For many years, but particularly since
the global economic crisis began, the overwhelming consensus of G20 and a
plethora of NGOs has been that tax havens provide strict secrecy and lax
regulation, and as such are responsible for many of the world’s ills, from tax
evasion to terrorist financing.
The offshore centres are easy targets
for this sort of negative propaganda, not least because, for the most part,
they are not represented on the bodies which make the accusations and lack the
resources to defend themselves effectively.
It’s very tempting for politicians in the OECD and the G20 to point the
finger of blame anywhere but at themselves, and they do so frequently and
vociferously.
The offshore centres have been
protesting about the unfair characterisation of the businesses they conduct for
years, claiming that they operate to stringent international standards, but few
people want to listen or believe – after all, they would say that, wouldn’t
they?
It is always interesting, therefore, to hear
some genuinely objective research on what the reality of the situation is. Back in May, I referred to some research
being done at Griffith University into the subject which seemed to show that
the accepted consensus of the developed countries is very wrong, but now we are
able to dig in to the detail of the findings.
The University has published a report, authored jointly by 3 academics
from the US and Australia, which outlines the results
of a huge experiment into the degree to which Corporate Service Providers
adhere to international rules. A
research team impersonated a variety of low- and high-risk customers, including
would-be money launderers, corrupt officials, and terrorist financiers, requesting
the incorporation of a shell company, in order to see whether KYC procedures
were properly followed, and whether businesses were prepared to assist where
there were clear indicators of illegal activity.
The survey was a large one
- more than 7,400 email solicitations were sent to more than 3,700 Corporate
Service Providers in 182 countries. As such, the authors claim that the review provides
the most complete and robust test of the effectiveness of international rules
banning untraceable, anonymous shell companies.
The report is detailed and
merits being read in full, but one of the most striking key findings is that
fact that, against
the conventional policy wisdom, those selling shell companies from tax havens
were significantly more likely to comply with the rules than providers in OECD
countries. Providers in poorer, developing countries were also more compliant
with global standards than those in rich, developed nations.
The USA – one of the leading crusaders
against the offshore centres – performed particularly abysmally. In fact, only one country in the world
performed worse than it (Kenya). Across
the USA as a whole, roughly 1 in 11 Corporate Service Providers was prepared to
ignore the rules (compared to 1 in 25 in tax havens), but when you take out
Corporate Service Providers associated with law firms, then a shocking 1 in 3
of them will do so. That means it is easier to set up anonymous shell companies
from which to conduct illegal business in the USA than it is in Liechtenstein,
Columbia, China, Romania, or any of the world’s key offshore centres. And it isn’t just the USA which has cause to
hang its head in shame - the United Kingdom, Australia and Canada all also
ranked near the bottom of the list.
There were 8 jurisdictions which
performed markedly better than all the rest – these included Jersey, Cayman,
the Bahamas and the Seychelles – a list which will doubtless come as something
of a shock to many who have spent years listening to the anti-tax-haven rhetoric.
The
research clearly shows that it is more than three times harder to obtain an
untraceable shell company in tax havens than in developed countries. Whilst the
report shows that there is room for improvement in every country they tested in
the research, if the developed world is really serious about clamping down on
illegal activity such as terrorism and corruption it needs to stop diverting
attention to the offshore centres and start looking closer to home. After all, there are over 900,000 companies
registered in Delaware (a State with a population of 897,000), roughly ten
times the number of companies incorporated in the Cayman Islands. Extrapolating the statistics from the
Griffith report, this indicates that 99,000 companies in Delaware are likely to
have been taken on without meeting information standards, compared to around 3,000
in the Cayman Islands. It is time for
politicians in the developed nations to face up to the huge shortfalls in their
own territories, and stop pointing the finger of blame offshore and on
developing nations.
Read
the full report here: http://www.griffith.edu.au/__data/assets/pdf_file/0008/454625/Oct2012-Global-Shell-Games.Media-Summary.10Oct12.pdf
No comments:
Post a Comment