Offshore – No peace for island havens

Home Office attempts to take credit for initiating the review of financial regulation in Jersey, Guernsey and the Isle of Man began to unravel last week when the government admitted the Treasury was behind the move after intense lobbying by the EU and US authorities.

Home Office minister Lord Williams of Mostyn was thrown into the limelight to take responsibility for the inquiry running smoothly, and his office claimed the decision was taken after he travelled to the islands last summer.

But the man entrusted with asking the awkward questions turned out to be a top Treasury civil servant with a reputation for tough talking. It also emerged senior Inland Revenue executives had been involved in preparing the brief.

These disclosures support the views of fraud experts that Gordon Brown is in charge rather than Jack Straw and offshore islands can expect a bumpy ride.

One ex-Revenue official now at a Big Six firm said: ‘People are still abusing the islands’ secrecy laws. There is more than a suspicion the islands are not willing to implement the spirit of the current anti-fraud laws, only the letter. We know they are very concerned that money-laundering laws, in particular, include tax evasion. They will go along with reporting suspicious transactions they believe result from drug running or terrorism.

But tax evasion is another matter.’

He said he needed to remain anonymous because his firm, along with his rivals, had offices in all the major offshore centres. ‘UK residents in general must be careful what they say. Nobody wants this review to turn on them.’

The debate inside government over how to clamp down on the offshore islands has been rumbling for some time, but last autumn the issue garnered hundreds of column inches in national newspapers when John Moscow, a chief New York prosecutor, flew into London for a debate about money laundering in the UK.

Police chiefs reacted with horror to accusations that London was a centre for the laundering of criminal funds with the help of the offshore tax havens that live under the UK umbrella.

The public defence of London, however, masked a growing co-operative effort by the authorities on both sides of the Atlantic and the EU Commission in Brussels.

Civil servants beavering away inside the Treasury noted the criticism, as they had done at countless meetings with their counterparts over the previous two or three years. They knew Uncle Sam was unhappy with the level of regulation in London. They also knew the US was unhappy with the lack of attention paid to a key element in the money-laundering legislation passed in 1993 – the reference to tax evasion as a fiscal crime.

Last week, Moscow turned his fire on the Channel Islands. ‘I wouldn’t lump the three islands in together. I believe Jersey and Guernsey have different views to the Isle of Man, which has come to terms with the idea that money-laundering crimes include tax evasion.’

He praised the islands for passing the Proceeds of Crime Act through their respective parliaments but questioned the extent to which they would police it.

‘If we can get evidence on the proceeds of crime, then we can really start to make some progress. We will need to wait and see if that happens.’ Like the US, the EU is concerned taxable income is moving offshore at an ever-increasing rate. At present it is unable to force tax havens – even EU members like Gibraltar – to increase their tax rates. So its weight is being thrown behind moves to end banking secrecy, allowing tax authorities to obtain files that show how avoidance schemes have been constructed.


Anthony Fisher, head of financial services development in Gibraltar, wants all the UK dependencies to join forces. He agrees that tax evasion is top of the list of concerns, but is convinced the islands can prove they take fraud seriously.

‘At the moment you have lots of money in well regulated centres. If the government puts the squeeze on them the money will move to less regulated places,’ said Fisher.

He said successive governments had asked the islands to clamp down on tax evasion, but had only employed anti-avoidance measures. He warned the government that proposals to impose outside regulation by the Financial Services Authority and to force the islands to report suspicious transactions to the National Criminal Intelligence Agency would meet opposition.

Like several backbench Labour MPs, the US authorities want the Foreign Office to extend its current review of the Caribbean islands – Bermuda, the British Virgin Islands and Grand Cayman – which is now nearing completion.

Moscow said: ‘None of (the Channel Islands) are like Grand Cayman, which is still saying it will not prosecute crimes related to tax evasion. If you look at the major frauds – BCCI and Daiwa Bank are two – they had most of their money in Grand Cayman. And there is over $800bn deposited in Grand Cayman banks right now. The review needs to cover these islands and one would hope the situation will change.’

First the Home Office needs to persuade the islands under its jurisdiction to get tough.

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