Great article by John Kay under the above title in the FT today. He makes the point havens only exist because we tolerate them:
People are willing to make agreements under the laws of Bermuda, not just because they know that the laws of Bermuda are not very different from the laws of England, but also because they also know that the consequences of agreements made under the laws of Bermuda will be enforced by the courts of England. Such formal recognition is the essential difference between dealing with a haven and dealing with smugglers, and a difference that exists because we choose to facilitate it.
That needs to end, not least because:
When the haven falls into disrepute — as recently in the Turks and Caicos Islands — it falls to the British government to sort it out.
If you operate in the penumbra of legality, as havens do, it is easy to slip outside the bonds of legality altogether. Where there is legal avoidance of tax and regulation, illegal avoidance of tax and regulation is rarely far behind, and often hard to distinguish: where there is secrecy the motive is frequently impropriety; where there is impropriety, criminality is rarely far behind, and hard to distinguish. To turn a blind eye to avoidance of the law is to undermine all law.
Today’s political outrage is humbug. Havens exist only because larger states allow them to exist, and larger states allow them to exist because the customers of havens are the rich and powerful. In the 1860s, the typical client of a haven was a patron of Blanc’s casino: in the years after 2000, the typical client of a haven was a hedge fund registered in Grand Cayman. Plus ?ßa change, plus c’est la m?â„¢me chose.
He’s right.
We’re seeing it in the EU protecting its own.
But let’s be unambiguous: this is the political elite protecting the financial elite in pursuit of reward.
This is corruption at the heart of the system.
My concern is a simple one. Can the system survive with this degree of corruption within it? If it can’t then mayhem and worse will ensue.
It’s not at all clear that our politicians understand that.
That’s what really worries me about the back-tracking going on right now.
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ANGER OVER TAXES PUTS BERMUDA‚Äà AT RISK’
Job cuts overseas put pressure on politicians to act against offshore centres, says U.K. finance expert
Public and political anger towards offshore centres like Bermuda is reaching fever pitch in Britain and the U.S.
That is the opinion of Michael Foot, a British banking expert who arrived on the island yesterday to carry out a high-level financial review. Mr. Foot – who is conducting the first such inspection of Britain’s overseas territories in a decade – said the U.K. particularly could pose a major threat to the way Bermuda does business. Mounting job losses in Britain, combined with a general election 15 months away, could add up to a perfect storm that causes politicians to try to close down Bermuda’s tax advantages.
In recent months leaders in Europe have joined President Obama in promising to shut down so-called tax havens. Most experts here have tended to agree that Bermuda is relatively safe because it has a reputation as being transparent and cooperative.
However, Mr. Foot said: “You probably don’t get the sense of it here in Bermuda, but the political atmosphere is very, very SORE in these bigger countries… I have no doubt the people in the street are very, very angry. You can understand why they are angry. For every 500,000 jobs that go in America – and I think 130,000 went in Britain this month – that atmosphere gets more febrile. And that increases the pressure on politicians. And politicians may be pressed to make decisions that on broader reflection turn out to be HORRIBLY WRONG.”
He continued: “At least in the U.S. there is a brand new government, which is likely to have a whole set of different priorities. But in the U.K. we are 15 months or so away from an election, which the opinion polls suggest is going to be pretty close, so politicians are under pressure to act.” He said some decisions made in the pressured environment of the Great Depression were catastrophic for the world economy and took decades to reverse.
Now Chairman of the U.K. office of Promontory Financial Group, Mr. Foot held several top posts during a 29-year career with the Bank of England. He also worked for several years in the Bahamas. He said: “I have a lot of sympathy with smaller jurisdictions. Their arguments are often not well heard. It can be frustrating.”
He said offshore centres like BERMUDA offer HUGE BENEFITS to bigger countries and to individuals in those countries. Bermuda’s SUCCESS rests more on the talented experts who live here than on tax advantages, he said. While there is a legitimate need to target tax abuse in countries like Switzerland, the danger for Bermuda is that it will get “PUT IN THE SAME BOX” despite having its house in order.
U.K. Chancellor Alaistair Darling announced the financial review of nine of its overseas territories that have “significant financial centres.” Mr. Foot is being asked to look at a wide range of issues, including international transparency and the ability of jurisdictions to manage financial crises. He will be meeting with Minister of Finance Paula Cox, heads of banks and insurance companies and officials from the Bermuda Monetary Association.
I note the Royal Gazette does not report those comments.
Richard
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