I’ve just blogged a letter sent to the FT by some of the leaders of the UK’s financial services industry in which they say:
If the only question is, “Is it legal and profitable?”, then all that matters is that what is done complies with the regulations in force and makes a profit for the seller and the institution they represent.
At its most extreme this philosophy undermines any concern for the best interests of the customer, and subordinates these entirely to the pure self-interest of the seller in maximising profit as an end in itself. It legitimates exploitation and in the end subverts the very basis of trust in the market on which all profitable activity depends.
I am going to accept this letter at face value. Why not? It may contradict all Milton Friedman said. It may contradict shareholder value. It may not appear consistent with the way these organisations have behaved, but let’s assume these guys (they’re all male) mean just what say, which concludes:
Ultimately, it is the responsibility of the leaders of financial institutions – not their regulators, shareholders or other stakeholders – to create, oversee and imbue their organisations with an enlightened culture based on professionalism and integrity.
And let’s assume this means:
- They won’t exploit;
- They want to build trust;
- They want integrity;
- They want the most effective markets possible;
- They wish to be enlightened;
- They want to be professional.
I’m not going to read in words that aren’t there. But let’s play a game for a moment with these words and explore what they might mean:
| Goal |
Interpretation |
Required action |
| Don’t exploit |
Be accountable so we can sure you don’t |
Report truthfully, fairly, openly and honestly for what you do to evidence that you aren’t exploiting by making fair profit, paying fair wages, and paying your taxes where they are earned. |
| Build trust |
Tell us who you are, where you are, what you do, when you do it, and what the consequences are |
Tell us where all your companies are, publish all their accounts without exception, consolidate your results on a country basis, link that to your annual financial statements. |
| Build integrity |
In western ethics, integrity equates to honesty and truthfulness. It is the opposite of hypocrisy. It requires consistency. |
Pay your tax. Don’t help others not pay tax. Close your tax haven operations. Demand the right to disclose all suspicious transactions – and evidence the fact you do by publishing data on the number of suspicious transaction reports made. Promote automatic information exchange. Oppose banking secrecy. |
| Build effective markets |
This requires a level playing field: access to capital, access to data, and a commitment to involvement, not exclusion. |
Commit to tax compliance: Tax compliance is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes. This is the basis for a level playing field.
Demand unitary taxation.
Demand full disclosure for all limited liability entities. |
| Enlightened |
Is this enlightened self interest? Or is it something more? What it does imply is the opposite of greed. And it does imply as a consequence a willingness to share. |
Consider the importance of stakeholders. Report to them. Respect the right of government. Don’t try to undermine their income streams. Pay the tax they expect. Enjoy the benefits that flow from doing so. |
| Professional |
This must mean act ethically, surely? What else? |
Do no harm. Seek to do right. Be tax compliant. Do not avoid the law. Do not abuse regulation. Prove you don’t. use the fact you don’t as your PR and save on sponsorship as a result as the state will be able to provide what you pay for – and much more – if you are really ethical. |
What does this translate to:
First, support country-by-country reporting.
Second, stop tax avoiding.
Third, stop selling tax avoidance.
Fourth, pull out of tax havens except to supply genuine local services, now.
Fifth, be tax compliant.
Sixth, support automatic information exchange.
Seventh, report all who opt for withholding under the European Union Savings Tax Directive as being suspected of tax evasion, now, because that must be true.
Eighth, demand that all companies make full disclosure of their accounts.
Ninth, demand due diligence by state corporate registers on beneficial ownership of companies.
Tenth, demand registers of trusts showing beneficial ownership.
Eleventh, demand that tax evasion be a predicate offence for money laundering.
Twelfth, do not abuse transfer pricing rules.
You can do it.
Walk the talk.
Do it.
Now.
