It was the biggest banking leak in history. At the beginning of this month, a report was released by the International Consortium of Investigative Journalists that uncovered 30,000 accounts holding almost £78 billion in HSBC's Swiss branch. It emerged that bankers helped super rich clients dodge taxes, hide millions of dollars and, in some cases, walk out with suitcases of untraceable cash.
Of course, the trusty cogs of British justice whirred into action and guilty parties under UK jurisdiction were arrested, thrown in the back of a van and given hefty jail sentences. Only, that didn't happen, of course. In the five years since the data has been known to HM Revenue & Customs (HMRC), only one prosecution has materialised.
"You are left wondering, as you see the enormity of what's been going on, what it actually takes to bring a tax cheat to court," said Parliament Public Accounts Committee chair Margaret Hodge after the information was released.
"Why have we only had one prosecution out of 1,100 names?" echoed Labour shadow chief secretary to the Treasury, Chris Leslie.
As the story continues to unfold – a Tory donor's account here, a top dog resignation there – it remains to be seen if the leak will be cataclysmic for its subjects. The shit hit the fan, but it may still glide off pin-striped shoulders and dissolve into thin air.
Why isn't anyone in jail yet? Here are some reasons.
THE PRISONS AREN'T BIG ENOUGH
Banking offshore isn't, in itself, illegal. Luckily for some. Ronen Palan is Professor of International Politics at City University London and an expert in offshore tax havens. He told me that, if you were to wander into a hypothetical party in Mayfair and kick out everyone who banks offshore, the room would empty.
"The leaks show that about 6,000 British people held accounts in HSBC Geneva," Palan says. "That's only one bank among many in Switzerland. It appears that so many of the British elites are using Swiss bank accounts that if the Inland Revenue began a programme of prosecution we'd be in danger of losing a considerable portion of our business, political and cultural elites. All these people are linked to the centres of power. If we went after them seriously, we'd decimate the British establishment."
THE TAX AVOIDANCE INDUSTRY IS MASSIVE
While tax evasion (cheating the tax authority by not declaring assets or misrepresenting information) is a criminal offence in the UK, tax avoidance (using a legal scheme to reduce your tax) is legal. A huge, lucrative industry is built around it.
A 2013 parliamentary investigation revealed that the four big accountancy firms – Deloitte, Ernst and Young, KPMG and PricewaterhouseCoopers (PwC) – earn £2 billion in the UK and around £16 billion globally through advising companies on how to minimise their lax liability. HMRC is always one step behind.
"HMRC appears to be fighting a battle it cannot win in tackling tax avoidance," the report concluded. "HMRC has far fewer resources. In the area of transfer pricing alone there are four times as many staff working for the four firms than for HMRC."
For both companies and individuals, there's a sparkly range of "tax avoidance" products to choose from:
•If you're a company, shift your profits to a low-tax country like Luxembourg.
•If you're an individual, just call yourself a company. Your "company" might make a million pounds this year, but hey, you were only paid £20,000. Corporation tax is much lower than high-bracket income tax. Jimmy Carr was slapped on the wrist for something similar.
•If you register this "company" offshore, all the better, as British tax authorities can't snoop around. You'll also benefit from another layer of offshore tax breaks.
•Having an offshore company is useful for real estate. You'll avoid taxes if your company does the buying and selling of your London mansion.
•If you're worried about the tax man getting his hands on your estate after you die, you can set up a trust fund and leave it as a gift, thus avoiding inheritance tax.
•Buy a yacht or sports car with " beneficial VAT arrangements and tax mitigation".
•Invest in something risky for possible big returns. Film rights scheme, Eclipse, used by Alex Ferguson and Sven-Goran Eriksson, has just been confirmed a tax avoidance scheme by the Court of Appeal and fines have been handed out.
While schemes like these are, for the most part, legal, it's against this backdrop – in which avoiding tax is deeply ingrained into business culture – that illegal tax evasion happens. There's a grey area (only courts can decide if a scheme is tax avoidance or tax evasion), so it isn't the least bit surprising that corporations and individuals blag the system for all its worth.
WE'RE BUSY CHASING BENEFITS CHEATS
HMRC claims (rightly) that prosecuting high-earning tax cheats is time-consuming and costly. Instead, it often comes to an arrangement out of court. However, the disparity between resources devoted to catching benefits cheats and wealthy tax dodgers is kind of conspicuous.
In 2012/13, £1.2 billion of benefits were fraudulently claimed, while £4.1 billion went missing through tax evasion. Reports from bodies such as Tax Research UK suggest that, if you also take into account tax avoidance, the figure for missing taxes from high-earners is even higher.
Meanwhile, there are just 300 HMRC staff investigating tax evasion of £70 billion, while 3,250 Department of Work and Pensions (DWP) staff look for £1.2 billion benefit fraud.
BECAUSE: THE IMPORTANT PEOPLE
The Swiss leaks uncovered accounts belonging to an impressive line-up of high-profile figures, from the heads of royal families to top bods in business, film and sport. Having an account in a Swiss bank isn't illegal and doesn't prove tax avoidance; however, given the shady dealings which have emerged at HSBC, it's hard to believe that everyone's hands are clean.
"I tend to believe that protection of the elite plays an important role [in HMRC's historic failure to prosecute]," Palan told me. "Tax evasion – and, in particular, complex tax avoidance techniques – are a way for power and money to extend their power and money at the expense of all the rest. It's about entrenching inequality. The offshore system essentially allows the rich and powerful to avoid playing by the rules that everyone else has to play by."
Tax justice campaigner and director of Tax Research, Richard Murphy, agrees. "The rich get away with it because HMRC has been dominated, since its creation in 2005, by big business interests," he told me. "There is no political will in it to collect tax from these people."
THE LITTLE PEOPLE WILL PAY
A 2014 report by the Equality Trust revealed that the poorest 10 percent of British households pay eight percent more of their income in all taxes than the richest; 43 percent compared to 35 percent. And that's before tax avoidance schemes have been taken into account. What the rich fail to put in, the rest of the country must cover in taxes like income tax and VAT.
Meanwhile, small businesses are far more likely to feel the wrath of HMRC than big corporations.
"The UK isn't bad at chasing all tax issues," Murphy says. "Small businesses which send in tax returns but who make mistakes are easy targets for tax inspectors who have been set quotas of enquiries they must make."
WE'RE SCARED OF THE BANKS
According to lawyers, if UK bankers misbehaved in Switzerland, they can't be prosecuted here unless they advised clients on UK soil, which, according to Panorama, they may have done. But how aggressively will they be pursued? Richard Brooks – former tax inspector, Private Eye writer and author of The Great Tax Robbery – believes the answer is: not very.
"If you're inside an economy sustained by financial services then you have to protect the banks," Brooks told me. "All the stuff coming out from Switzerland and the let-off for HSBC is just part of the picture. Look at how the government reacted to charges HSBC faced a couple of years ago; it lobbied heavily to get them off prosecution in the US."
THE UK TAX CODE IS BULLSHIT
The UK has the longest tax code in the world. It's more than 17,000 jargon-packed pages long, loophole after glorious loophole. There is probably no one on the planet who understands our tax code in its entirety.
Anarcho-capitalist Christian Michel, who used to run a finance company in Geneva, is a cheerleader for legal tax avoidance.
"Our deal with governments is that we may do whatever the law does not specifically prohibit, while governments may do only what the law demands," Michel says. "So if the law says I can build a house that is 10m high, officials have only one mission: measure the height. They would threaten the social contract if they started arguing, 'Yes, it's legal, but immoral.'
"HMRC doesn't tell Ms Jones that she's been a moral person, helping her neighbours, therefore she'll get a tax rebate. So why should we apply moral judgements, and pay more than the law forces us to, because it might be 'moral' to do so?"
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So there we have it: UK tax law is shambolic and a lot of tax avoidance is legal, ergo people will take the piss. It's almost as if some might prefer it that way.
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