24 July 2012

In what tests credulity, an HSBC subsidiary in the Cayman Islands does not know about 15,000 its account holders. A US Senate report published last week claims that the beneficiaries are Mexican drug barons, whose criminal proceeds are laundered in the tax haven.

This service is big business for British banks with HSBC, Barclays, Lloyds and RBS having 1,200 subsidiaries in tax havens. Which begs the question how HSBC has been rated as “second best” among the banks included in the latest Forbes survey of the world’s 105 largest multinational companies – for corporate reporting, anti-corruption programmes and organisational transparency. Nevertheless, indications are that HSBC may face penalties of atleast $1 billion imposed by US authorities.

HSBC’s problems are not unique.  ING Bank and Wachovia were recently fined by US authorities for HSBC-like activities. ING traded in Iran in breach of U.S. sanctions and Wachovia facilitated the laundering of hundreds of billions of Mexican drug dollars.

Tax Justice Network published research yesterday indicating that banks are major players in gathering $21 trillion from around the world and funneling it into tax havens. At least £16 billion a year is evasion of UK tax.

The US Senate report observes that these banking arrangements facilitate money laundering, and perpetuate related offending- including, piracy, terrorism, drug trafficking, human trafficking, counterfeiting, bribery and extortion. And at its simplest, “the rest of us are forced to pay more on our tax bills to make up for those who shirk their taxpaying responsibilities.”

Anti money laundering obligations should require any business providing financial services to record comprehensive information of clients using tax havens. Tax reformers want an offence of “wilful blindness” where this doesn’t occur.

The Tax Justice Network considers tax to be a foundation of good government, advocates transparency in international finance, and opposes tax loopholes and the opportunities they enable. Tax havens (the TJN calls them “secrecy jurisdictions”) not only facilitate crime and tax avoidance, but undermine good infrastructure and the rule of law. TJN promotes the inclusion of tax havens and tax dodging within the definition of corruption measured by Transparency International.

The estimates are that bribery and theft by government officials, at 3%, is the smallest part of global “dirty money”. Other crime constitutes up to 35%, while bank-facilitated tax evasion, is the largest, at about 65%. Although tax evasion has the same effects as more traditionally defined forms of corruption, the UN and OECD, like TI, have yet to redefine the meaning of corruption in their conventions.

Shaxson who wrote Treasure Islands and the Men who Stole the World has suggested that by 2013 New Zealand would be listed by TJN as a tax haven because of its poor controls on the movement of money from developing countries.