The Huge Role British Tax Havens Played In the Panama Papers Scandal
We spoke to tax expert Richard Murphy about how the activities revealed by the Mossack Fonseca leak couldn't have happened without good old British offshore tax havens.
The Panama Papers – a leak of 11.5 million files from Mossack Fonseca, the world's fourth largest offshore law firm – have shed light on the ways in which the global rich use tax havens to grow ever richer. Across the world, the elite uses secretive systems unavailable to mere mortals to add to their already bountiful heaps of gold. There have been stories about Putin, Assad and David Cameron's dad. I wanted to find out just how involved the British establishment is in these kinds of shenanigans, so I called up the tax expert Richard Murphy, Professor of Practice in International Political Economy at City University and director of Tax Research UK, for a chat.
VICE: Hi Richard, I was wondering if you could bring this story back home for us. How deeply involved is the UK? Why does it matter?
Richard Murphy: Well, this is the story of offshore. Offshore is a British creation. Tax havens pre-date the creation of offshore. Some of those early tax havens were indeed British, like Jersey. Others were places like Switzerland, which certainly existed as a tax haven before World War Two... Offshore, as a phenomenon, was created in the 1950s by the Bank of England, and the idea of it is that you have a place, originally the UK, where transactions are recorded but they actually take place somewhere else. So, "elsewhere" is very important in the idea of offshore. It simply means: not here.
What it also means is: we won't ask where "elsewhere" is. That is critical to the understanding of what's going on. Not only did we create it, we also created some of the most effective tax havens used for offshore purposes. And even though what we've got published is a Panamanian law firm, the tax haven which they used the most is the British Virgin Islands. The Queen's head is on the stamp. We are responsible for this overseas territory of the UK. The laws of the British Virgin Islands are approved in Privy Council, the committee, effectively, of the cabinet. So these places are effectively under British control.
The activities brought to light by the Panama leak is a British creation, then?
We came up with the idea of offshore, we created many of the places that are doing it and right at the centre of this Panamanian leak is a British tax haven. Which is one of the major referring banks to this Panamanian law firm? HSBC. Another? Coutts, the Queen's bank...
So the whole British system continues to make good use of these offshore structures?
Yes, indeed, and British advisors were the second biggest source of business for this Panamanian law firm.
What kind of advisors?
Bankers, lawyers, accountants... what my friend [tax justice campaigner and academic] Prem Sikka calls, with some degree of justification, the "pinstripe mafia".
This is something the British are good at. A lot of those involved are not breaking any laws. There's a smooth façade and old laws that hide corruption.
Not just old laws, but old customs. The fundamental thing about offshore is that you turn a blind eye. We even see that in the defence issued by the law firm in Panama. They say they are not responsible in any way for the activities of the companies that they create because they are taking place elsewhere. But they're turning a blind eye to it. They say, "We've made sure that all the legal obligations of these companies are complied with", and they have in the British Virgin Islands and in Panama and wherever else they've used because there are almost no legal obligations in Panama. There won't be any obligation to file accounts, to file a tax return – there will just be an obligation to send a fee every year to the Panamanian government, which is a kickback they get for providing this service, as does the British Virgin Islands. Otherwise, the British Virgin Islands don't ask for any information. The obligation to be legal in the British Virgin Islands is fulfilled by writing a cheque.
Who else is benefitting from this and how is the government involved?
The British government will not be benefitting from it and it will be losing tax revenue. But here's a conflict of interest: we hear that David Cameron's father was a person who may have benefitted from it. The government is not an autonomous entity; it is made up of people, some of whom may be conflicted. We don't know if David Cameron is or not – he's refused to say. He hasn't said if he has any remaining interests in the company his father ran. He's just said it's his private affair. That's also unacceptable.
I'm not holding David Cameron responsible for what his father did, but he's conflicted because he won't tell us whether he has benefitted from a company that has offshore interests. He's been saying he's going to close down tax havens, but at some point his family has benefitted from them. I think that's indisputable. What this whole structuring of arrangements does – this secrecy – is create desperately difficult situations for people. They want to pretend one thing, but are conflicted by another. That, in essence, is the danger of tax havens. They are designed to undermine trust by creating secrecy.
This is an example of the erosion of democracy then.
Yes, I think so. Democracy requires that we all make our fair contribution as required by law. Tax havens provide secrecy that means there must at least be doubt about that fact. I believe that the firms who are also providing services in these places – including British companies operating in Panama and the British Virgin Islands like Deloitte, KPMG, Ernst & Young, and PricewaterhouseCoopers – are participating in the gain to be made from the sale of secrecy. HSBC, by the way, is also one of the biggest bankers in the British Virgin Islands.
Would it be fair to say the British establishment is up to its ears in this kind of thing?
Yes, I think it is up to its ears in this kind of thing. In May 2013, David Cameron was calling in all these tax havens and saying they would join with the UK in providing the openness and transparency necessary to end tax haven secrecy. So they all dutifully said, "Yes David, we hear what you say." Since then, they've all turned around and said, "No David, we won't do it." In response, we've had UK government acquiescence. The establishment is not willing to end these arrangements.
So it's David Cameron standing up and saying he'll do something about it, then turning around and doing nothing.
Yes, that's exactly what's going on. It is the pretence that there is something happening when there's actually nothing going on... Even in the UK, we have a totally ineffective arrangement and we're not changing anything. There is a pub down the road from me in Cambridgeshire that has an owner registered in the British Virgin Islands. How absurd is that?
How difficult is this stuff to understand?
In practice, there are people who should understand what is going on but who are refusing to do anything. I have sat in meetings with the Department of Business, Innovation and Skills talking about the need for a register of beneficial ownership for UK companies and they say, "Oh but we can't put too much of a burden on business to disclose this, that's very unreasonable..." My impression is that there is this paranoia throughout government that we mustn't impose any unnecessary burdens on poor old business, which makes all the wealth that we in government spend – that, in itself, is a complete load of bollocks.
How does this attitude relate to tax havens?
At the most basic level of market economic theory, we should be enforcing laws that require disclosure of who owns what, what they're doing, where and whether they're paying their tax. The government doesn't believe in that. It doesn't even believe in fair competition. It believes in supporting the inequality, which tax havens promote because they are only accessible to elite who've got money and can use the accountants and lawyers who know how to navigate this world and pretend it's all legitimate. Tax havens are a mechanism for inequality and division in society. And the government isn't willing to tackle that.
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