There is an troubling article in Accountancy Age today. It says that:
The head of a government-commissioned inquiry into tax havens has suggested that closer co-operation between global regulators is the best way to hold offshore centres to account.
Michael Foot, a former managing director of the Financial Services Authority and head of the review, will examine issues including whether offshore financial centres are transparent enough, regulation and tax. Speaking to Accountancy Age, Foot dismissed claims that regulation of offshore tax havens had failed.
He said the International Monetary Fund regularly reviewed off-shore havens and had given them clean bill of health.
'I can't see where the regulation failure is supposed to be,' he said. 'Any problems in the Channel Islands or the Isle of Man, you'd start with the global regulators or the Financial Services Authority, not the internal regulators of these countries.'
Foot has previously worked at offshore tax centre Bermuda, where he was an inspector of banks and trusts companies at the Central Bank of the Bahamas. He said that he had no preconceived ideas about the review's findings.
'I'm not starting from complete zero,' he said. 'I know a lot of the issues quite well.
'There are some difficult elements to it but I wouldn't have taken it on otherwise,' he said.
But Labour MP Austin Mitchell said Foot's previous employment at an offshore centre raised questions over his neutrality on the issue.
'[Foot's appointment] is part of a trend appointing poachers as gamekeepers. As a former participant in an offshore tax haven is he really qualified to investigate it?'
(With apologies for quoting at length)
I do not want to pre-empt anything, but this is an extraordinary comment to make. If you have been tasked with looking at financial supervision and transparency; taxation, in relation to financial stability, sustainability and future competitiveness; financial crisis management and resolution arrangements; and
international cooperation (as he has been) it is a quite extraordinary starting point to say that there is no problem with regard to financial regulation. It does at the very least indicate a lack of judgement to say so this stage of the enquiry, not least when the enquiry is meant to determine that issue.
In that circumstance Austin Mitchell's comment appears entirely appropriate, and if his interpretation of the comments made, taken at face value, is correct then his conclusion is appropriate.
So let me offer one alternative interpretation, which is what I hope Michael Foot means when making this comment, and it is this. I hope he is doing no more than acknowledging that the IMF have proven that the tax havens have become adept at complying with the requirements of the Financial Action Task Force with regard to money laundering, in particular. I am willing to concede that I think that true. However, as is readily apparent to just about any observer, this has had almost no impact on secrecy jurisdiction tax evasion (which we know to be rampant), or on the regulation of businesses located in these territories for the specific purpose of undermining regulation in operation elsewhere, which has contributed so heavily to the sub-prime crisis, the problems with private equity and to hedge funds abuse.
In case what he may be saying is that systems are working but there is a fundamental systemic failure. In other words, compliance with the systems, upon which these places rely for their credibility, is inconsequential because those systems are inappropriate to regulate the global financial community and its activities with in the secrecy jurisdiction/tax haven domains. Reform of those international regulations, including requirements for enhanced transparency, information exchange and so on, might then be appropriate.
If that is true then I am not discouraged. But if Michael Foot really thinks that there is no regulatory failure within tax havens then I am enormously concerned because that is so obviously wrong, as is being shown time and again, by the OECD, by the EU, by the IRS, by independent research and by a multitude of governments around the world.
Working with others I hope to resolve this issue shortly, and if more is discovered I will post again.