There is, according to some estimates, a trillion dollars of dirty money stashed away in the world's off-shore tax havens. Apart from Switzerland and Liechtenstein, it is said, the chief destinations for whitewashed cash are all British "controlled". Off the coast of Britain, the main destinations for those seeking anything from easy tax regimes to "confidentiality" or in other words "no questions asked" are the Channel Islands -- Jersey, Guernsey and Sark, and the Isle of Man (whose residents, like their famous tail-less cat, are known as Manx); further out, there is Gibraltar, the Cayman islands and the British Virgin islands.Stories abound about these islands. Of people arriving off a plane with a suitcase full of money vanishing into a bank and leaving empty handed. Of visitors landing at the ferry ports to be greeted by local residents asking them if they were looking for directors. The British press has been swamped with stories of multiple billion dollar operations out of the homes of islandresidents some of whom are directors of over 2000 companies a piece, and of the islands' government's direct involvement in the business operations.
The Channel islands and the Isle of Man came under British rule in the 11th and 12th centuries and have continued as "dependent territories" of the British crown. The main islands have their own parliaments and laws, and unless specially legislated for they are not are not bound by British acts of Parliament. Britain's tax and business laws obviously do not apply. And while the islands have other economic activity, for instance agriculture and tourism, their main activity is money, cash, mullah in every form that it takes.
The main Channel islands, Jersey and Guernsey are at pains to present a "clean image". Jersey, known as the most "exclusive" off-shore destination, (it claims residence rights to five known drug barons) is touchy about bad publicity. Jersey businessmen bend over backwards to establish that they do not quite fit Hemingway's' "sunny place forshady people" description, and not simply because they have different weather conditions. They have, they said, tightened regulations extending money laundering restrictions to all crimes, not just drug offence. They claim that they now compare themselves with London and New York, rather than other offshore centres.
Indeed, the off-shore centres are no longer the refuge of the seriously shady and the super rich. British high street banks offer their customers products from their offshore operations which skim the ambiguous space between tax evasion and tax avoidance. Interest paid gross, on an off-shore deposit, is the simplest one. Offshore "trusts" are another. The onus on declaring the income is on the individual. But, such deposits are still chicken feed compared with what makes up the over $120 billion in bank deposits on Jersey alone. While Jersey may claim to have cleaned up their act since their "Dodge-city days" in the 1960s, there seem to be enough loopholes for dubious dosh to enter the bankingsystem.
Despite the regulations the number of disclosures from banks and investment companies about potentially shady money are small compared with those on the mainland as is the percentage of actual investigations into these disclosures. Last year Jersey police said they received around 420 disclosures a year of which only 10 or 20 turned into investigations. In comparison, Britain's National Criminal Intelligence Service says it receives over 16,000 disclosures of which about 25 percent turn into investigations.
The paradox is that the more an off-shore centre tries to clean up its act, the more dirty money it attracts. People with money to launder would like nothing better than the approval of a good reputation. Besides, the question that is being asked is what role tax havens continue to play when mainland financial centres, at least in Europe and the US, offer the same things: political stability, low tax thresholds, the slimming down of tax regimes, regulation mechanisms and bureaucratic controls.Indeed mainland Britain is seen as an attractive domicile for businesses as it has a much easier tax regime than most other European countries. London, in fact, far outstrips the off-shore financial centres as a home for non-resident money, with $600 billion in deposits, investments, etc.
This makes questions about who continues to seek off-shore centres for their money and why they do so even more interesting.
What do off-shore tax havens offer? Different off-shore centres have different rules for residence, investments, registering companies or depositing money. But there is a uniformity of principle -- i.e. the bottomline is the same: low or no income tax, inheritance or capital gains tax, "confidentiality" or absence of disclosure, and minimal regulation of companies, with regard to nature of business or disclosure of accounts.
Companies, for instance, would in most of these locations, only be required to register the names of nominee directors without having to reveal the names of the "beneficialowners" -- that is, the true owners of the companies. Channel island companies through which Bofors pay-offs are said to have been made will, for instance, find easy protection in this loophole, as will companies that are alleged to have acted as fronts for Benazir Bhutto and her husband Asif Zardari's shady deals.
One newspaper investigation into businesses operating out of the island of Sark and the Isle of Man found, 23,000 registered companies and several local residents who held over 2000 directorships. They found several companies based in one man's greenhouse, while many supposed residents of Sark turned out to be telephones with re-direct facilities to wherever in the world the person actually happened to live. The businesses on the islands ranged from arms dealers, purveyors of pornography, to providers of fake degrees.
In the case of two London-based arms dealers who sold arms to Rwanda's Hutu militia through an Isle of Man subsidiary, no prosecution was possible because the British governmenthad failed to extend the remit of the UN arms embargo to the island.
While Switzerland, where a third of non-resident money is held, has in recent years tried to develop a more co-operative attitude with investigations into money laundering, the island governments are notorious for refusing to co-operate with foreign investigations into companies and bank accounts held there. The British government has announced a review of the Channel island's financial industry. Home Secretary Jack Straw said the emphasis was on making international investigations into criminal activity easier. But, what this will do, is move the money out of these islands to other off-shore centres. Besides, legal experts feel that Britain does not have the power to enforce new regulations.
The New York district attorney John Moscow, who led the investigation into of the BCCI bank collapse said at the time: "My experience with both Jersey and Guernsey has been that it has not been possible for US law enforcement to collect evidence toprosecute crime." An indication of the intense code of "confidentiality" is the fact that even the big Swiss banks have established subsidiaries on the islands. The Union Bank of Switzerland is one of them. Moscow said: "It is unseemly that these British dependencies should be acting as havens for transactions that would not even be protected by Swiss bank secrecy laws. One has to wonder why Swiss banks would set up subsidiaries in these jurisdictions."
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
