Yachts, diamonds, champagne and deep corruption - Easy targets in the war against the 1%
"A medieval fortress, surrounded by a moat, run by a mad king who's bent on torturing and raping while looting the country" - The word of Russia Today's Max Keiser, concluding an interview with an investigative journalist dedicated to revealing the deep corruption and child abuse of the British Crown Dependency of Jersey. Ever since the beginning of the financial crisis, with the occupy movement and ongoing Eurozone crisis the "1%" have become enemy number one of the average person struggling to get through the crisis. With millions out of work, most facing severe government cuts and real-term drops in wealth, the fact that the wealthiest continue to enjoy hugely disproportionate wages, bonuses, and tax-avoiding opportunities is seen as deeply unfair and immoral. In this climate anyone and anything which can be linked to this class of people who caused the crisis and yet profit from it is an easy target for anyone seeking to stoke popular outrage.
The ease in which this occurs has spurred the rise of the Tax Justice Network (TJN), a Norwegian-funded enterprise which has turned stoking outrage against specific jurisdictions and the 1% into an art-form. Their chief target - Tax havens:
Fueled by local political figures with no qualms about attacking their own island (whether that be the government or the finance industry which employs up to half of the population) conspiracy theories have bloomed surrounding the small Island of Jersey, drawing in visits from investigative journalists as diverse as Leah McGrath Goodman and BBC's Panorama. The ease with which an Island built upon a finance industry chiefly administering the assets of the 1% can be portrayed as a haven for all kinds of corruption and evil has driven significant public ire. But what are popular impressions are not always correct ones, and the draw of the drama of conspiracy theories cover up the reality of the situation. Here are a few myths of the tax haven compared to the reality of the channel island:
It is a Tax Haven: Yes and no. The finance industry uses the islands largely due to initial tax incentives, but that does not mean the tax is escaping from other governments. The industry can best be understood as the filling of a sandwich. All wealth is taxed at the source of income and where it is invested as the bread of the sandwich. It is impossible to have such large sources of income or places to invest on these islands, they're simply too small. The islands instead form the filling on the sandwich, a tax-neutral place between income and investment where funds can be organised, combined and administered as efficiently as possible without the threat of losing value to tax whilst doing so. If the islands did not exist investments would be extraordinarily less efficient as administrators would simply cut out the stages in the filling to avoid losing value. The strength of the islands is in this tax-neutral filling and a huge concentration of financial institutions and professionals which makes the administration of wealth significantly more efficient, not as a place to hide funds from tax.
It is a Secrecy Jurisdiction: The concept that the islands are used to hide funds from tax is based on the concept that it is even possible to hide funds there. However, with Jersey alone having twenty nine tax information exchange agreements with other states and seventeen more in progress this is not an easy exercise. With the United States' FATCA and the UK's own version to follow, tax information will soon be shared automatically from these islands to states. If the aim of the billions of dollars flowing through the islands was to hide them, investors need to have very stern words with their advisors. Especially as the City of London, New York, Delaware and Switzerland have all been rated more tax-opaque than the British "tax-haven" islands. All of the British crown dependencies are listed as fully compliant with all international financial standards.
Everyone is rich: The image of the tax-haven islands as the sunny refuges of the ultra-rich, where everyone owns a yacht and plays poker with diamonds could not be more bizarre to the inhabitants of these places. As mentioned before, very little income is earned and invested in these places relative to how much is administered. Around half of the populations may be involved with the finance industry, but they are employed by it, not profiting from it. Most capitals look fairly similar to onshore equivalent towns and the most common mode of transport are probably ten-year-old VW polos.
It robs the world of wealth: As mentioned before, very little administered wealth is invested in the islands it passes through. Instead it is simply organised in a fashion to make its future investment more efficient. The islands facilitate investment in every field imaginable, from horse-racing to hospitals. The crown-dependencies alone financed the UK banks a total of £332 billion in just one quarter of 2009, funding which may well have otherwise have had to come from the UK's government bailouts. Far from robbing the world of wealth, these islands facilitate the investment which is vital in all walks of life. In fact several Islands have gone so far as to lead conferences advising developing states on how to avoid tax-evasion.
There is deep-seated corruption: One of the most popular conspiracy theories relating to tax havens is that there is significant collusion between governments, banks and media to create more wealth for the 1% at the expense of the average person. However, there does not seem to be any real incentive for this to happen. The governments of these places maintain tax-neutral policies to support their strongest industry, which is not so much corruption as good governance. If there was such corruption we would surely see more of a revolving door between government positions and banking heads (something much more common in larger states), instead the governments of these islands are dominated by older families who were around long before the arrival of the banks.
Populist rhetoric, portraying the people at large as in a constant battle with a secret world of corrupt elites who dominate anything with money and power, is extremely popular. However, popularity does not equal truth. The British offshore finance centres are exactly that, concentrated islands boasting large numbers of finance professionals with extremely high expertise in dealing with high-value investments. The government governs to support its largest and most valuable industry, one which produces the significant income taxes which allow government to operate at all, governance which requires cooperation with other onshore governments including tax transparency and inter-governmental agreements. The concept of a deep-seated evil in these jurisdiction seems strange to Islanders because in places so small such conspiracies would hardly stay secret for long. Unlike in larger states, most islanders know at least a few members of the political and economic "elite" personally, there is nowhere to hide there. Attempts to portray this as evidence of a population-spanning conspiracy becomes more amusing than significant, as the conspiracy theorists dig themselves into local alienation worthy of David Icke.
With the rise of internet-media and bloggers determined to mine public rage against the 1%, the British offshore finance centres have a long reputational battle ahead of them, but it's one which is beginning to turn. Governments across the islands are investing in a public relations and political response, signing droves of agreements and advertising themselves as what they are: Some of the best regulated, most stable and fairest financial centres in the world.
The corrupted international infrastructure allowing élites to escape tax and regulation is also widely used by criminals and terrorists. As a result, tax havens are heightening inequality and poverty, corroding democracy, distorting markets, undermining financial and other regulation and curbing economic growth, accelerating capital flight from poor countries, and promoting corruption and crime around the world.The level of immorality and corruption the TJN levies at what it calls "secrecy jurisdictions" leaves no possible ambiguity that they see these places as one of, if not the primary, evil plaguing the world. These jurisdictions face the charge of robbing the poor and spreading their fundamental corruption across the world.
Fueled by local political figures with no qualms about attacking their own island (whether that be the government or the finance industry which employs up to half of the population) conspiracy theories have bloomed surrounding the small Island of Jersey, drawing in visits from investigative journalists as diverse as Leah McGrath Goodman and BBC's Panorama. The ease with which an Island built upon a finance industry chiefly administering the assets of the 1% can be portrayed as a haven for all kinds of corruption and evil has driven significant public ire. But what are popular impressions are not always correct ones, and the draw of the drama of conspiracy theories cover up the reality of the situation. Here are a few myths of the tax haven compared to the reality of the channel island:
It is a Tax Haven: Yes and no. The finance industry uses the islands largely due to initial tax incentives, but that does not mean the tax is escaping from other governments. The industry can best be understood as the filling of a sandwich. All wealth is taxed at the source of income and where it is invested as the bread of the sandwich. It is impossible to have such large sources of income or places to invest on these islands, they're simply too small. The islands instead form the filling on the sandwich, a tax-neutral place between income and investment where funds can be organised, combined and administered as efficiently as possible without the threat of losing value to tax whilst doing so. If the islands did not exist investments would be extraordinarily less efficient as administrators would simply cut out the stages in the filling to avoid losing value. The strength of the islands is in this tax-neutral filling and a huge concentration of financial institutions and professionals which makes the administration of wealth significantly more efficient, not as a place to hide funds from tax.
It is a Secrecy Jurisdiction: The concept that the islands are used to hide funds from tax is based on the concept that it is even possible to hide funds there. However, with Jersey alone having twenty nine tax information exchange agreements with other states and seventeen more in progress this is not an easy exercise. With the United States' FATCA and the UK's own version to follow, tax information will soon be shared automatically from these islands to states. If the aim of the billions of dollars flowing through the islands was to hide them, investors need to have very stern words with their advisors. Especially as the City of London, New York, Delaware and Switzerland have all been rated more tax-opaque than the British "tax-haven" islands. All of the British crown dependencies are listed as fully compliant with all international financial standards.
Everyone is rich: The image of the tax-haven islands as the sunny refuges of the ultra-rich, where everyone owns a yacht and plays poker with diamonds could not be more bizarre to the inhabitants of these places. As mentioned before, very little income is earned and invested in these places relative to how much is administered. Around half of the populations may be involved with the finance industry, but they are employed by it, not profiting from it. Most capitals look fairly similar to onshore equivalent towns and the most common mode of transport are probably ten-year-old VW polos.
It robs the world of wealth: As mentioned before, very little administered wealth is invested in the islands it passes through. Instead it is simply organised in a fashion to make its future investment more efficient. The islands facilitate investment in every field imaginable, from horse-racing to hospitals. The crown-dependencies alone financed the UK banks a total of £332 billion in just one quarter of 2009, funding which may well have otherwise have had to come from the UK's government bailouts. Far from robbing the world of wealth, these islands facilitate the investment which is vital in all walks of life. In fact several Islands have gone so far as to lead conferences advising developing states on how to avoid tax-evasion.
There is deep-seated corruption: One of the most popular conspiracy theories relating to tax havens is that there is significant collusion between governments, banks and media to create more wealth for the 1% at the expense of the average person. However, there does not seem to be any real incentive for this to happen. The governments of these places maintain tax-neutral policies to support their strongest industry, which is not so much corruption as good governance. If there was such corruption we would surely see more of a revolving door between government positions and banking heads (something much more common in larger states), instead the governments of these islands are dominated by older families who were around long before the arrival of the banks.
Populist rhetoric, portraying the people at large as in a constant battle with a secret world of corrupt elites who dominate anything with money and power, is extremely popular. However, popularity does not equal truth. The British offshore finance centres are exactly that, concentrated islands boasting large numbers of finance professionals with extremely high expertise in dealing with high-value investments. The government governs to support its largest and most valuable industry, one which produces the significant income taxes which allow government to operate at all, governance which requires cooperation with other onshore governments including tax transparency and inter-governmental agreements. The concept of a deep-seated evil in these jurisdiction seems strange to Islanders because in places so small such conspiracies would hardly stay secret for long. Unlike in larger states, most islanders know at least a few members of the political and economic "elite" personally, there is nowhere to hide there. Attempts to portray this as evidence of a population-spanning conspiracy becomes more amusing than significant, as the conspiracy theorists dig themselves into local alienation worthy of David Icke.
With the rise of internet-media and bloggers determined to mine public rage against the 1%, the British offshore finance centres have a long reputational battle ahead of them, but it's one which is beginning to turn. Governments across the islands are investing in a public relations and political response, signing droves of agreements and advertising themselves as what they are: Some of the best regulated, most stable and fairest financial centres in the world.
You know jack sh*t about Jersey. I can tell you this because I live there.
ReplyDeleteThere is deep-seated corruption. Separation of powers is not implemented. Judicial appeals are chaired by the person against whose ruling the appeal is made.
Legislation designed to help the finance industry goes through on the nod: legislation designed to help ordinary people (eg anti-discrimination law) gets held up for decades.
It does rob the world of wealth. Look at Jimmy Carr and K2. Look at Vulture Funds.
It is a secrecy jurisdiction. FATCA will make a difference, but the current TIEAs are almost worthless - unless you know who you are pursuing, you cannot make an enquiry, and Jersey trust law makes concealing identities very simple.
You are right to say not everyone is rich, but the example you quote is mistaken - the average mode of transport is visibly not a ten-year-old VW Polo. The financial sector is large and well-paid. Those working in agriculture and tourism (still numerous, but not counted for anything as their industry generates far less GVA) are not. With high prices and a regressive sales tax on everything except marine diesel and swimming pool maintenance (and if that isn't evidence of corruption I don't know what is), somewhere around a third of the population are on or below the poverty line.
Take your shoddy excuse for journalism elsewhere.
Hello anonymous. As usual, I advise everyone to post under their names, or if not under a pseudonym, otherwise it becomes impossible to distinguish between commentators.
ReplyDeletePoint by point:
Complete separation of powers is not a widespread institutional order, even the most divided of governments exercise powers between the three branches as checks and balances. The presence of a judge as chair of the legislature does not raise many eyebrows.
You'll have to give examples on legislation, but I've really already covered this point. Legislation to back your most important industry is not corruption, it's good governance.
Jimmy Carr and K2 are not a big deal on an international scale of events, especially with the widespread financial scandals in onshore jurisdictions which completely overshadow them. They do however make excellent tabloid news. Vulture funds are heavily legislated against in Jersey. The local FSC is becoming increasingly strict, so much so that financial leaders believe there might actually be too much regulation.
It is not a secrecy jurisdiction. The number of TIEA requests continues to increase and almost all are answered within 40 days (sourced from tax research of all places http://www.taxresearch.org.uk/Blog/2011/06/27/a-note-from-colin-powell-in-jersey-on-information-exchange/). As for "FATCA will make a difference", the fact that Jersey is fighting the UK to try and sign it should be an indication of just how ready Jersey-based financial institutions are to meet FATCA compliance measures. It's an automatic exchange of information on all citizens' accounts held in Jersey. There is nothing more transparent than that. As I've already stated, Jersey is significantly more transparent than many onshore financial centres.
A sales tax of 5% is hardly regressive, and I have absolutely no idea how it is evidence of corruption. Actually only 19% of the Jersey population are even on "relatively low incomes" of £400 per week (according to your own census), significantly over the £300 per week living wage of London (roughly equivalent living costs). How you came to the statistic of 33%, when the actual statistic is likely under a third that (and many of which being pensioners) is incredible for someone who actually lives on the Island.
As for taking my journalism elsewhere - I am an analyst, not a Journalist. Besides which I'm not exactly what "elsewhere" means on the Internet.
Well conceived and articulated piece... not to mention the informed response to a faceless rant... good stuff
DeleteExcellent response. Please excuse anonymous, he is one of the local conspiracy theorists with a massive chip on his shoulder.
ReplyDeleteWhy no mention of Tax Justice Network's detailed analysis of Jersey's laws, regulations and compliance record? Our assessment ranks Jersey at 7th overall on the Financial Secrecy Index, with an opacity score of 78 out of 100. The island's authorities have not disputed this assessment, which can be read here: http://www.secrecyjurisdictions.com/PDF/Jersey.pdf
ReplyDeleteEnough with the talk about conspiracy theories. Anyone who has read Nick Shaxson's excellent Treasure Islands, will know how legalised secrecy harms financial markets, and the recent special review of offshore finance by The Economist picks up on these themes.
I have never read anyone who claims that everyone who lives on tax havens owns yachts and plays poker with diamonds. This is a totally contrived argument, as is much of the rest of this piece. Speaking as a Jerseyman who worked at the very heart of the government and the finance industry, I have first hand experience of the depth of corruption enabled by secrecy jurisdictions.
Until recently Jersey and other tax havens hid behind the "tax avoidance is legal therefore OK" cop-out. The public, and the British prime minister, rightly reject this argument. Jersey and other tax havens will now need to find a new business model; and in a hurry. These places serve no useful role in the global economy.
John Christensen
Director, Tax Justice Network
Hi John, thanks for contributing and for the lack of anonymity, much appreciated.
ReplyDeleteI try to keep my articles relatively brief, as they've already doubled in length since I first started writing two years ago. Much as I would have liked to have gone into more detail with specific concerns, doing so would make my work unreadable for my target audience, who generally just want a quick overview of issues. As you are funded quite extensively for your specific work on tax you can afford to go into the matter much more deeply than I can. I hope that is an adequate explanation as to why I did not try to tackle your more thorough reports individually.
However this specific funding does open a weakness I am not faced by, one affecting Mr Shaxson and Miss McGrath Goodman even more than yourself - money. All three of you are paid for your work on tax havens, and so it pays (quite well) to stoke controversy on them. "Treasure Islands" relies entirely on such controversy to sell, and so portraying the Islands as far worse than they actually are is quite a motive for Shaxton's work.
The exaggeration claim is not a contrived argument. Leah McGrath Goodman portrayed Jersey specifically in exactly that manner in the interview I referenced, and it's an exercise repeated among many figures seeking easy wins from the easy target of the tax-evading 1%.
The "secrecy jurisdictions" your organisation lists are not all especially secretive, especially the British Crown Dependencies. Over the past decade or so (long since you left them) the financial markets have known that they can not hold out and have already shifted their business model. This is a model I have explained in my article, and I have already established why they serve a very useful purpose in the global economy.
Unfortunately the Tax Justice Network requires controversy and the spectre of the great evil of tax havens to survive as an entity, and will likely continue to argue long-outdated arguments for a fair period after their great enemy no longer exists.
Peter
DeleteTwo things.
First on funding. TJN is, and has been since its inception, woefully underfunded. My salary details are published in our annual accounts (available online). I think you'll agree its a very modest sum. So please don't insinuate that we're doing this the money.
But, more importantly, your claims that the Crown Dependencies are not especially secretive just don't hold water. As I pointed out in my earlier comment, the 2011 secrecy score for Jersey is just plain bad. This score is based on data collected that year. The score is not disputed by Jersey Finance (much as they would love to find a chink in the armour of our methodology, they aven't been able to). While Guernsey and IoM have adopted automatic information exchange, Jersey resolutely refuses to do so. Why? To protect its tax evasion industry.
By now you'll have read The Economist's special feature on offshore. It should be clear that secrecy and tax avoidance have no role in the 21st century economy. Jersey needs, urgently, to more on from its tax haven based economy, but its path dependency leaves it stuck in a rut of its own making.
John
Welcome back Jon.
DeleteFunding - You are funded, you receive remuneration for your work. That is a level above me and the level of remuneration is irrelevant to the points I made.
Secrecy - Your own secrecy score. I have already pointed out that not only are the islands not especially secretive (especially Jersey) but also far less so than multiple 'on-shore' jurisdictions. Guernsey has not adopted UK-FATCA (yet, but will likely do so at the same time as Jersey). I believe the Isle of Man rushed into things and did not check the terms of their agreement thoroughly enough. There is no tax-evasion industry in Jersey.
The Economist - Refers directly to "off-shoring", which is very different to the majority of services the Channel Islands provide, which largely looks at investments flowing into the UK, not out of it.
Path - Jersey moved on almost a decade ago, the vast majority of its finance industry is based on administration of investments, not tax-evasion.