Offshore secrets & Why Britain is still the world’s money laundering centre

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Puesto porJCP on Nov 28, 2012 in Autores

The UK’s Guardian newspaper has, together with the BBC’s Panorama and the Washington-based International Consortium of Investigative Journalists (ICIJ,) put together a large-scale investigation of the offshore industry and its secrets. Read the opening article, and follow the associated links at the Guardian and also the ICIJ website, which promises to have even more. None of what in this excellent investigation will surprise readers of Treasure Islands, but it is extremely important to have such an in-depth investigation bolstering our case.

The investigation begins:

The existence of an extraordinary global network of sham company directors, most of them British, can be revealed.

BBC Panorama tonight will show an undercover investigator asking James Turner, of Turner Little in York, to help him hide money stashed in a Swiss bank, and he offers nominee directors in Belize and says:

“They won’t even know that they were a director, they just get paid.”

That bit in bold is extraordinary, and it seems it’s not uncommon either: another company representative explained “that many of its nominees are not even aware of how their names are being used.” The investigation finds 21,500 companies through just nominee directors. They find the British Virgin Islands (BVI) particularly troubling – something that TJN has been shouting about for a long time: while Cayman is the first Caribbean jurisdiction most people think of in the context of tax havens, the BVI has not got nearly enough attention. This needs to change, dramatically. The UK appears to have some plans to clean up, but as we’ve noted, while this appears to be significant we don’t have a lot of confidence in its potential for real change.

“This Caribbean territory, which is ultimately controlled by the UK, has sold more than a million anonymously-owned offshore entities since launching itself in 1984 as a tax haven.”

We are also delighted to read that a worldwide research effort has been launched this year by the ICIJ. It aims to identify, country by country, thousands of the true owners.

“We are applying specialist software to crunch through literally hundreds of thousands of offshore entities to look for patterns. We are marrying our findings with old-fashioned shoe leather and interviews from key insiders who can provide further context on this little known and loosely regulated world.”

An official from one of the companies approached, in Hertfordshire in the UK, said:

“if we were approached by the Indian tax authorities and they say we believe you are acting for this client and he is doing money laundering, we would give the information. If they said we were acting for this client and they are doing tax evasion, we wouldn’t give a monkey’s.“

And the subsequent conversation made matters somewhat worse. Another official is described:

“(he) offers his customers “anonymity of the ultimate owners”. He tells them: “The prime advantage … is to place the ‘management and control’ issue firmly outside a high tax jurisdiction.” This allows the owners to claim the company is being run from an overseas tax haven, rather than from where they live.”

Now read on. This is what the Fourth Estate is for. Gradually, bit by bit, fragments of Britain’s “second empire” are being dragged out into the light of day. Why has Britain not reformed this swamp?

“The UK government refuses to step in and make reforms. One reason was candidly spelled out by Michael Foot, a former Bank of England official and Financial Services Authority managing director. He reported to the then Labour chancellor, Alistair Darling, in a Treasury paper published in 2009, saying that to abolish the BVI’s secrecy regime “would be likely to result in a loss of business”.

It really is as sordid as that. There are of course many other aspects of this we’d like to see covered, for instance:

they don’t talk very much about layering – where nominee directors and shareholders are other shell companies, or trusts. This is an essential component of any “sophisticated” scheme.
The investigation seems to focus more on nominees being independent service providers or small firms: they (perhaps for reasons of libel management) don’t really talk about where nominee directors and shareholders are provided by and within banks & trust companies, wealth management arms of some well-known names. That would make a very interesting area to explore (see more on that in our intermediaries project.)

Further articles so far:

BBC’s Panorama shows staff admitting nominee directors are often a sham (with associated video)
Sham directors: the woman running 1,200 companies from a Caribbean rock (with associated video). A focus on Nevis. “If Britain is crying about its tax dollars, that is not really a problem for us,” a Nevis official says. And, of course, Britain is just one of many, many countries suffering.
The ‘Sark Lark’ Britons scattered around the world.
British Virgin Islands, land of sand, sea and secrecy. The world’s biggest provider of offshore entities, yet the UK refuses to step in and force it to reform. We have for some time been strongly encouraging journalists to put a spotlight on the BVI. We are delighted to see this scrutiny. “The paperchase can often be costly and almost endless, giving suspects time to empty their accounts and cover their tracks.”
The offshore trick: how BVI ‘nominee director’ system works. A handy graphic, showing three letters that the nominees send to their clients, included an undated resignation letter, allowing the nominee to duck liability at the drop of a hat; a general power of attorney handing back all control to the client, and the use of couriers to send information. We will post this on our ‘mechanics of secrecy’ web page.
Vince Cable promises to investigate offshore sham director industry.
Post-Soviet Billionaires Invade UK … Via British Virgin Islands

And the Guardian’s investigation will continue through the week. Read about it here. The ICIJ is promising a multi-year investigation, which will be an important global resource on tax havens for years to come. Click here.

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From Rowan Bosworth-Davies, a voice of authority on financial crime, commenting on the excellent offshore investigations by the International Consortium of Investigative Journalists, together with the Guardian and the BBC:

All in all, it was a very grubby tale of greed and as blatant a piece of criminal law-breaking as you could expect. In one scene, a corporate services provider proposed that he would invite a local bank officer to come to a meeting in his offices to meet the purported launderer, and complete the banking formalities. Easier than going to the bank, was how he put it.
What made it all so acutely depressing was that there was no evidence that HMRC had ever prosecuted any of the corporate services providers under their supervision, for any breaches of the Money laundering Regulations, or indeed for straight-forward money laundering itself.

And then some colourful but apt further commentary:

The real problem in all of this is that the Money Laundering Regulations have never been properly policed, and never effectively enforced. That is where the answer to money laundering interdiction lies, in the enforcement of the Regs, but why will no-one, absolutely fucking no-one, step up and take the lead on this?

Bosworth-Davies, a former detective with many years’ experience fighting financial crimes, notes that the UK’s Financial Services Authority (FSA)

“have consistently refused to accept their Parliamentary responsibilities to enforce the Money Laundering law within the financial sector. HMRC cover another sector, and other agencies have input, but absolutely nothing gets done, and eventually the industry realises that there is no point bothering with a compliance regime because no-one enforces it.
I have been forced to come to the conclusion that Government does not really want the AML [Anti Money Laundering] laws to be enforced – they cannot do so, because they spend such little time and effort insisting on enforcement. . . . in practice, just keeping their noses out of the issue, for fear that too much regulation and compliance with international laws might mean putting off some of the slew of dirty money that is constantly flowing around the world looking for a safe haven, from coming to the UK.”

For anyone who has even just dipped into Treasure Islands, they will see how true this is. This is the business model.

“we might as well fill our coffers with the profits from the drug trade and other people’s tax evasion, and as long as we pay lip-service to the FATF guidelines, and make sure that we don’t get put on some nasty blacklist (which we won’t because we make sure we are well-represented at FATF meetings), and as long as we keep pointing the finger of non-compliance at Iran or Pakistan or wherever, we will get away with it.”

So very unpleasantly true. And there is much more in there, well worth reading.

Tax Justice Network