Gibraltar: deliberate obfuscation

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Accountancy Age has reported the response of Gibraltar's Chief Minister to last year's National Audit Office report. I am amused that it has taken him six months to notice its existence, but am much less amused by his comments. He said:

There's no lack of capacity either for receiving [or investigating] reports. There's no shortage of investigative resource or inclination to investigate.

Worse though Peter Caruana argued that the balance of suspicious activity reports to convictions, which had prompted the concerns, was 'entirely logical'. He said

Places like Gibraltar are in receipt of enquiries, but the essence of the transaction is unlikely to be in Gibraltar. It's reasonable that there's an imbalance of reports against prosecutions.

This means one or two things. Either Peter Caruana has no understanding of the offshore world or he is dissembling in the hope that those to whom he speaks to not understand how places like Gibraltar work.

Offshore is defined in financial terms not by geography but by the fact that the transactions undertaken in the offshore arena are always between parties who are not resident in the place where the transaction is recorded. The comment he makes is, therefore, a truism. Of course it is unlikely that the transactions that are recorded as taking place in Gibraltar did not occur there. That follows from it being a tax haven that hosts an OFC.

The vital point is though that this does not exonerate Gibraltar in any way. It still has an absolute duty to ensure that money laundering is not taking place in the transactions that are recorded in that place. By definition tax evasion anywhere is money laundering. That means that whenever a transaction takes place in Gibraltar where any reasonable person might have suspicion that a party to what is occurring might be evading tax, whether or not that evasion takes place in Gibraltar or somewhere else, they should always report that transaction under the money laundering regulations of that place. This would, for example, be the case if any bank were told by its clients that they did not wish details of their interest earned to be reported to their home state under the terms of the EU savings tax directive. I believe it would be impossible for any bank to avoid suspicion that their client was evading tax in this circumstance. I stress, they do not need to prove that the client is evading tax, they need only have suspicion to require that they report. Despite this we know that no bank has reported these transactions.

Put simply, the Chief Minister's comments are not just not credible, they are incredible. They are an attempt to excuse fraud. That is unacceptable.

The NAO study was right: Gibraltar is neglecting its duty and so long as people like Peter Caruana remain in office it looks like this will remain the case. That's why it is the UK's responsibility to book places like Gibraltar out of the financial services business for good.