Many people have started to describe the City of London as a giant tax haven. And one that actually sits at the centre of a vast global network of tax havens, funnelling money into itself from Crown Dependencies like the Isle of Man, Jersey and Guernsey, from British territories like the Cayman Islands, Bermuda and the British Virgin Islands, and from former outposts of the British Empire like Hong Kong and Nairobi.
But what is a tax haven? How do we assess whether London qualifies? Financial journalist Nicholas Shaxson has identified certain criteria that he believes strongly indicate somewhere can be classed as a tax haven, a financial secrecy location that enables individuals and companies to conceal their wealth.
- They deny being a tax haven. This is something of a circular argument, but it can be a good place to start. If somewhere consistently feels the need to deny it’s a tax haven, it’s because many others have begun describing it as such. The City of London, Ireland, the Isle of Man, Luxembourg – all of these fall into this category.
- A large financial sector. Large that is, relative to the size of the rest of the nation’s GDP. E.g. Jersey has a huge financial sector for a nation of around 100,000 people. Switzerland and the Cayman Islands have the same. London definitely has a huge financial sector relative to its population size.
- Democracy “captured” by financial sector. Here’s where things get interesting. Many tax havens have an absence of political parties, and their parliaments are heavily influenced by a network of financial professionals, who ensure a form of continuity with things no matter who gets elected. Cayman Islands, Delaware, Jersey and the Isle of Man all fit this category, as does the City of London, with its unreformed parliament that gives more votes to businesses than to residents, and has its origins in Anglo-Saxon gatherings stretching back over 1000 years.
- Low tax rates. Ireland and Luxembourg have vastly lower corporation tax rates than much of the rest of Europe. This attracts companies like Amazon and Microsoft to base their European offices there, to reduce their tax bill.
- Low regulatory requirements. Certain territories ask fewer questions than others when it comes to making deposits. Cyprus has a reputation for attracting the cash savings of Russian gangsters. Switzerland has long been a place where you can deposit cash, gold or jewellery in secret bank accounts, with very few questions asked about where the money came from. London claims to have high regulatory requirements, but this is where its network of dependencies and territories really comes into its own. Money placed with no questions asked in Jersey or the Cayman Islands becomes “clean” and can then be funnelled into the City coffers.
- High secrecy. This relates to both banking secrecy and corporate secrecy. Any place that refuses to disclose information either on the account holders and balances of those who bank there, or the directors and balance sheets of its registered companies, will quickly gain a reputation for being a tax haven. In the Cayman Islands it is actually illegal to ask these sorts of questions. Start asking too much about who owns various companies, and who banks there, and you can find yourself in prison. According to Shaxson, the City of London has yet to give up one shred of evidence in any of the information requests sent it by various investigators.
So is London a tax haven? I’d say it scores 4.5 or 5 out of 6 according to this simplistic criteria. It certainly warrants further investigation. Pray for the City to have a financial sector based on transparency and honesty, which doesn’t accept dirty money from corrupt dictators and organised crime, and which uses its wealth and influence to serve rather than exploit the poorest of the world.
Mark Williamson also blogs regularly for One Rock, a training organisation resourcing missionary leaders across the globe. He’s passionate about good films, good food, getting into deep conversations, and going for long walks with his wife Joanna. You can follow him on Twitter @markraynespark.