The Observer has talked this morning on many pages about the wilful blind eye banks take to tax evasion. They have done so in response to reports about HSBC and in response to TJN's new report on £13 trillion being held offshore to evade tax and regulation.
Banks and tax havens will of course deny this but I know their denials are not true from personal experience.
Earlier this year I sat in the boardroom of one our leading banks, opposite the Chairman and told him and his co-directors that their bank wilfully ignored tax evasion in Jersey and failed to report reasonable suspicion as required by Jersey law that their customers are money laundering.
I knew I was right. The bank in question has a major operation in Jersey. It handles the accounts of many people from the UK who bank in that island. And Jersey deliberately and wilfully refuses to cooperate in full with the European Savings Tax Directive so that banks working there - including the bank in question can operate two systems with regard to disclosure of interest paid to their UK based customers. Under one system the customer can opt for the interest earned to be declared to HMRC in the UK as would happen if the account were maintained by the bank in the UK mainland. They then get paid their nterest gross. Under the other system tax is deducted at 35% - less than all the UK higher rates of tax - and the UK HMRC are not told anything about the account - they just get part of the 35% that has been deducted.
Jersey still operates this second system for just one reason - that it meets the needs of those using the island for tax evasion. I know that is true. The only purpose of the European Savings Tax Directive is to tackle tax evasion so the only reason not to fully comply with it as Jersey does not is to help tax evasion.
I do not know how many customers of the bank in question opt not to tell HMRC of the income they earn, but they have confirmed some. On average the split seems to be about 50/50 now.
Now suppose you are bank money laundering officer in Jersey. Your job is to report any transaction where you have suspicion that tax evasion and money laundering is taking place. A customer declines to have information on their earnings sent to HMRC even though you know they are resident in the UK. Must you in that case at least suspect they may be tax evading? Of course you must at least suspect it - it would be impossible not to do so without categoric proof that the customer is declaring the income - which the bank does not ask for you could not apid that suspicion except by ling. And since suspecting tax evasion in the UK is specifically a reason for reporting suspected money laundering in Jersey then every bank in Jersey that has a UK customer who declines to have the details of the interest they earn sent to HMRC must primarily facie send, without exception, details of the customer in question to the Jersey authorities as a suspected money laundering case. I follows like night does day.
Except that never happens. The banks deny that this is required. And the Jersey authorities turn a blind eye to it.
There is wilful neglect by UK banks based in Jersey to report money laundering based on very obvious simple cases of tax evasion through their banks. It must be so much easier to get away with blatant money laundering as a result.
No wonder there is £13 trillion held offshore. The banks turn a wilful blind eye to it.
As did the bank in whose board room I sat. They wrote to me after the meeting and said they could not see an issue to address, believing their systems fully compliant. Well, I don't agree. Just as I never thought HSBC's were, even though only three years ago they won awards for being an ethical bank.
But then, as Ed Vulliamy suggests in the Observer today - if the banks are part of the criminal money laundering system - and that looks increasingly likely - the denial is hardly surprising. Certainly it was all I expected of the bank in question.
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Who do we thank, Ed Balls or Gordon Brown???????
Richard
A lot of r-wing commentators actually encourage the use of the secrecy jurisdictions to evade/avoid tax. They see that as a positive.
They can’t, however, accept the laundering of drug & terrorist money as a “good thing”.
What needs to be driven home, forcibly, is that these are 2 sides of the same coin. if you, as an offshore jurisdiction, are happy to accept funds without any checking of who those funds really belong to, then you are bound to end up accepting funds from v dodgy people indeed. Look at Mr Ivori & his love of Guernsey !
The whole world’s economy has been horribly unbalanced by these offshore, undeclared, “pilfering funds”. The amounts are huge & the idiots who administer them, lacking the sense to do the right thing & confess to the relevant authorities, are reduced to blind, pointless speculations which make everyone else suffer.
I’m watching a BBC news thing. The lady thinks it’s “awfully funny” (former press secreterary to Paddy The Ashdown” Then perhaps suggesting flat tax.
I thought the Observer piece was ok, but then I think this (TJN, ATTAC, yours, Etc…)intelligence needs to be to be fprced in the samw way as those tragic rightwinging nobodies, thatv seem to attract populat support by saying that listening to them then their food/fuel/liberty becomes suddenly affordably cheap.
I have the addictive misfortune at following Mr Worstall, who is basically an unreconstructed clown, who amuses his (i’ve counted them – about 8 proactibe intelligent followers ( a couple who are well known CiF, BBC utter tools that 99% of anyone actually hates beyond their ability to bother to write back)(he reads like a….) Oh well I get told off for swearing on the libetarian Worstall’s bastion of of corporatist, unrecognisable, unliked, childish blithering “argle-gargle” that those few people enjoy commenting on.
Fair play to the those that try to challenge his teenage rage against his nonsensical blackboard wibble.
It goes to show how the likes of Dan Hannon, the jester Farage, – they’re the nicest, – thed ASI, IEA etc
And all I do is watch what happens in Guernsey. Probably the most proactive secrecy jurisdiction as a Crown Dependency.
Richard, the words coming from the new Gov. are saying that the industry shoukd set the rules it plays in.
There has nevver never been a more ignorant statement by any Commerce and Industry (and the comparative position in government) dept. since thatcher or blair.
sorry for rambling, but i’m preparing a total deconstuction of worstall (and the total idiots he believes in)(seriously, if you want a laugh, read his “intellectual” void)
Oh I know this has been a bit gratiutous, mr M moderator, but I haven’t sworn, and i’m itching to cover his site in some words and ideas that none of his sycophants that can actually read (without the daily t g’s misinterpretentions)
and now, and sorry, Cameron, is pretending he knows about bloody bikes.
The French never do that. If they don’t win it, they never mention resource and support; I never see more than a *sporting league* victoire.
I won’t be surprised if GG Osborne uses it as something he is utterly ignorant about, like essential food production by UK producers.
I have rambled, but did you know Mr Murphy, you are starting to be described as a pro-EU (n-th reich) apologist.?
I’m not sure whre you are on that etc etc………
I hate worstall’s all out war, pretending he’s funny, whilst being racist, homophobic, and misogynist. Let alone being a clueless fwonk. Fair play to Frances Coppola, who is always measured, And PaulB’s blog which is OK (whoa on the ego-too influenced by benny goldacre)
I suggest a few of some of your more able contributors consider knocking his and his pathetic fewsomes opinions, towards me, that i may compile and edit and distance yourselves from recog. and i’ll not say it’s mine either.
There’s so much to be ridiculed. His bollocks against Mr Murphy should not be ignored, as honourable as that stance is, but give me the counter material (that i don’t know) and i’m as funny as you like.
Sorry, i should have had my warm drink
Is it really worth bothering with Worstall
No one takes him seriously, do they?
Lawrence
I have to correct you.
The “industry” in Guernsey is in favour of sensible and effective regulation. It is obvious that this is very much in Guernsey’s interests. What the industry is against is a regulator so determined to win some sort of accolade for being the toughest regulator in the world. There are no prizes for that.
Nobody is saying that the industry wants to regulate itself. The industry just doesn’t want an unaccountable, over-zealous regulator who just wants to build an empire. Any sensible person can surely see that this is a question of striking the right balance. This is no different from the regulatory role in relation to utilities or monopolies.
Ah, the right balance that turns a blind eye
We know exactly what you mean
Richard
Not at all.
None of us who want to see a blind eye turned. Much of what the regulator asks for these days has anything to do with what type of business is being accepted. It certainly should do. They are more interested in ticking a particular box than in what type of business is being written and where it is coming from. That makes no sense to me, and it means that the cowboys don’t get driven out – they still tick the boxes that they are being asked to tick, but some of them wouldn’t be able to tick the type of boxes that they should be getting asked to tick!
In other words, the regulator cannot see the wood for the trees, and as a result the regulator is not asking the right questions of the licensed businesses. If they did, then the sheep and the goats would soon be separated and those who aren’t writing the appropriate types of business would soon be driven out. How could that possibly be a bad thing?
It wouldn’t be
But candidly – your light touch view is utterly discredited
Richard
I don’t have a light touch view at all. Regulation of any financial services business should be tough.
However, it needs to hit the right targets. Tough and overly-bureaucratic regulation achieves nothing if the wrong targets are aimed at.
With only a modicum of exaggeration, it is almost seen as being a more serious offence to not minute something at an operational board meeting of a regulated business than it is to be taking business from areas of the world which are clearly of a much higher risk from an AML perpsective. It’s pretty obvious, surely, where the priority should be. More compliance people therefore end up being employed to tick some of the irrelevant boxes, when the regulator should be forcing the businesses to look at what business they are actually taking on, and where from.
Believe it or not, and its obvious that you don’t and won’t, some of us want to be running robust businesses which will thrive over the next decade or two in what is going to be a very different offshore landscape.
Ok – I buy that
Can you write a detaied analysis of what Guernsey is doing wrong and if OK I’ll put it out
Oh dear. Please understand that my laptop has several missing keys, meanig tht and the abve
Who do we thank, Ed Balls or Gordon Brown???????
Both!
Although Jersey is currently the focus for financial mischief involving fraudulent banks and a dishonest government let’s not forget the Isle of Man and Guernsey, islands which are also surrounded by impenetrable walls of secrecy.
On the Isle of Man there is no freedom of information legislation and the local press and radio is owned by the government which continues to spend £millions on a Tourist Board type PR campaign disguising this perfidious island as a chocolate-box haven of tranquillity whilst the “financial services industry” stealthily subverts the law unchecked.
On Guernsey the government attempts to keep a low profile desperately avoiding any attention from the outside world by pretending to be stupid.
Of the three islands Guernsey is probably the most insidious, but while these walls of secrecy remain we will never really know.
Stop tax haven abuse now.
Ever since the withholding tax / disclosure choice was introduced, I’ve been trying to think of a reason why a non-criminal UK taxpayer would opt for the withholding tax.
I haven’t been able to think of any. Can anyone else come up with one?
Lawrence
Keep taking the tablets old boy!!
Let me get this right.
These investors and their banks make use of a right (to retain anonymity and suffer a withholding tax) that has been specifically created by this piece of legislation (the ESTD). And yet you suggest that the banks should report the investors on the basis of the very exercise of their legal rights.
That is interesting.
Maybe we should force car dealers to report purchasers of sports cars on the basis of suspected reckless driving. It is about the same logic, isn’t it?
The duty of the bank – with criminal penalty for non-compliance – is to report suspected money laundering however it arises
The action of withholding is legal in Jersey but facilitates a potential crime in the UK
Without firm evidence that tax I’d bein paid in the UK the banks commit a crime as a result by not reporting and you amongst many choose to ignore it
But that is of course the. Crime of wilful neglect offshore practitioners specialise in
Richard,
The UK (and the rest of the EU member states) agreed that depositors and financial institutions in various jurisdictions could apply the withholding regime under the ESTD. There can be no suspicion of wrongdoing on the basis of the exercise of a right that has been legislated in both Jersey and the UK.
You may not like this, but then I suggest you re-write the ESTD itself, instead of attacking those who apply it.
THE actual answer is do both
And as you well know I am trying to do that – but states that promote tax crime – like Luxembourg ( the language is deliberate ) are trying to block progress
Darren
You don’t need “firm evidence” that tax has been paid in any country to stop the reporting of a client for money laundering.
However, if a client has specifically chosen to pay a witholding tax instead of disclosing his information to his hom tax authority then immiediate suspicions would (or should) be raised and a report should be made. As Jeff points out above, there seems to be zero reasons for a tax compliant individual to chose the option of paying a (hefty) withholding tax.
Richard, JJ:
The ESTD, as it was ratified by all EU member states, specifically grants the right to banks established in certain jurisdictions to keep secret the identity of their depositors in return for withholding tax at a pre-established rate. What you want is for these banks to disclose the identity of their clients precisely because they avail themselves of the rights created under the ESTD. That makes no sense.
All bank accounts are legal
But nothing excuses their use for money laundering
But you’re saying offshore has an exemption form applying money laundering laws. How terribly convenient for you
And how completely wrong too
All you are doing is excusing crime – as we have long asserted
Darren, perhaps you could explain a legitimate reason for selecting the witholding option?
The banks have a duty to report anyone who they believe is evading tax. Selcting the witholding option is a sure sign that a client is evading tax, and therefore a report should be made. It’s pretty simple…..
JJ,
My intuition is that many of the depositors electing the withholding option do so for legacy assets, which they have often inherited rather than deposited themselves.
Many of these savers are probably staying tight and going for the withholding option in the hope/anticipation that some sort of amnesty, or disclosure program is forthcoming.
In general, these are not major tax evaders, as those have long either moved their assets to a jurisdiction outside of the ESTD area, or have esbalished structures (trusts, companies in Panama) to avoid the ESTD.
If lawmakers who ratified the ESTD had Intended that all depositors electing the withholding option would have to be reported under the money laundering laws, why would they have bothered offering the option of remaining anonymous to start with. Very obviously, lawmakers had it as their intention that those selecting the withholding regime would remain anonymous, meaning that the application of the ESTD overrides money laundering statutes with respect to tax reporting. It is incredibly basic. A freshman law student would figure this out.
So in other words – they are tax evaders, as I said, the banks should report them and Jersey is facilitating that crime
Thanks for confirming
Darren, thanks for your various replies in this thread. I have been struggling to understand the opposing viewpoint on this issue, and your responses have been very informative.
I’d appreciate it if you could explain how your statement “There can be no suspicion of wrongdoing on the basis of the exercise of a right that has been legislated in both Jersey and the UK” reconciles to your belief that most of the people who exercise the right are criminals.
It seems like an exercise in doublethink to me.
Also, if we accept your argument that banks shouldn’t report them, what would your advice be to banks who think a section of their customers are probably criminals?
Would it be different if the banks thought a minority of these criminals might actually be terrorists rather than tax evaders?
Jeff,
This kind of ‘doublethink’ as you call it is common in apparent conflicts of laws. The ESTD is a particularly poor piece of legislation, because it is the result of several compromises.
One easy way to resolve conflicts is to look into the lawmakers’ intent. Clearly lawmakers could not have intended that the exercise of a right they were created, ie the retention of banking secrecy under the ESTD, would cause those exercising that right to be forcibly deprived of their right to secrecy (under money laundering statues). That would cause a contradiction at the core of the law,which would make it inapplicable.
Banks obviously continue to have the duty to report depositors they suspect of tax evasion, but that suspicion cannot be based mainly or exclusively on the exercise of their rights under the ESTD. The case of money laundering related to terrorist activities is obviously very different, as banks’ suspicions will arise through facts and behaviors unconnected to the exercise of any right.
There was just one intent – and as ever you criminally deny it
The intention is to beat ax evasion
Abpnd you and Switzerland, Luxembourg, jersey and others seek to promote that crime
Why no admit it
Darren, the witholding option was introduced as a giveaway to Luxembourg and a couple of others. I think you’ll find the lawmakers knew exactly what they were doing, and it wasn’t to help out some people who had inherited some black money. An A-Level law student could work it out.
And, whilst they are not “major tax evaders” (your words) they are tax evaders nonetheless and should be reported ASAP. A GSCE law student could work that out.
Darren. No it’s not the same logic.
If a car dealer has prima facie evidence that the person about to buy a high powered car from them is a maniac who has already caused mayhem on the road then he is morally and (perhaps legally) obliged to either refuse the sale or disclose the matter to the police.
The car dealer would be in a similar position as the auditor (those Big Four spivs again), that is being in possession of privileged information which in civilised society should be disclosed to the law enforcement authorities.
Offshore banking, offshore governments and offshore auditors are highly suspect and anyone taking “advantage” of this should also be regarded as highly suspect.
We know.
Richard,
You write “There was just one intent — and as ever you criminally deny it. The intention is to beat ax evasion”.
Actually this is highly debatable. The Commission certainly saw tax evasion as a key objective of the ESTD.
But the Commission does not make tax laws, national legislatures do. And in many European legislatures, especially in Gemany-speaking countries that deeply value the right to privacy in financial matters, the ESTD was primarily promoted as a revenue-raising initiative.
Oh please stop telling whoppers
You raised intent and now you can’t even admit what precisely the stated intent is
Jason, you have to look at this from a different angle. The banks have to report anyone they suspect of money laundering. The witholding tax option suggests someone is money laundering (via tax evasion) and therefore banks should report anyone selecting this option.
The EUSTD does not over-ride money laundering laws in any jurisdication. The EUSTD does allwo the banks to keep clients identies secret, but other laws state reporting must be made.
Guernsey soon saw what made sense, and abolished the withholding tax option. In reality hardly any clients took that option anyway (due to the massive gaps in EUSTD elswhere).
I’d be perfectly happy if the guy from HSBC said :-
“Clearly, I can’t comment on individual cases. I am not even comfortable publicising what kind of actions have in the past caused us to be suspicious, as this might aid future money launderers.
“However, some of the reasons I am aware of for electing for withholding tax rather than disclosure are .”
As it is, I am virtually certain that the banks don’t know why any of their customers have elected for withholding tax – because they don’t want to know, so haven’t asked them. Presumably with the tacit support of the regulator.
“Reasonable grounds for suspicion” is an objective test — but it appears it is being interpreted as “Reasonable grounds for a banker to be suspicious”, with the withholding tax issue predetermined as “not giving a banker cause for suspicion”.