The UK and US are committed to free and transparent markets. Right? Well that’s the line they like to spin, but the reality is that both rank among the five most secretive countries in the world, alongside Luxembourg, Switzerland and the Cayman Islands. And the UK, which led the world in liberalising its capital markets from 1979 onwards, sits at the centre of a global web of 30 “secrecy jurisdictions” which account for exactly half of areas researched by the Tax Justice Network over the course of a mammoth 24 month programme examining the role of secrecy in the globalised financial markets.
In April 2009, the G20 committed to tackling secrecy jurisdictions (a term we prefer to tax havens). Reporting back to G20 this September, the Organisation for Economic Cooperation and Development (OECD) claims to have made more progress this year in the battle against banking secrecy and tax evasion than in the entire preceding decade. This is cause for celebration, but moving beyond the G20 meeting in St. Andrews this coming weekend, finance ministers must broaden the attack on secrecy jurisdictions beyond tackling tax evasion. Secrecy has become an integral component of what is widely called the Anglo-Saxon model of financial capitalism, and has played a major, but largely unrecognised role in the current crisis. This issue must now be factored into discussions about how to strengthen financial market regulation.
For decades powerful countries like the UK and US have talked the talk about free financial markets while furtively allowing secrecy jurisdictions under their direct political control to predate with relative impunity. Their activities have created unequal and divided societies while they have weakened public finances and run rings around banking regulation. Developing countries, in particular, have suffered as a result of massive illicit outflows of capital to secrecy jurisdictions linked closely to Europe and North America. For every dollar of development aid that has flowed South, between $8 and $10 of illicit wealth have flowed northwards. This is truly one of the major scandals of the past 50 years.
Since the 1980s, Britain has used its network of secrecy jurisdictions and tax competition as a major part of its development strategy. This strategy has failed to deliver stability or efficient capital markets. Rather it has cultivated a ruinous culture of tax evasion and regulatory avoidance. Britain should now take a lead in rolling back the culture of secrecy:
- require all its dependencies and overseas territories to fully participate in the EU’s automatic information exchange processes.
- adopt a General Anti-Avoidance Principle into law.
- promote a new international financial reporting standard requiring multinational companies to produce accounts for their subsidiaries on a country-by-country basis.
- require disclosure of the beneficial ownership of all companies on public record.
Britain and all its satellites should establish central registries of trusts and foundations, publicly accessible via the internet, to prevent mis-use of these highly secretive legal devices.
And above all, the Treasury must urgently review how its current tax policies, especially the favourable tax treatment of capital gains and the concessions granted to hedge funds operating from London but booking profits through subsidiaries in the Channel Islands have piled one distortion after another onto the globalised capital markets.
In other words, after decades of talking the talk about free and transparent markets, the UK should gets own backyard in order.
Our guest writer is John Christensen, Director of the international secretariat of the Tax Justice Network.
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