Boris Johnson claims the UK is rooting out dirty Russian money. That’s ludicrous

 Oliver Bullough in The Guardian

We were warned about Vladimir Putin – about his intentions, his nature, his mindset – and, because it was profitable for us, we ignored those warnings and welcomed his friends and their money. It is too late for us to erase our responsibility for helping Putin build his system. But we can still dismantle it and stop it coming back.

Russia is a mafia state, and its elite exists to enrich itself. Democracy is an existential threat to that theft, which is why Putin has crushed it at home and seeks to undermine it abroad. For decades, London has been the most important place not only for Russia’s criminal elite to launder its money, but also for it to stash its wealth. We have been the Kremlin’s bankers, and provided its elite with the financial skills it lacks. Its kleptocracy could not exist without our assistance. The best time to do something about this was 30 years ago – but the second best time is right now.

We journalists have long been writing about this, but it is not simply overheated rhetoric from overexcited hacks. Parliament’s intelligence and security committee wrote two years ago that our investigative agencies are underfunded, our economy is awash with dirty money, and oligarchs have bought influence at the very top of our society.

The committee heard evidence from senior law enforcement and security officials. It laid out detailed, careful suggestions for what Britain should do to limit the damage Putin has already done to our society. Instead of learning from the report and implementing its proposals, Boris Johnson delayed its publication until after the general election and then, when further delay became impossible, dismissed those who took its sober analysis seriously as “Islingtonian remainers” seeking to delegitimise Brexit.

That is the crucial context for Johnson’s ludicrous claim this week to the House of Commons that no government could “conceivably be doing more to root out corrupt Russian money”. That is not only demonstrably untrue, it is an inversion of reality. On leaving the European Union, we were told that we could launch our own independent sanctions regime – and this week we saw the fruit of it: a response markedly weaker than those of Brussels and Washington.

The Liberal Democrat MP Layla Moran, speaking with parliamentary privilege on Tuesday, listed the names of 35 alleged key Putin “enablers” whom the Russian opposition politician Alexei Navalny has asked to be sanctioned. Blocking the assets of everyone on that list and their close relatives would be a truly significant response from Johnson to the gravity of the situation. But it would still only be a start.

Relying solely on sanctions now is like stamping on a car’s accelerator when you’ve failed for years to maintain the engine, pump up the tyres or fill up the tank, yet still expect it to hit 95mph. Other announcements in the last couple of days have amounted to nothing more than painting on go-faster stripes. Tackling the UK’s role in enabling Putin’s kleptocracy, and containing the threat his allies pose to democracy here and elsewhere, will require far more than just banning golden visas or Kremlin TV stations.

For a start, we need to know who owns our country. Some 87,000 properties in England and Wales are owned via offshore companies – which prevents us seeing who their true owners are or if they were bought with criminal money. Companies House makes no checks on registrations, which is why UK shell structures have featured in most Russian money-laundering scandals. Imposing transparency on the ownership of dirty money in this way would strike at the heart of the London money-laundering machine. Governments have promised to do this “when parliamentary time allows” for years, yet the time has never been found, and instead they’ve listened to concerns from the City that such regulations would harm its competitiveness.

Above all, we need to fund our enforcement agencies as generously as oligarchs fund their lawyers: you can’t fight grand corruption on the cheap. Even good policies of recent years, such as the “unexplained wealth orders” of 2017, which were designed to tackle criminally owned assets hidden behind clever shell structures, have largely failed because investigators lack the funds to use them. We must spend what it takes to drive kleptocratic cash out of the country.

Johnson is not the first prime minister to fail to rise to the challenge – Tony Blair and David Cameron both schmoozed with Putin even when it was obvious what kind of a leader he was. And I don’t think Johnson is personally corrupt or tainted by Russian money; he’s lazy, flippant and unwilling to launch expensive, laborious initiatives that will bring results only long after he himself has left office and is unable to take the credit for them. It is time, however, for his colleagues to step up and force him into action. This is a serious moment, and it requires serious people willing to invest in the long-term security of our country and the future of democracy everywhere.

Too big to jail: why the crackdowns on dodgy finance have been so ineffective

Despite so many government promises, we’ve ended up with inadequate laws and toothless regulation. The Pandora papers show why urgent action is needed writes Prem Sikka in The Guardian

'HSBC admitted “criminal conduct” and was fined a record $1.9bn and signed a deferred prosecution agreement.’ Photograph: Lim Huey Teng/Reuters
Wed 6 Oct 2021 11.00 BST


The Pandora papers data leak has once again highlighted the predatory practices of the world’s political and financial elites – enriching themselves by looting the public purse, or exploiting laws which they themselves helped to establish.

Aabout $3.6tn (£2.6tn) of the proceeds from bribery, embezzlement, money laundering, tax evasion and cronyism are laundered each year, undermining the social fabric of nations across the globe.

It is not the first time that tax avoidance, bribery, corruption, money-laundering and a lack of transparency have been exposed. The Panama papers, the Paradise papers, the HSBC leaks, the Jersey leaks, the FinCEN files, the Bahamas leaks and others have provided abundant evidence of dodgy financial dealings. The UK finance industry – aided by armies of accountants, lawyers and finance experts – is central to this trade, yet little has changed since those first revelations emerged.

The inertia is institutionalised because the political system is available for hire to people with fat wallets. Financial contributions to political parties create an atmosphere where scrutiny, and unwelcome laws, are discouraged. As Mohamed Amersi, who funded Boris Johnson’s campaign to become prime minister and whose financial dealings were revealed this week, puts it: “You get access, you get invitations, you get privileged relationships, if you are part of the setup.”

Further, parliament’s register of members’ financial interests shows that too many MPs and lords are on the payroll of corporations, including some engaged in illicit financial flows. The inevitable outcome is poor laws and a lack of regulation.

In 2018, the government launched the national economic crime centre to tackle high-level fraud and money laundering. The centre has yet to prosecute a single case – even though there is plenty of evidence of wrongdoing. In some cases, banks may even have forged customer signatures on court documents used to repossess homes and recover debts.

The 2017 Criminal Finances Act introduced the offence of failure to prevent the facilitation of tax evasion. No corporate body has been prosecuted. Little has been done to shackle the tax abuses industry dominated by big accounting firms even though, on some occasions, judges have declared their avoidance schemes to be unlawful. Despite the potential loss of huge amounts of tax revenues, no major firm has been investigated, fined or prosecuted. On the contrary, they continue to advise government departments, and sometimes receive lucrative government contracts.

The 2010 Bribery Act introduced the offence of “failure to prevent bribery”, to enable regulators to sue corporations for corrupt practices. The Crown Prosecution Service has secured just one conviction. The under-resourced Serious Fraud Office has secured just one conviction after the company itself pleaded guilty. Separately, Standard Chartered Bank, Rolls-Royce and four other companies were effectively let off with a deferred prosecution agreement.

The UK political system excels at cover-ups and protects wrongdoers. In 2012, a US Senate committee documented HSBC’s involvement in money laundering. The bank admitted “criminal conduct” and was fined a record $1.9bn and signed a deferred prosecution agreement. Yet though HSBC was supervised by the Bank of England and the Financial Services Authority, there was no UK investigation.

Later, a letter emerged from the then chancellor George Osborne, along with correspondence from the governor of the Bank of England and the Financial Services Authority, urging the US authorities to go easy on HSBC as it was too big to jail. There was no ministerial statement in the UK parliament to explain the cover-up.

The Bank of Commerce and Credit International (BCCI) was closed by the Bank of England in 1991. It was the biggest banking fraud of the 20th century, yet the then Conservative government did not order an independent investigation. Through US investigations I became aware of a secret document codenamed the Sandstorm Report. Using freedom of information laws I requested a copy: the government refused. After five and half years of litigation, judges ordered the UK government to release a copy to me. It shows that the government has been protecting individuals, including dead ones, connected with al-Qaida, Saudi intelligence, royal families in the Middle East, smuggling, murder, financial crimes and other nefarious practices.

I recently raised the HSBC and BCCI cover-ups in the House of Lords. The minister did not respond.

The UK remains a favourite destination for dirty money because the political and regulatory system is ineffective. An independent public inquiry into the finance industry is long overdue, but even if one were granted it would be hard to be optimistic: it seems our law enforcement agencies have been captured by corporations. The revelation that the City of London police fraud investigation unit is now funded by Lloyds Bank – an organisation severely criticised by the all-party parliamentary group on fair business banking for its role in the unresolved frauds at HBOS – does not inspire any confidence. Will it take another financial crash to generate enough political pressure to change the system?

Trashing the planet and hiding the money isn’t a perversion of capitalism. It is capitalism

George Monbiot in The Guardian


‘A few decades after the Portuguese colonised Madeira, in 1420, they developed a system that differed from anything that had gone before.’ Photograph: Thomas Pollin/Getty Images
Wed 6 Oct 2021 13.00 BST


Whenever there’s a leak of documents from the remote islands and obscure jurisdictions where rich people hide their money, such as this week’s release of the Pandora papers, we ask ourselves how such things could happen. How did we end up with a global system that enables great wealth to be transferred offshore, untaxed and hidden from public view? Politicians condemn it as “the unacceptable face of capitalism”. But it’s not. It is the face of capitalism.

Capitalism was arguably born on a remote island. A few decades after the Portuguese colonised Madeira in 1420, they developed a system that differed in some respects from anything that had gone before. By felling the forests after which they named the island (madeira is Portuguese for wood), they created, in this uninhabited sphere, a blank slate – a terra nullius – in which a new economy could be built. Financed by bankers in Genoa and Flanders, they transported enslaved people from Africa to plant and process sugar. They developed an economy in which land, labour and money lost their previous social meaning and became tradable commodities. 

As the geographer Jason Moore points out in the journal Review, a small amount of capital could be used, in these circumstances, to grab a vast amount of natural wealth. On Madeira’s rich soil, using the abundant wood as fuel, slave labour achieved a previously unimaginable productivity. In the 1470s, this tiny island became the world’s biggest producer of sugar.

Madeira’s economy also had another characteristic that distinguished it from what had gone before: the astonishing speed at which it worked through the island’s natural wealth. Sugar production peaked in 1506. By 1525 it had fallen by almost 80%. The major reason, Moore believes, was the exhaustion of accessible supplies of wood: Madeira ran out of madeira.

It took 60kg of wood to refine 1kg of sugar. As wood had to be cut from ever steeper and more remote parts of the island, more slave labour was needed to produce the same amount of sugar. In other words, the productivity of labour collapsed, falling roughly fourfold in 20 years. At about the same time, the forest clearing drove several endemic species to extinction.

In what was to become the classic boom-bust-quit cycle of capitalism, the Portuguese shifted their capital to new frontiers, establishing sugar plantations first on São Tomé, then in Brazil, then in the Caribbean, in each case depleting resources before moving on. As Moore says, the seizure, exhaustion and partial abandonment of new geographical frontiers is central to the model of accumulation that we call capitalism. Ecological and productivity crises like Madeira’s are not perverse outcomes of the system. They are the system.

Madeira soon moved on to other commodities, principally wine. It should come as no surprise that the island is now accused of functioning as a tax haven, and was mentioned in this week’s reporting of the Pandora papers. What else is an ecologically exhausted island, whose economy depended on looting, to do?

In Jane Eyre, published in 1847, Charlotte Brontë attempts to decontaminate Jane’s unexpected fortune. She inherited the money from her uncle, “Mr Eyre of Madeira”; but, St John Rivers informs her, it is now vested in “English funds”. This also has the effect of distancing her capital from Edward Rochester’s, tainted by its association with another depleted sugar island, Jamaica.

But what were, and are, English funds? England, in 1847, was at the centre of an empire whose capitalist endeavours had long eclipsed those of the Portuguese. For three centuries, it had systematically looted other nations: seizing people from Africa and forcing them to work in the Caribbean and North America, draining astonishing wealth from India, and extracting the materials it needed to power its Industrial Revolution through an indentured labour system often scarcely distinguishable from outright slavery. When Jane Eyre was published, Britain had recently concluded its first opium war against China.

Financing this system of world theft required new banking networks. These laid the foundations for the offshore financial system whose gruesome realities were again exposed this week. “English funds” were simply a destination for money made by the world-consuming colonial economy called capitalism.

In the onshoring of Jane’s money, we see the gulf between the reality of the system and the way it presents itself. Almost from the beginning of capitalism, attempts were made to sanitise it. Madeira’s early colonists created an origin myth, which claimed that the island was consumed by a wild fire, lasting for seven years, that cleared much of the forest. But there was no such natural disaster. The fires were set by people. The fire front we call capitalism burned across Madeira before the sparks jumped and set light to other parts of the world.

Capitalism’s fake history was formalised in 1689 by John Locke, in his Second Treatise of Government. “In the beginning all the world was America,” he tells us, a blank slate without people whose wealth was just sitting there, ready to be taken. But unlike Madeira, America was inhabited, and the indigenous people had to be killed or enslaved to create his terra nullius. The right to the world, he claimed, was established through hard work: when a man has “mixed his labour” with natural wealth, he “thereby makes it his property”. But those who laid claim to large amounts of natural wealth did not mix their own labour with it, but that of their slaves. The justifying fairytale capitalism tells about itself – you become rich through hard work and enterprise, adding value to natural wealth – is the greatest propaganda coup in human history.

As Laleh Khalili explains in the London Review of Books, the extractive colonial economy never ended. It continues through commodity traders working with kleptocrats and oligarchs, grabbing poor nations’ resources without payment with the help of clever instruments such as “transfer pricing”. It persists through the use of offshore tax havens and secrecy regimes by corrupt elites, who drain their nation’s wealth then channel it into “English funds”, whose true ownership is hidden by shell companies.

The fire front still rages across the world, burning through people and ecologies. Though the money that ignites it may be hidden, you can see it incinerating every territory that still possesses unexploited natural wealth: the Amazon, west Africa, West Papua. As capital runs out of planet to burn, it turns its attention to the deep ocean floor and starts speculating about shifting into space.

The local ecological disasters that began in Madeira are coalescing into a global one. We are recruited as both consumers and consumed, burning through our life support systems on behalf of oligarchs who keep their money and morality offshore.

When we see the same things happening in places thousands of miles apart, we should stop treating them as isolated phenomena, and recognise the pattern. All the talk of “taming” capitalism and “reforming” capitalism hinges on a mistaken idea of what it is. Capitalism is what we see in the Pandora papers.

Why do people care more about benefit ‘scroungers’ than billions lost to the rich?

Robert De Vries and Aaron Reeves in The Guardian


The Paradise Papers have once again revealed the ingenuity and energy the super-rich are willing to deploy to keep their money away from the taxman. By illuminating the scale of this injustice, journalists have provided an invaluable service. And yet the revelations do not seem to have generated the level of public outrage that might have been expected.

At a time of staggering global inequality, it is perhaps surprising that people are not more animated by the determination of the ultra-rich to avoid their obligations to support our roads, hospitals, soldiers and schools – when regular citizens are unable to take advantage of such arrangements. However, this relative lack of concern is consistent with research on people’s attitudes towards tax avoidance.

Last year’s British Social Attitudes survey asked Britons about their feelings on this issue. Our analysis of this data (with Ben Baumberg Geiger of the University of Kent) revealed that the British public believes tax avoidance to be commonplace (around one third of taxpayers are assumed to have exploited a tax loophole). In moral terms, people seem rather ambivalent; less than half (48%) thought that legal tax avoidance was “usually or always wrong”.

By contrast, more than 60% of Britons believe it is “usually or always wrong” for poorer people to use legal loopholes to claim more benefits. In other words, people are significantly more likely to condemn poor people for using legal means to obtain more benefits than they are to condemn rich people for avoiding tax. This is a consistent finding across many different studies. For example, detailed interviews conducted by the Joseph Rowntree Foundation in the wake of the 2008 financial crisis found that people “tended to be far more exercised by the prospect of low-income groups exploiting the system than they were about high-income groups doing the same”.

This discrepancy is reflected in government priorities. Deep public antipathy towards benefit “scroungers” has been the rock upon which successive Conservative-led parliaments have built the case for austerity. Throughout his premiership, David Cameron, along with his chancellor, George Osborne, kept the opposition between “hardworking people” and lazy benefit claimants right at the centre of their messaging on spending cuts. Though gestures have been made towards addressing widespread tax avoidance by the wealthy, very little has actually been achieved. This stands in stark contrast to the scale and speed with which changes have been made to welfare legislation.

Will the Paradise Papers shift the public’s focus? The leaks alone are seemingly not enough. The 2016 British Social Attitudes survey was conducted just four months after the release of the Panama Papers. Even then, the British public remained more concerned about benefit claimants than tax avoiders.

Fundamentally, the Paradise Papers are about numbers – vast sums of money disappearing offshore that could be spent on public services here in the UK. However, as the former chair of the UK Statistics Authority, Andrew Dilnot, has often pointed out, people are bad at dealing with numbers on this scale. Unless you are an economist or a statistician, numbers in the millions and billions are just not particularly meaningful.

The key is to link these numbers to their consequences. The money we lose because people like Lewis Hamilton don’t pay some VAT on their private jet means thousands more visits to food banks. The budget cuts leading to rising homelessness might not have been necessary if Apple had paid more tax. Fewer people might have killed themselves after a work-capability assessment if companies like Alphabet (Google) had not registered their offices in Bermuda, and the downward pressure on benefits payments was not so intense. 

The causal chains connecting these events are complex and often opaque, but that does not make their consequences any less real, especially for those who have felt the hard edge of austerity.

The Paradise Papers have dragged the murky world of offshore finance into the spotlight. However, calls for change may founder against the British public’s persistent focus on the perceived crimes of the poor. That is, unless we – as academics, politicians, journalists and others – can articulate how the decisions of the very rich contribute to the expulsion of the vulnerable from the protection of state-funded public services. Quite simply, people get hurt when the rich don’t pay their taxes.

Britain's role in the growth of tax havens

Andrew Verity in The BBC


Here's the received wisdom: when the British Empire faded in size and significance after World War Two, a few scattered islands around the globe wanted to keep their imperial ties to London.

The British government had to find a way to reduce the economic dependence of the likes of Bermuda, Montserrat or the British Virgin Islands, so it awarded them special tax-exempt status, creating the conditions for a thriving financial services industry.

Yes, tax evasion and money laundering may have got a little out of hand from time to time, but overall it succeeded in lifting them out of dependence on the UK government.

But there's a deeper story. It wasn't by design that the remnants of a dying British Empire morphed into a world leader in offshore financial services, selling secrecy and tax avoidance to multi-nationals and the wealthiest individuals in the world.

Instead, the crucial moment was more of an accident - which gave rise to advantages no-one had foreseen.

And it began not in Bermuda or Jersey but in another offshore centre - "offshore" not to the UK, but to the US - the City of London.

Incentives to avoid

When the 20th Century began, income tax was in single digits and progressive taxation - charging richer people a higher rate - had barely begun.

In the run-up to World War One, chancellors of the exchequer - from Asquith to Lloyd George - began raising taxes to pay for social reforms, such as the old age pension.

As the war progressed, the state demanded more and more income tax from every citizen and higher rates for the wealthy, leading to a top rate of 30% by 1919.

Accountants to wealthy individuals began to devise ways to avoid tax. Clients could become resident in Jersey, where tax rates were far lighter.

Or, if they wanted to stay in London, they might put their money in a trust registered elsewhere, perhaps on the Isle of Man, where in theory it was no longer theirs - and therefore not visible to the prying eyes of an Inland Revenue inspector.

David Lloyd George served as Chancellor in Herbert Henry Asquith's government, before rising to PM in 1916

But it was in the dying days of the Empire that the offshore financial services industry truly boomed.

Defined by purpose rather than geography, "offshore" means any jurisdiction that seeks to attract investors on the basis of light taxes and looser regulations.

On that basis, the epicentre of the offshore industry is not Nassau in the Bahamas or George Town in the Cayman Islands.

As author Nick Shaxson points out in his fascinating offshore expose, Treasure Islands: "The modern offshore system did not start its explosive growth on scandal-tainted and palm-fringed islands in the Caribbean, or in the Alpine foothills of Zurich. It all began in London, as Britain's formal Empire gave way to something more subtle."

By accident - not design

In 1957, Britain and its imperial remains were trying to recover from a financial crisis. The previous year the UK had joined forces with France and Israel to try to recapture the Suez Canal after it was nationalised by the defiant anti-colonial Egyptian President, Gamal Abdel Nasser.

Viewing the invasion as European imperialism at its worst, the US refused any assistance.

By the end of 1956, a run on the pound was under way. The Bank of England wanted to curb the outflow of pounds by boosting interest rates sharply, but Her Majesty's Treasury had other ideas.

Since the Bretton Woods economic conference of 1944 towards the end of World War Two, countries had agreed to control movements of capital to curb the speculative flows into and out of countries that had worsened the economic crises of the past.

If, say, Tate & Lyle wanted to invest several million pounds in a new sugar production facility in Jamaica, it would need signed approval from Her Majesty's Treasury.

Normally this was a formality. But during the Suez crisis, the Treasury announced that, on a temporary basis, it would no longer approve foreign capital investments.Image copyrightREUTERSImage captionThe Bank of England did not get its way against the Treasury

The City's merchant banks were alarmed. Arranging finance for projects in the former colonies was their lifeblood. How would they avoid ruin?

Digging through the archives, financial academic Gary Burn unearthed what happened next.

Hearing the banks' complaints in a series of meetings, the Bank of England agreed in late 1957 to allow the commercial banks to continue to lend and borrow to foreign clients on two conditions:
the lending had to be in a currency other than sterling, and
both sides of the transaction - the lender and the borrower - had to reside somewhere other than the UK
"The decision was momentous in all respects," says one of the leading experts in offshore finance, Prof Ronen Palan of City, University of London. "They simply deemed certain transactions as not taking place in the UK. Where did the transactions take place for regulatory purposes? Nowhere.

"I think it wasn't at all by design; it was a mistake. They didn't understand the implications. It was seen as an accounting device."

The so-called "Eurodollar" was born - a global offshore financial market, transacting in dollars and allowing unlimited sums to be borrowed and lent, but under the control of no single state. No act of Parliament (or Congress) sanctioned the decision. There was no thoughtful policy-making, no careful debate.

Success of the Eurodollar

The Treasury was at first left in the dark. But within years the implications were obvious - this could revive the City of London's fortunes.

"By the time the Treasury figured it out, they thought, 'this is good business for the City'," said Prof Palan.

Banks from all around the world could borrow and lend in dollars without being subject to US tax or banking regulations - making banking in dollars more profitable out of London than out of Wall Street.

Offshore banks didn't have to hold money in reserve for every dollar they lent (as they would in the US), which would dramatically cut their costs.

While transactions were arranged in London, the lenders and borrowers could be registered anywhere. But the parties to Eurodollar transactions needed addresses.

So, zero-tax jurisdictions from the Cayman Islands to the Montserrat were used by London's investment banks as the official tax residences of their wealthy customers.

Clients could avoid both tax and undesirable scrutiny - for example from the US tax authorities.

In the British Overseas Territories, local laws were passed to attract more registration business, collecting modest fees that mounted up. No need for a bank branch out there - just a drawer in an offshore lawyer's filing cabinet.

The City of London began its recovery to become the centre of finance it is today

Howls of protest from the US government were ignored. Between 1960 and 1970, the size of the Eurodollar market went from $1bn to $46bn.

In the 1970s, countries rich in petrodollars from soaring oil prices were faced with a dilemma: repatriate the money to New York - where they would be taxed on it - or keep it offshore.

By 1980, the so-called Eurodollar market was worth more than half a trillion.

After the deregulation of the City of London in the 1986 "Big Bang", US banks joined in, setting up in London.

And as the 1990s and 2000s progressed, it became the undisputed global centre for foreign currency trading.

Not for the weather

Banks' wealthy individual and corporate clients didn't incorporate in the Cayman Islands or the British Virgin Islands because they liked the weather there - many never visited.

Offshore centres were attractive to businesses looking to reduce their tax bill, but sometimes, more importantly, to avoid what they regarded as excessive regulation.

Cayman Islands-registered companies were used heavily, for example, by the energy giant Enron as it built its business model based on fraudulent accounts.

Tax-free, light regulation jurisdictions, including the Bahamas, the Cayman Islands and Delaware in the US, became the corporate locations of choice for legitimate hedge funds.

They were also used to incorporate the vehicles at the heart of the global financial crisis - the 'structured investment vehicles' that did not show up on bank's balance sheets and bought billions of mortgage-backed securities, massively increasing the unnoticed risks in the global financial system which led to the crisis of 2008.

Likewise, the British Virgin Islands has been used by many legitimate businesses. It has also become the favourite secrecy jurisdiction for clients of the Panama-based law firm exposed in last year's Panama Papers revelations, Mossack Fonseca.

Since those revelations, governments around the world have pledged to improve transparency with measures such as automatic information sharing and registers of beneficial owners of offshore companies.

Many of those measures are yet to be enacted or tested.

But as the Paradise Papers are now confirming, the secrets of Britain's offshore empire are no longer quite so safe.

Offshore finance: more than £12tn siphoned out of emerging countries

Analysis shows £1.3tn of assets from Russia sitting offshore, as David Cameron prepares to host anti-corruption summit.

 

Russian banknotes. A detailed 18-month research project has uncovered a sharp increase in the capital flowing offshore from developing countries, in particular Russia and China. Photograph: Maxim Zmeyev/Reuters


Heather Stewart in The Guardian


More than $12tn (£8tn) has been siphoned out of Russia, China and other emerging economies into the secretive world of offshore finance, new research has revealed, as David Cameron prepares to host world leaders for an anti-corruption summit.

A detailed 18-month research project has uncovered a sharp increase in the capital flowing offshore from developing countries, in particular Russia and China.

David Cameron under pressure to end tax haven secrecy



The analysis, carried out by Columbia University professor James S Henry for the Tax Justice Network, shows that by the end of 2014, $1.3tn of assets from Russia were sitting offshore. The figures, which came from compiling and cross-checking data from global institutions including the International Monetary Fund and the United Nations, follow the Panama Papers revelations of global, systemic tax avoidance.

Chinese citizens have $1.2tn stashed away in tax havens, once estimates for Hong Kong and Macau are included. Malaysia, Thailand, and Indonesia – all of which have seen high-profile corruption scandals in recent years – also come high on the list of the worst-affected countries.

Henry, a former chief economist at consultancy McKinsey, told the Guardian his research underlines the fact that tax-dodging is not the only motivation for using tax havens – criminals and kleptocrats also make prolific use of their services, to keep their wealth secret, and their money safe. He said the list of users of offshore jurisdictions is like the cantina scene in Star Wars, where a motley group of unsavoury intergalactic characters is assembled. Henry said: “It’s like the Star Wars scene: you have the tax dodgers in one corner, the arms dealers in another, the kleptocrats over here. There’s also those using tax havens for money laundering, or fraud.”

Oil-rich countries including Nigeria and Angola feature as key sources of offshore funds, the research finds, as do Brazil and Argentina. Henry said the owners of this hidden capital are often so keen to secure secrecy and avoid their wealth being appropriated back home, that they are willing to accept paltry financial returns rather than investing it in ways that might promote economic development. Charging just 1% tax on this mountain of offshore wealth would yield more than $120bn a year — almost equivalent to the entire $131bn global aid budget.

The TJN is urging Cameron to push for agreement on a series of issues at this week’s summit, including a tougher crackdown on the banks, lawyers and other professionals who facilitate financial secrecy; and an obligation on all politicians to make their personal financial situation transparent.

The prime minister published a summary of his tax affairs last month, after the Panama Papers leaks revealed that his father had set up an investment fund, Blairmore, based in the offshore jurisdiction of Panama.

Henry argued that when senior figures in authoritarian states such as China use tax havens to guard their money safely, they are effectively free-riding on the legal and financial systems of other countries. “All of these felons and kleptocrats are in a way essentially dependent on the rule of law when it comes to protecting their money,” he said.

He said it was not just exotic locations such as the Cayman Islands where money can effectively be hidden, but also some US states, such as Delaware, where it is possible for foreign investors to start up and run a company without making clear its ultimate ownership – something all UK firms will have to do from later this year.

The nation at the heart of the offshore tax haven scandal is Britain

Britain's relationship with its overseas territories means it could – if it wanted – easily tackle offshore global secrecy

• 
• • James Ball
  • guardian.co.uk, Friday 5 April 2013 18.00 BST

'The British Virgin Islands are perhaps rivalled only by Switzerland as a global capital for the offshore industry'. Photograph: James Marshall/Corbis

It's a tumultuous time for the offshore industry. For decades, there's been an uneasy equilibrium: opprobrium from campaigners, torpor from regulators, apathy from the wider public, and delight for the wealthy benefiting from the arrangements to cut their tax bill or avoid regulatory scrutiny.

Recently, though, the rhetoric and action have changed. In tougher economic times – for which the financial sector has copped a huge amount of the blame – the public is more aggrieved by tax avoidance arrangements than ever, while recent proposed offshore crackdowns have been cautiously welcomed by campaigners as having the potential to actually be effective.

The leaking of more than 2m offshore files to the International Consortium of Investigative Journalists, and through them to the Guardian for our Offshore Secrets stories is just the latest in a series of unwelcome developments.

Amid this backdrop, and with ministers from George Osborne to Vince Cable willing to speak out strongly against offshoring and tax avoidance, it's easy to imagine the villains of the piece to be irresponsible foreign nations – happy to shelter the mega-rich in offshore secrecy, unconcerned about the tax avoided in other, larger countries.

If only the British government can prevail in these overseas battles, things will get better, it seems.
But such a stance ignores that one nation in particular has ties to offshore havens everywhere. It's a veritable nexus of offshore influence, related to havens in the Caribbean, and much closer to home. That nation is, of course, the United Kingdom.

The clue is quite often in the name. The British Virgin Islands are perhaps rivalled only by Switzerland as a global capital for the offshore industry, with more than 1m offshore companies registered on the Caribbean island (population 31,900). Plaques for registration agents, solicitors and more line almost every wall of the islands' tiny capital.

The islands are a British Overseas Territory: legally under the jurisdiction of the UK (and with a British governor), but in practice self-governed. Other havens with this UK imprimatur include the Cayman islands, Gibraltar, and the Turks and Caicos Islands.

Closer to home, the UK wields even more control over the crown dependencies: Jersey, Guernsey and the Isle of Man, whose role in legal tax avoidance techniques has been documented time and again for decades.
Even within the UK itself, little is done against tricks of the offshore trade that have been known for decades.

In 1999, Sark islander Philip Croshaw was struck off as a UK director for acting as a "nominee" – a sham director who hides a company's real controllers – for thousands of companies in the UK.

At the time, then-trade minister Kim Howells said: "The government today struck a fatal blow against the practice of so-called 'nominee directorships' … The trade in providing 'nominee director' services from the island of Sark has been a scandal … The courts have now effectively outlawed this abuse."

And yet today – 14 years later – more than 175,000 UK companies have had directors based in offshore havens, and the Guardian has identified 28 sham directors with tens of thousands of companies between them.

In short, a huge string of the world's foremost offshore havens have, at minimum, a strong and long-lasting symbolic relationship with the UK, and in practice are susceptible to significant influence and pressure from the UK government.

Even at home, offshore practices known and deplored by governments for more than a decade are still going strong. The temptation for campaigners and government alike is to look overseas for the villains in the offshore trade. The reality is more complex, and the trouble closer to home. The upside of this is it means that if Britain really wants to tackle global offshore secrecy, there's a lot it can do.

But so far, everywhere – on its home turf, in its dependencies, and in its overseas territories – the UK brand is on both sides of the fight. For Britain, the battle against offshore tax havens – if it wants to fight it – begins at home.

More than 175,000 UK companies have offshore directors

Figures raise concern about scale of offshore secrecy arrangements by British businesses

• James Ball
• The Guardian, Thursday 4 April 2013 16.18 BST

On Sark in the Channel islands there have been 24 current and former UK company directors for every resident. Photograph: Universalimagesgroup/UIG via Getty Images

More than 175,000 UK-registered companies have used directors giving addresses in offshore jurisdictions, the Guardian has established. This raises fresh concerns about the scale of Britain's involvement in offshore secrecy arrangements.

Data obtained from the corporate information service Duedil reveals 177,020 companies have listed directors in jurisdictions such as the Channel Islands, British Virgin Islands, Cyprus, Dubai and the Seychelles.

More than 60,000 of those companies are listed as currently active on Companies House, the official register of UK businesses.

Having directors in offshore jurisdictions does not indicate a company is doing anything illegal, or that a director is necessarily a sham.

British expats who retain directorships of their business would feature in this data, as do "personal services companies" based in the Isle of Man, which help self-employed people incorporate themselves as a limited company.

However, the figures do reveal the huge scale of company registration relative to some of the islands' tiny populations: 47,161 companies have listed directors from the Isle of Man – representing one British company for every 1.8 residents of the island.

The figure is even more stark for the secrecy haven of the British Virgin Islands, where there is one director listed for every 1.3 residents of the islands, for a total of 17,959 UK businesses, past and present.

On the tiny Channel Island of Sark, there have been 24 current and former UK company directors for every resident of the island.

Many of the key figures involved in the "Sark Lark", as it was known, emigrated when the island's controversial practices came under scrutiny a decade ago. Most of those companies are now defunct, with only around 209 active directorships.

A Guardian/ICIJ investigation, published last November, documented the activities of more than two dozen "sham directors" – Britons each listed as directors of hundreds, and sometimes thousands, of companies registered across the world, allowing the real people behind them to stay in the shadows.

These sham directors held directorships not only in offshore companies but also in more than 8,900 British-registered companies – meaning UK authorities were left in the dark as to who was really in charge of supposedly British businesses.

These new findings suggest the numbers of such less-than-genuine directors on British company registers may be much greater than the 28 so far identified.

The Offshore Secrets investigation identified groups of nominee directors working out of territories scattered across the world. Atlas Corporate Services operated from Dubai and the Seychelles with six sham directors purportedly controlling more than 5,400 international companies.

Another pair of British expats, Sarah and Edward Petre-Mears, appeared to have a global empire of more than 2,250 directorships between them – run, initially, from their home in Sark, and then from a collection of addresses on the tiny Caribbean island of Nevis.

Writing in the Guardian in the wake of the initial findings, and before the latest figures came to light, the business secretary, Vince Cable, warned against the practice of using sham directors based in offshore territories. "[We] must identify and stop the minority who sail too close to the wind in order to protect the UK's reputation as a trusted place to do business," he said. "Becoming a company director carries with it legal responsibilities which, if breached, can result in disqualification, fines and prison.

"Some people think that putting up a straw man as a director makes them immune from the consequences. This is not the case: if you are acting as a director, you are liable."

The extraordinary range of people using offshore tax evasion hideaways

Records represent the biggest stockpile of inside information about the offshore system ever obtained by a media organisation

• Gerard Ryle
• The Guardian, Thursday 4 April 2013

The British Virgin Islands, the world's leading offshore haven. Photograph: Lars Ruecker/Getty Images/Flickr RF

The secret records obtained by ICIJ lay bare an extraordinary range of people using offshore hideaways.

They include US dentists and middle-class Greek villagers as well as families of despots, Wall Street swindlers, eastern European and Indonesian billionaires, Russian executives, international arms dealers and a company alleged to be a front for Iran's nuclear-development programme.

The leaks illustrate how offshore financial secrecy has aggressively spread around the globe. The records detail offshore holdings in more than 170 territories; this represents the biggest stockpile of inside information about the offshore system ever obtained by a media organisation.

To analyse it, ICIJ collaborated with reporters from the Guardian and the BBC in the UK, Le Monde in France, Süddeutsche Zeitung and Norddeutscher Rundfunk in Germany, The Washington Post, the Canadian Broadcasting Corporation (CBC) and 31 other international media partners.

Eighty-six journalists from 46 countries used both hi-tech data crunching and traditional reporting to sift through emails and account ledgers covering nearly 30 years.

"I've never seen anything like this. This secret world has finally been revealed," said Arthur Cockfield, a law professor at Queen's University in Canada, during an interview with CBC.

Offshore's defenders say that most users are legitimate. Offshore centres, they say, allow people to diversify investments, create international ventures and do business in entrepreneur-friendly zones without red tape.

"Everything is much more geared toward business," David Marchant, publisher of OffshoreAlert, an online journal, said. "If you're dishonest, you can take advantage of that in a bad way. But if you're honest you can take advantage of that in a good way"

The vast tide of offshore money can disrupt economies. Greece's fiscal disaster was exacerbated by offshore tax cheating and in the Cyprus crisis, local banks' assets were inflated by waves of cash from Russia.

ICIJ's 15-month investigation found that, alongside perfectly legal transactions, the secrecy and lax oversight offered by the offshore world appears to allow fraud, tax-dodging and political corruption to thrive.

Anti-corruption campaigners argue that offshore secrecy forces citizens to pay higher taxes to make up for vanishing revenues, while anonymity makes it difficult to track the flow of money. A study by James S Henry, former chief economist at McKinsey & Company, estimates that wealthy individuals have $21-$32tn tucked away in offshore havens – roughly equivalent to the size of the US and Japanese economies combined. The offshore world is growing, said Henry, who is a board member of the Tax Justice Network, an advocacy group critical of offshore havens.

Much of ICIJ's analysis focused on the work of two major offshore incorporation firms, Portcullis TrustNet and Commonwealth Trust Limited (CTL). Trustnet was founded by Mike Mitchell, a New Zealand lawyer who worked as the Cook Islands' solicitor general in the early 1980s, built up offshore business in Hong Kong, and sold out in 2004 to Singapore lawyer David Chong, as Singapore became a favoured financial hideaway for clients from Asia.

Canadian businessman Tom Ward and Texan Scott Wilson set up CTL in 1994 in the British Virgin Islands. They specialised in attracting Russian and east European money. Regulators found that CTL repeatedly violated the islands' anti-money-laundering laws between 2003 and 2008 by failing to check out its clients. "This particular firm had systemic money-laundering issues," a BVI financial services commission official said last year.

Ward said CTL's vetting procedures had been consistent with local standards, but that no amount of screening could ensure that firms won't be "duped by dishonest clients".

In relation to the second firm, Trustnet, ICIJ identified 30 of their US clients accused in lawsuits or criminal cases of fraud, money laundering or other serious financial misconduct. TrustNet declined to answer our questions.

In the 1990s, the Organisation for Economic Cooperation and Development began pressuring offshore centres to reduce secrecy, but the effort ebbed in the 2000s as the Bush administration withdrew support, according to Robert Goulder, former editor-in-chief of Tax Notes International. A second "great crusade", Goulder writes, began when US authorities took on UBS, forcing the Swiss bank to pay $780m in 2009 to settle allegations that it had helped Americans dodge taxes. David Cameron has now vowed to use his leadership of the G8 to help crack down on tax evasion.

But despite the new efforts, offshore remains a "zone of impunity", says Jack Blum, a specialist lawyer and former US Senate investigator: "There's been some progress, but there's a bloody long way to go."

Gerard Ryle is director of the ICIJ, a Washington-based independent network of reporters. See icij.org
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 How many UK companies are run from overseas havens?

More than 175,000 UK companies have been controlled from countries linked by campaigners to offshore secrecy – but where has the most?

Tortola, the capital of the British Virgin Islands, sometimes referred to as the offshore capital of the world. 17,000 UK companies have been controlled from the BVI. Photograph: Neil Rabinowitz/Neil Rabinowitz/CORBIS

Among the latest revelations from the Guardian's Offshore Secrets series is a sense of how many of the three million companies registered at Companies House are controlled from offshore territories.

A first sense of the scale of such offshore control of British businesses is given in the Guardian's new story today:

More than 175,000 UK-registered companies have used directors giving addresses in offshore jurisdictions, the Guardian has established. This raises fresh concerns about the scale of Britain's involvement in offshore secrecy arrangements.

Data obtained from the corporate information service Duedil reveals 177,020 companies have listed directors in jurisdictions such as the Channel Islands, British Virgin Islands, Cyprus, Dubai and the Seychelles.

More than 60,000 of those companies are listed as currently active on Companies House, the official register of UK businesses.

Having directors in offshore jurisdictions does not indicate a company is doing anything illegal, or that a director is necessarily a sham. British expats who retain directorships of their business would feature in this data, as do "personal services companies" based in the Isle of Man, which help self-employed people incorporate themselves as a limited company.

What's also telling, however, is breakdown of which territories have the most directors of UK companies, posted below.

The scale of company ownership in some of these territories is huge: in the British Virgin Islands there are three UK companies for every four citizens. In the Isle of Man there is a UK company registration for every two people.

In Sark the situation is still more stark: counting now defunct companies, there are 24 UK companies registered on the island for every person there.

Below, using data gathered for the Guardian by DueDil, we've listed the number of companies registered in 13 different territories.

We've split the list in two different ways: companies listed as 'active' on Companies House (the official UK register) versus 'inactive', and also split between directorships which are still current and ones which have been resigned.

If you've got any comments or thoughts on these activities, leave a comment on our main news story today, or (if you'd prefer to comment confidentially), email me at james.ball@guardian.co.uk.

UK companies with offshore directors

Territory	Active companies	Inactive companies	Current directorships	Former directorships
Isle of Man	22366	24795	13757	33973
Guernsey	12024	11588	6799	17079
Cyprus	7609	18836	4082	22484
Jersey	8685	10818	3108	16560
Dubai	4937	6164	2611	8573
BVI	5329	12630	1943	16169
Seychelles	2693	4322	1773	5258
St Kitts and Nevis	1700	4460	832	5343
Mauritius	715	980	445	1260
Cayman Islands	558	414	330	644
Sark	1851	12923	209	14632
Vanuatu	136	246	92	292
Turks and Caicos	55	186	27	214
Total	68658	108362	36008	142481