There's a good article on 'Is this Jersey' in which someone called Niccolo M (who as far as I know I am unacquainted with personally) discusses the way in which those with a social, and maybe left wing, conscience, should deal with their opposition to the tax haven in Jersey. There are several good things abut this article:
1) It is honest;
2) It is asking difficult questions;
3) It is accepting that there are no easy answers;
If all were so candid life would be so much better. From my perspective (since I get a mention) there's also a welcome recognition and acceptance that some things I say are noticed and accepted when Niccolo says:
The second issue is Finance itself - having been attacked by Walker, Richard Murphy honestly responds that he doesn't want to see the end of the finance sector. An opinion certainly and one that has legitimacy. Richard is an ally but he has said in the past that he is no socialist. Again, fair enough.
Let me set out my stall on the two issues the article actually addresses. The first is the Jersey fulfilment industry, where no one was more surprised than me to find Deputy Geoff Southern (one of the most enlightened members of the States of Jersey) defend the industry in a recent report from a Scrutiny Committee of that parliament. I prefer not to guess people's politics, partly because I am aware that many get my own so badly wrong, but I had expected something different from Geoff, who I have met (although that's true of a great many of Jersey's politicians). I think he was motivated by concern for people's jobs, because he seems that sort of man, but i think he was misguided.
My position on fulfilment is unambiguous. It's a parasitic trade, with each of the 70 jobs it creates in the Jersey economy costing the UK economy at least £1.28 million a year based on data in the Pre-Budget Report. And it undermines many more jobs in the UK. Furthermore, it survives only on the basis of technical abuse of a law which was never intended for the purpose for which it is now used. Jersey itself has a duty to close down this activity which brings it into such disrepute and which overall clearly causes economic harm. Any state which seeks good relations with its neighbours should be willing to take such action. It is likely that the goodwill gain would pay Jersey back many times over the marginal loss in local employment. This is a straightforward open and shut case. Jersey's duty aligns with that of the UK because this trade has no real economic substance.
Finance is much harder. Anyone who has been, and is in business, as I am, knows there is a role for finance. The first thing I do when I set up any activity is make sure it is insured. And any organisation needs to account for the resources it manages. Banks are necessary. I could go on to mention pensions, the need to manage savings and the need to manage capital resources effectively. I think these are all essential, in Jersey, as anywhere. So there is a role for the finance industry.
What is not required in Jersey is the deception industry. Let's be clear about this. Despite what Jersey claims it is not an offshore financial services centre. And despite what Jersey claims I can find almost no justification for such places anyway. My guess is that if Jersey could prove that a transaction had to take place offshore to prevent double taxation (and by that I do not mean the normal circumstance where a corporate vehicle pays tax on its profits and an individual might also pay tax on distributions from that company, but a situation where the same profit was taxed twice in the same hands without the second charge giving credit for the first) then I could accept that was a valid use for the location. However I suspect that these are exceptional and very hard to find. These apart, as far as I can tell (and I've made honest enquiry) what Jersey does not do is to sell unique or distinct financial services which originate in the territory. It does instead supply secrecy for transactions conceived and managed outside the territory. The proper name for this is the deception services industry.
Just for the record, the one thing Jersey might have to offer, which is the rare prevention of double taxation, does not require secrecy. In fact, it would work best when transparent. However, the provision of double non-taxation (i.e. avoiding tax altogether) does require secrecy, because it is frequently illegal if all facts relating to it are known by all governments who might have an interest in it (if only they were aware they had). This is the activity in which Jersey is predominantly engaged.
So let's be clear. We should not have a problem with finance per se. Any society needs it. But what we should have is an interest in an open, transparent, honestly managed finance industry. We have not got that. And we might also be interested in structures that ensure that the benefits of finance are equitably distributed, which is not the case now. Perhaps most of all, we are interested in finance that does not exist to exploit, as much of the current secret infrastructure of world finance is designed to do at cost to the poorest people in the world.
This is the debate, and you don't have to be a socialist to be engaged in it. You just need a social conscience. And what a social conscience will not let you do is defend employment in an industry that was established to be harmful. That's the case for the offshore financial services industry (anywhere, not just in Jersey) and it is as indefensible as the slave trade, pornography, and the trade in illicit drugs. All destroy lives, and in all cases those who organise and manage those trades must know that to be true.
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Has it occurred to you that one legitimate reason for offshore might be that it offers a better banking service for ex-pats than anything available onshore?
Stats say 50K+ people leaving the UK annually. They all need services, even on a transition basis because UK banks are generally poor at dealing with ex-pat accounts.
Try getting forex from your local UK bank or arrange a transfer and you’re likely to be told to go to Thomas Cook or Western Union! It’s a real issue with legitimate origins which are not well served by onshore.
No, it did not occur to me
I also doubt this – the claim about forex does not stack in my experience, for example.
This is not a justification for offshore. It merely suggests that a legitimate purpose has been found by some for their expertise in money laundering.
And, as I note – the transacyion does no actually take place offshore in the circumstance noted. It is managed onshore.
I would agree if I was the only person who says this but it’s not the case in real life. As someone who has lived offshore for close on 10 years UK bank services for ex-pats are poor when dealing with those who are offshoring for legitimate reasons compared to offshore service providers precisely because they’re used to moving money around. Local services outside the UK are often worse. Case in point: Q:why can’t you offer me money market rates for transfers? A: ummm…we can’t (shorthand for – dunno what you’re talking about)
There’s a long list of service issues for ex-pats that get missed in these analyses.
It’s only in the last couple of years that onshore overseas banks in certain EU states have woken up to the fact they may be able to offer better services than their UK (forget US, they’re in the backwoods somewhere) counterparts. There are several decent examples.
The UK bank services gap is one of the principle reasons that onshore specialist services have grown up for money transfer and will no doubt creep into other financial services.
And they’ve all signed up for anti-money laundering. I have the paperwork to show for it 🙂
I’ve long said there is a case for a bank somewhere, anywhere, that truly understands ex-pat living. The closest I know is SolBank. CRCA in France is finally getting itself up to speed. HSBC doesn’t cut it for the average person. BBVA and Deutshce Bank offer reasonable services. But in the end, most banks operate as local with little attention to overseas for the domestic user. That’s an issue.
So while I’m sure there’s merit in the argument from a commerical banking perspective, I’d argue this is less the case for domestic. I’d also argue it represents a significant minority. If 50K people leave the UK each year and schlepp £100K minimum each out the country then according to my math that’s a £5bn outflow. Peanuts on $6 trillion but try saying that to ex-pats trying to manage their money.
That seems to say that the banking system is poor Dennis
It’s not an argument for offshore
If it’s the only practical alternative people have at their disposal then it’s a legitimate role, unless there is a genuine practical alternative. I don’t think we’d disagree on that would we?
It’s easy to forget the banking systems around EU and in the US all vary in their degree of sophistication and organisation. There are massive differences in service between domestic and those geared up for international trade/operations.
Here’s another example. If I can get a better hedge and/or conversion deal through an offshore entity then I’ll take it because it is good business.
If you’re shipping £millions of goods around the place, then that becomes a treasury issue. It is only in recent years that onshore UK banks have gotten remotely close to offering these kinds of services to anyone other than global companies on anything like sensible terms. And they’re probably among the most sophisticated in EU (possible exception Netherlands from what I hear.)
Hedging is a common and legitimate business practice. And since it involves forex then if offshore institutions are geared up and can provide a competitive service then it’s a justification for existence.
None of that detracts from the tax arguments connected with avoidance.
Dennis
You are not asking the question ‘How is it that they can do these things?’
Tax irresponsibility and expertise built on the basis of the transactions secrecy encourages allows this.
Nike used not to ask about employment conditions in its supply chain. Nor are you asking about your supply chain and deciding whether it is ethical to use it based on the answers (even the likely answers) you could / would get.
I think an ethical user of finncial services should ask those questions.
Richard
I already know how they can do these things – a combination of technology, a set of badly drawn laws and a differernt ethical understanding of what it means to serve clients’ interests.
I don’t disagree but then you enter into an entirely different set of arguments which run the risk of becoming mired in multiple reductionist problems and issues.
I don’t imagine for one moment the man in the street thinks about any of the major high street banks with offshore presence in the terms you describe yet we know Barclays is deeply implicated in US tax fraud.
You can argue: “But they should care.” OK – so who sets the moral and ethical tone? Who communicates that? How does it get packaged so it appeals to people’s self interest? How is it enforced? Will it stick? How does anyone explain Barclays to the public in a way they can digest?
These are very real problems with implications way beyond a relatively simple tax avoidance discussion. It’s why I think there needs to be more than one strategy for solving the kinds of problem you identify.