All’s not well offshore

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I seem to have touched a raw nerve in Jersey and Guernsey with a recent blog (There are lies, d***ed lies and some in the offshore financial services industry).

Maybe it's the word 'lied' they don't like - but let's be clear, the analogy was with the capacity of statistics to convey misleading information, for those who had not noticed, but either way comments have made it to the site, and one or two have not as well. As is normal, of course, those commenting have sought to hide their identities, and so their credibility is in doubt, but JTM started the ball rolling with this:

I think your allegations still have no material back up. Give us actual proof of tax evasion that is happening now, report it to the Authorities and then people may take you seriously. We already follow anti-tax evasion procedures so at the moment I can only view your finger pointing as hearsay.

I know for a fact that it does not happen in my firm.

Well maybe it does in your firm JTM. I did say 'some'. Mol added:

Maybe you have the wrong end of the stick. Maybe the Jersey police are noting the amount of SAR's that they have forwarded overseas..

I know for certain that Jersey firms have filed SARs and likewise in Guernsey STRs during 2006 totalled over 500

There are tax avoidance schemes which are not tax evasion, until such time as they are deemed tax evasion then they are not illegal.

JTM supported him:

MMol is right about the Police dealings with STRs we were told at a presentation by the Police on anti-money laundering.

Richard seems to be clutching at straws in order to try and stir gossip in telling people that Jersey is run by cowboys and supports tax evasion.

This is total rubbish and Richard's comments should not be taken too seriously. He should either prove there is USD400M being evaded in tax or otherwise shut up.

Two people provided links to Guernsey's money laundering report for 2006 as evidence to support their case.

So, let's deal with the real evidence.

First, £400 million of tax has been collected from 45,000 people who had made payment to /HM Revenue & Customs under the so called tax amnesty that expired on 26 November. Over 60,000 made declaration of liability. The Revenue believe 100,000 have liability from just five banks. As the FT noted:

The tally could be swollen to as much as £500m once outstanding payments are received from 300 people with particularly big and complex offshore holdings who have been given extra time.

The Revenue is now chasing customers of another 170 institutions. The figure is expected to rise considerably when they are brought into the net. Serious tax evaders do not use mainstream banks. In addition, serious tax evaders would not have used the amnesty as they got no immunity form prosecution.

And let's be clear, this money came almost entirely from the Crown Dependencies. Using the ratio of relative deposits established by Marty Sullivan it's likely to be split 50% Jersey, 20% Isle of Man and 30% Guernsey.

So we have at least 45,000 people in just five banks admitting they have evaded tax totalling about £500 million, including a 10% penalty. Call that £450 million of tax. Most will be at 40%. So the interest not declared amounted to £1 billion or so. At 5% that's £20 billion of funds required to generate this if all paid in one year. I accept that's unlikely. Suppose the average holding period is five years. That's still £4 billion of funds held on which tax is evaded. Hard to miss, I'd say.

But in 2006 not one person in Jersey filed a suspicious activity report suggesting criminal money laundering - which is where tax evasion would appear in the register if it were to do so. I accept by the way that such allegations were investigated - but all the reports came from outside Jersey. That's why I can say with confidence that the financial services industry in Jersey is not reporting tax evasion.

And the combined evidence from HM Revenue & Customs and Marty Sullivan is that evasion is rampant.

I feel little less sanguine about Guernsey. There the rate of declaration of suspicious transactions is falling. It peaked at over 700 in 2001 and is now a little over 500. Of these about 35% relate to forgery, fraud and false accounting. Apparently tax evasion would fall in there. We may be talking at maximum 190 reports. And if we kook at the same distribution of reports in Jersey we see that forgery and basic fraud was well reported, money laundering was not. Forgery and fraud includes credit card theft, identity fraud and commonplace false accounting in the local economy after all. If I'm generous there may have been 10 tax evasion reports in Guernsey. And I'm being generous to conclude that.

So, to put it bluntly tax evasion reports are not taking place, as I said, and if they are we can count them on two hands. In which case those who say they are doing plenty of them have a problem in justifying how they don't get to the authorities.

And in my opinion the authorities should be inundated with such reports. The reason is simple. Since 2005 the EU Savings Directive has applied in the Crown Dependencies. Every bank has had to ask its depositors if they want to declare their interest in their home country or not. I gather about 70% have asked that the interest not be declared and that tax be withheld. Now if I was the responsible money laundering officer (and I am a money laundering officer) I would immediately presume that those who said they did not want the interest disclosed were not declaring the interest in their home state. If they were not, why ask for the interest not to be declared after all? The only exception might be for sums of interest less than £1,000 in total held to ensure tax was not deducted on the earnings of some pensioners to save tax being deducted at source in some states. With this exception I am of the opinion that every holder of every account where non-declaration occurred should have been subject to a suspicious activity report - because the money laundering officers must at least have doubt as to whether the person receiving the cash was declaring it as required by law in their home state in that case. And doubt is enough to require submission pf a report. Evidence is not required. And failing to declare a suspicion is itself an offence.

But this is not happening. And therefore I do suggest the entire financial services industry offshore is complicit in failing to declare its suspicions that money laundering in the form of tax evasion is taking place.

So I stand by my suggestions. Now please say why I am wrong.