other states, which is the sole characteristic that they all share in common. What this question boils down to is ethical speculation on our right to apparently interfere with the sovereignty of another jurisdiction.
So let me deal straight away with the ethics of tackling tax havens. This is important: the tax havens won on this issue the last time they were attacked, principally by the OECD from 1998 onwards. This happened because of the way in which the OECD defined the problem. They said a tax haven was a place with:
a) No or only nominal taxes
b) Lack of effective exchange of information
c) Lack of transparency
d) No substantial activities
In a sense they were right, except this described the symptoms of the problem, not the problem itself. As such the focus was on changing the behaviour of the haven itself, not on mitigating its effect in the states demanding change. This was bound to fail, and fail it has because in the intervening ten years we have learned that the havens have no intention of changing their behaviour, and we have only limited power to make them do so (except in the case of the incredibly important UK dependencies — where direct action is possible). In that case this was the wrong definition producing the wrong policy outcomes, however laudable the OECD’s objectives.
If instead of focussing on the tax issue (which is important, but not key) and instead we focus on the secrecy issue (which is the core problem, whether it be tax, financial or other regulation that is being abused) then we must define a secrecy jurisdiction and not a tax haven.
I define a secrecy jurisdiction as a place that intentionally creates regulation for the primary benefit and use of those not resident in their geographical domain that is designed to undermine the legislation or regulation of another jurisdiction and which, in addition, creates a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.
This then makes it clear that the actions of the secrecy jurisdiction provide us with the ethical answer that we need to justify action against them. They have chosen to attack the sovereignty of other places to promote their own economic well-being. Those responding to that attack with economic sanctions are doing so as an act of self defence to preserve their sovereignty. They are not attacking the sovereignty of another place. As such sanctions can be ethically justified.
This is the basis on which the attack on tax havens / secrecy jurisdictions must be built. We can win from this launch platform.
I’ll deal with the appropriate sanctions later.
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I don’t want to be pedantic but your definition of a secrecy jurisdiction includes the word “designed” – which is surely another point on which the likes of Jersey would hang their hat. How about this:
…..not resident in their geographical domain that RESULTS IN THE UNDERMINING OF the legislation or regulation of another jurisdiction…..
Nick
Intent is key here
Accidental undermining is almost inevitable from time to time
Intentional is key therefore
And Jesey, for example, knows that its EU STD appraoch is deliberately designed to facilitate tax evasion in the UK and elsehwre – and actually does so
Results in is not enough therefore – that it was foreseeable is required to indicate culpability
I think – but comment is welcome
Richard
Why try to change the behaviour of the Sovereign state? You (nor anyone outside of that state) have any clout, control, mandate or evidently any ability to do so. Ethically your argument doesn’t stack up. You have no right to dictate how you; not resident in that state, think the state should run its affairs. If you think you have a right to dictate to Sovereign states about how they run their affairs, why stop at tax?
I wonder have you been missing the point all along? The real problem lies with your fellow countrymen and women. Isn’t it their behaviour you need to change? If they didn’t avail themselves of the facilities available in theses states, the problem would be solved. It seems to me the focus of your anger and desire to change behaviour should be on your own citizens rather than the states your citizens choose to use.
IO
IO
If another state is interfering with the affairs of the state in which I live then of course I may suggest mine respond. This is self defence, not an attack on that other place.
And if I cannot find who in my state is availing themselves of the abuse that other state facilitates then I have additional reason for taking action. After all, the secrecy jurisdiction is aiding and abetting crime. Maybe you think that ethical. I do not.
Richard
We will undoubtably disagree on this. The Souverign state is not interfering with the affairs of the state in which you live. They are doing nothing in your state or directly to your state. It is the citizen of your state that are exercising their choice, as you do on a daily basis when you want to buy goods or use services. Self defence is just your overdramatic excuse to justify what your approach.
Your second paragraph is another leap to justify your approach. If you can’t find who in your state is availing themselves of the ‘abuse’ (which is the problem you should focus on) then I would suggest you have more clout to do something in your state to prevent them. In other words use your law to manage your citizens. Don’t expect other states to change their law to control them for you. As for aiding and abetting, you really are being melodramatic.
Enoying the joust.
IO
Richard,
Have you considered the potential consequences of your attacks as well? You might be able to interfere with some small states that have limited abilities but consider for example the effect on your trade should you “attack” Panama who then retaliated by denying you access to the Canal, prohibiting it’s merchant marine, (the largest in the world by far), from carrying cargo to your island, seizing any UK government assets that it finds in its banks or that pass through its banks, expropriating all Panamanian registered ships that belong to UK companies etc? Combine this with similar actions on the part of others you propose to bully and you might just find that the damage to you would far outweigh the gain you recieve. Furthermore you once again set yourselves up as the John Bull colonialist beating up on the poorer small countries, not exactly conducive to assisting your endeavours re: terrorisim control, drug interdiction, etc.
If your citizens are fleeing to offshore tax havens it might be a good time for some serious and un-biased self-examination as to why exactly they feel compelled to do so. It will probably be painful but you would be better off for it.
Regarding the aiding and abetting, if tax evasion is not a crime in those countries than you have no authority to make it so simply to ease the burden of the incompetentcy of your own law enforcement. Your attempt to utilize their police and government resources and raise their taxes to do your investigation for you is both shameful and morally bankrupt. Stop trying to divert attention away from the fiscal irresponsibility that led you to your present state of affairs by blaming it on smaller states who were more conservative in their banking practice. At present it appears that your citizenry and business decided to stop funding it by turning off your revenue source!
IO and Mike,
Your comments sound like the Bono defence – hypocrisy.
The UK is home to a wealthy elite (and it is only the wealthy who have access to the “benefits” of secrecy jurisdictions), some of whom consider themselves above our laws. What you’re suggesting is that the rest of us should not only fund the gap left by the cheats but also do nothing about other jurisdictions that actively encourage that cheating. I’m afraid you’re living in cloud cuckoo land if you believe the majority of the population of any country would support that notion.
Applying you logic to Al-Qaeda, we have no right to apply pressure to jurisdictions that seem to support them, only an obligation to control UK sympathisers and wait for those other jurisdictions to support more terrorist attacks.
When they cause so much damage to so many people in so many jurisdictions, it would be laughable if it wasn’t so hypocritical to describe secrecy jurisdictions as those having more conservative banking practices.
Of course we have the right to and should go after those who undermine us. As Richard has already said, it’s no more than self-defence.
The idea that dealing with tax havens is somehow neo-colonialist is more hilarious than anything else. The tax havens are causing the third world some serious problems but the countries that really suffer from the capital flight to the havens are the the third world countries, who have little enough muscle in international negotiations.
Panama is an interesting exampleand of course if the UK was going out on some kind of a limb on this the threats that Mike suggests might be real. However, the raelity is that the UK is being dragged into this kicking and screaming. The idea that Panama is going to close its canal to the USA and the EU at the same time is fanciful, I think.
Also these old fashined “sovereignty of the state” arguments don’t really hold water in the interconnected world we live in today. Unfortunately, we do all have to consider the consequences of our actions on others, inconvenient though it is for the wealthy who wish to avoid any responsibility to anyone.
The brutal truth is that these secrecy jurisdictions merely represent the wish of a small number of the very wealthy to hold the vast majority of the world’s population to ransom. Which side do you wish to take?
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Good morning Nick
Nick I am not familiar with the “Bono defense” you speak of except that I presume it applies to one of the band members of U2 by that name? By your tone I imagine he must be another of your residents who was caught with his hand in some cookie jar which brings us to the next point.
You state that you are host to a wealthy elite who reside there and yet hide their money in various ways including offshore. Here I will certainly agree with all of you that to take advantage of your governmental sevices and not pay one’s fair share is at very least a morally difficult position to defend if not completely untenable. It still raises an interesting question however and I would appreciate your inputs on this.
In Norway just across your North Sea there is a very high tax rate approaching some 60% I believe and yet from what I can make out there appears to be little tax avoidance or use of offshore tax havens by their population. Furthermore I have many Norwegian partners in my line of work and when I ask them their thoughts on this rate they unanimously state that they feel that they are getting full value for their money and therefore it does not bother them all that much. To top all this off they are not exactly poor by any stretch of imagination and unlike many of us appear to be weathering the present economic storm quite well. Yet in the lead countries of the EU it appears that capitol flight must be endemic given the rant against the offshore states where you say it is going. This gives rise to the question why do your weathly citizens and your businesses see a need to send their money away? If your statement that it is simply their greed holds true than why is not the same thing happening next door where the tax rates are even higher? I would submit that perhaps they don’t see that they are getting their money’s worth after all? Your comments on this are eagerly awaited.
As far as applying the logic to terrorisim I strongly doubt that many if any of the offshore countries would refuse information to a viable and properly documented terror threat request by another government. You do not help your case however by such actions as seizing Icelandic assets under anti-terror laws. It tends to make the rest of us very suspicious of your real intent. I think your comparison is a bit of a stretch here.
Lastly I find it rich to be called hypocritical by a country who’s name along with the US appears on several lists as also having tax practices injurious to other nations. Oh but I forgot, a new “revised” list is being drawn up now. Now how convenient for you!
Hello James and welcome to the debate.
I think you might find it a bit surprising that in fact your actions along with “free trade” and globalisation are beginning to be seen by more and more local people as neocolonialisim under another guise, at least in this western part of the hemisphere. Instead of sending in the Marines to protect your interests, (no longer politically correct you see), they feel you instead attempt to dominate and bully them econonomically to keep them toeing your line. Now a number of the former colonies along with a few of the old United Fruit “garden states” have actually found a line of work they are successful and you complain that it’s hurting you because the shoe is on the other foot. They don’t find it hilarious at all.
I have lived in the Central Americas now for 13 years including in some of the poorest economies of the lot. The truely corrupt governments here don’t bother with tax havens they just take the money because they know that they can control the law to the point that there is no effective enforcement left to curtail their activities. They also have many other means at their disposal some very insidious and others blatant but these are too long to go into here. Suffice to say 8 years in Honduras was an eye opener and they rank even better than the US and UK on the blacklist! If they send their ill-gotten gains to the Caymans it’s far more likely to be because they are getting the better deal rather than because they feel they have to hide it.
I cannot speak for Africa or other areas as I have no experience there other than short work periods and will therefore accept your judgement on their situation for the present.
Meanwhile the EU and US have embarked on a campaign to “smash the tax havens” after having failed to regulate their own bankers,limit their own spending to match their revenue, loosening their own rules to allow any fool a mortgage without first determining if he could afford it, and generally gone out of their way to assist in lining pockets both governmental and private. As long as the pork kept flowing no one really gave a rat’s bum about the so called tax havens because their particular little plums weren’t being bitten into. Now it’s all come a cropper and in order to divert the citizen’s ire from themselves these governments blame the “secrecy/tax havens”? Sorry but to me this reeks of one very dead red herring. If they were such a drain why were you not doing anything back when times were so good?
As to the “sovereignty of state/ consequence of our actions” argument it cuts both ways. The old assumption of “EU/US always knows best” also no longer necessarily holds water as well. I’m sure many of these countries would welcome your advice provided they are approached with a modicum of equal restraint and respect but you must realize that if you intend to yank the economic rug from under their feet you had better be ready with a sound alternative or be prepared for rejection. Simply passing punitive laws and beating the jingoistic drums helps no one
Which side am I on? I too am angry at the whole financial mess we are presently in and along with many others screamed bloody murder when my government bailed out bankers and big business under the pretense of “too big to fail”. I reserve my anger for them however and not for small foreign jurisdictions who are in my humble opinion sidelines. I also feel that those who reside in their own country and do not pay their fair share have some serious explaining to do to their neighbors who do. But when these same governments attempt to chase down the chickens after their own malfeasence left the door open then blame the neighbors when they can’t be found and demand they be allowed to run roughshod over them while they search, then I have absolutely no sympathy for them and will personally take great delight in slamming the door on their big nose. It’s time they learne a little humility and respect for others.
Hello Mike S
Your initial comments gave the impression that you were coming from the discredited, neo-conservative point of view that we can all do whatever the hell we like without considering the consequences for others. Your response and subsequent post to James suggest that impression was correct. If I now read you correctly, what you really mad about, and quite justifiably, is government’s failure to identify what was coming and the sheer dumbness of so many consumers in believing that they could go on borrowing as much as they liked without any fear of what would be the inevitable consequences. So I’ll answer your points based on my new understanding.
1 Bono – this man is a serial tax avoider, ie someone who doesn’t want to pay his share, who has the gall to tell ordinary people who do pay their share to give their money and instruct their government to give their money to alleviate world poverty. This is no more no less than hypocrisy and it galls me greatly that a great deal more fuss isn’t made about it in our media and by our government.
2 Norway – I would suggest that the reason Norwegians are with their tax rates is quite simply that they have long experience of a system in which delivery of political and social objectives is actually achieved and as a consequence have never bowed before the God of self-interest promoted throughout most of the rest of the Western Hemisphere. I would suggest that both Norway’s relative economic strength and the satisfaction of its citizens with the value achieved from the country’s high rates of tax is a not unreasonable model for others.
3 Terrorism – You initially made the point that governments must legislate for activities within their own jurisdictions but do nothing to combat activities in other jurisdictions that could/would have a considerable impact on the legislating jurisdiction (sorry if that’s clumsily expressed). I supported and support the right to act in self-defence. The point I believe you miss is this: whereas I don’t doubt that offshore countries as you term them would provide information on a terror threat, one form of potential attack on another jurisdiction, they actively refuse to provide financial information, another form of attack, no longer potential but very much real, as the use of those countries to hide the real purpose of transactions processed offshore has demonstrated so vividly in recent times.
4 I am ashamed that the UK should be, as it clearly is, a tax haven and believe that our government should take all required steps to remove the UK from that list . I believe my position entitles me to use the word hypocrisy if that is what I perceive on this issue.
If you read Richard’s blogs on Jersey, how its representatives steadfastly refuse either to co-operate on providing information or to admit that they’re not providing information they’ve signed up to provide, you might have a clearer understanding as to why some of us want, not so much to close tax havens down, but to make it punitive for our own companies and individuals to use them unless and until the tax havens clean up their act and/or do what they’ve undertaken to do.
I agree totally with you view that countries should deal with each other with restraint and respect basis and not by wielding big sticks. But what’s the next step when that approach yields no results?
I agree totally with you that we should not close down small countries whose tax haven activities are economically critical for them. But, when research shows that tax avoidance/evasion costs the world about 5 times as much as all government aid to poor countries, surely the best way of finding the funds to help them is to stamp out tax avoidance/evasion?
Essentially, I believe we’re on not dissimilar pages.