More than 50 MPs have been allowed to censor details of their taxpayer-funded expenses claims after insisting that information about their second homes could compromise their security.
The official expenses regulator published details of MPs’ landlords on Monday night, exposing how several politicians are renting properties from one another or from other acquaintances.
But 51 successfully argued that information regarding their claims should be redacted so that the public cannot establish the identities of those they rent from.
MPs whose details will remain secret are known to include several who are renting properties from one another and a Labour shadow minister who rents a London home from an offshore trust.
On Monday it emerged that the Independent Parliamentary Standards Authority (Ipsa) gave MPs several weeks’ notice that the information was about to be published, affording them an opportunity to end potentially embarrassing or compromising arrangements.
The decision to censor claims echoes the previous expenses scandal when MPs attempted to overturn a High Court order which allowed for the publication of second home addresses and which said such a move would not jeopardise security.
However, that unredacted information was leaked to The Daily Telegraph with details of the addresses, leading to the exposure in 2009 of fraudulent claims by several MPs and dozens of others milking the system.
Despite the previous public outcry, John Bercow, the Speaker, has spent the past weeks attempting to block the release of the new information. Some MPs argued in response that without full transparency, they risk the public suspecting that they continue to benefit personally from the system.
A partial list was finally released on Monday night, almost a month after publication was initially planned, minus details of the 51 MPs. The information released did disclose that:
• At least two MPs are renting from their colleagues. These include Jessica Morden, who rents a property from fellow Labour MP Madeleine Moon. Two other Labour MPs, Iain McKenzie and Linda Riordan, were also exposed for a similar arrangement.
• Six former MPs are continuing to benefit from the parliamentary expenses system by letting out their properties to current MPs. These include Jonathan Shaw, a former Labour MP, who lets a property to Kevin Brennan; and Ian Stewart, another former Labour MP, letting a home to Gerry Sutcliffe.
• Several peers are letting properties to MPs, while also claiming taxpayer-funded expenses in the House of Lords. These include Lord Flight, a former Tory shadow minister, who is letting a property to Keith Simpson, a ministerial aide. Baroness Tonge, a former Liberal Democrat MP, is letting property to Steve Williams, the Lib Dem MP for Bristol West.
• Several MPs are renting properties from some of Britain’s wealthiest families. They include Nick Boles, the planning minister, who is renting a property from the Burghley Estate. Matt Hancock, the business minister, is renting a house from the Vestey family, and Liam Fox, the former defence secretary, is claiming for rent on a property from Viscount Cranborne’s company.
• Two Labour MPs are renting properties from senior union figures. One of them is Tom Watson, the deputy Labour chairman, who rents rooms in the home of a senior executive at Unite.
• Several MPs are also claiming expenses to rent properties from companies linked to high-profile political donors.
Out of 320 MPs claiming for a second home, the 51 who have requested that their landlords’ details are redacted include Nick Clegg, the deputy Prime Minister, John Denham, a former Labour minister, Luciana Berger, the shadow energy and climate change minister, and Nadine Dorries, the suspended Conservative MP who is currently appearing in ITV’s I’m a Celebrity?… Get Me Out Of Here!
But the Telegraph has confirmed that Ms Berger is renting a flat in London held in an offshore company, which could be embarrassing for the Labour Party who have criticised companies such as Starbucks for not paying tax in Britain.
Ms Berger said that she had requested that her details be redacted for security reasons and had only recently been informed that the flat was held overseas.
Sources close to Mr Clegg said that his landlord was not previously known to him and he had requested the information be withheld for security reasons.
Under changes to the expenses rules introduced in the wake of the previous scandal, MPs were only permitted to continue claiming for mortgage interest until August of this year.
Since then, MPs have been allowed to claim only to rent a second home, to stop them profiting from the system.
Last month, the Telegraph disclosed that at least 27 MPs were letting out their London properties while also claiming rent for other flats. There has been speculation that some MPs may be abusing the new system and standards campaigners have warned against any attempt to hide details of rental arrangements.
Sir Christopher Kelly, the outgoing chairman of the committee on standards in public life, recommended in 2009 that all MPs should rent from a commercial agency to remove any possibility of wrongdoing. On Monday night he said: “The principles here are clear – MPs should be properly reimbursed for costs they incur but not obtain personal financial advantage from the system.”
John Mann, a Labour MP, said that he was against any MPs keeping their landlords’ details secret. “People need to be able to defend what they have done,” he said. “I am not in favour of publishing addresses but everything else should be made public. There is no argument to keep it secret. It gives the impression of something not being right.”
This newspaper understands that MPs were formally approached by Ipsa at the beginning of October with details of the proposed publication of their landlords’ details. But the information finally published related to arrangements on Oct 22, some three weeks later.
This meant MPs could change their rental arrangements before publication.
Last month, the Telegraph disclosed that Kevin Barron, the Labour chairman of the Commons standards and privileges committee, was renting a property from Jon Trickett, a shadow Cabinet minister. But the arrangement ended in September and was not disclosed in the list released on Monday.
On Monday night, Ipsa defended its handling of the information. In a statement, the regulator said: “When releasing information under the Freedom of Information Act, we have a duty to notify the individuals concerned. And, when planning to release information, there is due diligence to be done to ensure that you are acting appropriately and, in this case, not compromising security.
“We publish a huge amount of data. We publish how much MPs claim, and the first part of their postcode. Now we have published the identity of their landlords in 85 per cent of cases. In the cases where we have chosen not to identify the landlord, it is because there are security factors which would have made it imprudent.”
It is understood that details were withheld following advice from the Parliamentary security authorities and after Ipsa checked that their publication could lead to addresses being identified.
There are increasing concerns over Parliamentary interference in the operation of Ipsa, which is supposed to be independent. Last week, the entire board of the regulator resigned after the Speaker forced them to reapply for their jobs to a committee that he had appointed.
The Telegraph are reporting today
Margaret Hodge’s position as chairman of the Public Accounts Committee has been called into question following embarrassing revelations over the tax affairs of Stemcor – the £6.3bn-turnover business controlled by her family.
Conservative MP Pritti Patel has written to Mrs Hodge demanding she re-assess her position as Chair and explain why the steel trading company founded by her father and run by her brother has paid almost no tax in the UK.
In the letter, seen by The Daily Telegraph, Ms Patel says she has “serious concerns over [Mrs Hodge's] position” and that Mrs Hodge had a duty to “both meet, and be seen to meet, the standards to which [she held] others to account”.
In recent weeks, Mrs Hodge has been one of the fiercest critics of tax avoidance practices employed by large multinationals such as Starbucks, Google and Amazon.
On Monday, London Mayor Boris Johnson added his voice to the debate, calling plans for a mansion tax absurd when global firms such as Google were getting away with paying no tax.
Last week, Mrs Hodge accused Amazon, Google and Starbucks of being “immoral” by funnelling profits out of the UK.
But according to Ms Patel, Stemcor has also been engaging in a series of controversial tax avoidance measures in the UK, including “transfer pricing”.
“Given the very serious accusation you made of Starbucks,” writes Ms Patel “that they were ‘exporting profits to minimise tax’,” it raises serious concerns that “a seemingly similar approach [has been] taken by Stemcor.”
Stemcor, where Mrs Hodge declares a “registrable shareholding” was founded by Mrs Hodge’s father Hans Oppenheimer. It employs 2,000 people in 45 countries with a turnover of more than £6.3bn. In the UK, where Stemcor is based, the company generated £2.1bn of sales with £65.2m of profit in the year ending December 2011.
It paid just £157,000 in tax to the Exchequer last year, equating to just 0.01pc of the revenues it booked. Stemcor’s UK tax contribution makes up only 2.7pc of the tax it pays globally, despite generating about one-third of its revenues in Britain.
In the letter to Mrs Hodge, Ms Patel writes: “As Chair of the PAC, you have to be able to hold people to account for their decisions and judgement. My primary concern is that without answers to these questions, you would not be able to carry out your role. There is legitimate concern that your leadership might detract from the objectivity of the inquiry [into Starbucks, Amazon and Google] and could undermine both the authority and integrity of the Committee.”
On Monday, Mrs Hodge said: “I have never played any role in the running of the company, or in any financial decisions. As a responsible shareholder, I have regularly sought, and received, assurances that Stemcor pays its fair share of taxes in the UK.”
She added her direct holding was 1.26pc while shares are held in trust for her family, children and grandchildren.
Separately, broadcaster BSkyB was reported to have avoided £40m a year in tax through the use of loophole involving the publication of a magazine. Until last year BSkyB ascribed a small element of TV subscription fees to payment for its Sky magazine, which was VAT exempt. The company stopped publishing the magazine shortly after the loophole was closed.
Sky said in a statement: “The TV listing magazine that Sky used to publish was, in common with all newspapers and magazines, zero-rated for VAT. Sky directly contributes more than £1bn a year in tax – a total of 1.4pc of all taxes paid by the 100 largest FTSE companies. We’re proud of the significant – and growing – contribution we make to the British economy.”
I was just starting to feel a little better when a reader forwarded me this article published today in the Guardian. Grrrrr!
The Conservative party treasurer is calling for a major change in tax laws so that Britain can compete with offshore havens.
Lord Fink, the Tory donor and hedge fund chief, disclosed in an interview that he had lobbied George Osborne for a cut in taxes on invisible earnings so that he and other hedge funders no longer feel obliged to set up companies in places such as the Cayman Islands.
His comments came as a Guardian investigation reveals that 68 MPs and peers, who can influence Britain’s tax laws, are either directors or non-executive directors of firms linked to tax havens.
The findings show how widespread the use of offshore jurisdictions has become in British business life – even by companies which have lawmakers and major public figures on their boards.
Politicians and companies have claimed that many of the offshore firms are established in these jurisdictions for operational business functions or administrative reasons rather than to secure a lower tax liability.
Fink, who is a director of three firms which have subsidiaries or a parent company in the Cayman Islands, Luxembourg and Guernsey, said: “I don’t see why the UK should not compete for jobs that at present are going to the Cayman Islands. I lobbied George Osborne when the Tories were in opposition. I have long felt that the British government loses jobs to tax havens by allowing the Revenue to have these rather archaic rules.”
The new business minister, Michael Fallon, the former trade secretary Peter Lilley and the backbencher Jacob Rees-Mogg are among six Tory MPs who are listed as officers of firms established in, or linked to, jurisdictions known for opaque practices and low tax.
Sixty-two peers including the Tory peer and composer Lord Lloyd-Webber, the former Lib Dem business spokesman Lord Razzall and Labour’s Lord Carter of Coles are also involved with businesses that have offshore connections. Lloyd-Webber’s company said its offshore subsidiary was dormant. Razzall said his company, which offers services including tax mitigation to clients, had not indulged in aggressive avoidance. Lord Carter has not responded.
Of the 68 parliamentarians who have links to offshore havens, 27 are Tories, 17 are Labour peers, three are Lib Dem peers and another 21 are either crossbench or non-affiliated peers.
The Guardian recently examined the registers of MPs’ and lords’ interests to identify companies where they are registered as directors or non-executive directors. This information was cross-referenced with accounts or other financial records to find out if the companies were registered or had a parent company or subsidiary in a tax haven.
Revenue & Customs does not provide a list of tax havens. The Guardian has drawn upon a list of 35 jurisdictions identified for their secrecy and low tax compiled for the US Congress in 2009.
The findings follow a national debate over the use of tax loopholes, prompted by claims from Osborne and David Cameron that they will clamp down on loopholes that allow “morally repugnant”, albeit legal, aggressive tax avoidance. Anger at tax avoidance was heightened after revelations about the tax affairs of celebrities including the comedian Jimmy Carr.
Legal tax avoidance represents nearly 14% of the UK tax gap, according to the Treasury. Research commissioned by the campaign group Tax Justice Network has found that at least £13tn of wealth has been hidden offshore.
Of the parliamentarians identified, most claimed the offshore firms were not being used for tax or corporate purposes. Many of the politicians and companies also said they made large tax contributions in the UK.
Margaret Hodge, who chairs the Commons public accounts committee, which is conducting an inquiry into tax loopholes, said the findings were worrying because of the lack of transparency in offshore havens.
“As MPs, these individuals should be voting for proper transparency so we can see that these companies pay proper tax in the UK. The number of peers involved is bad enough. But to find that Tory MPs are setting themselves up as non-executives on companies that are connected to these places where there is such a lack of scrutiny and probity is just reprehensible and beyond belief,” she said.
Fallon was until two weeks ago a non-executive director of Tullett Prebon, the international money brokers. He stepped down when he took his post in the reshuffle. In 2008, he criticised Gordon Brown over the nationalisation of Northern Rock after it emerged the bank had a subsidiary in a tax haven. Under Fallon’s directorship, for which he was paid £51,000 a year when he left, Tullett also had an offshore operation in Guernsey. Tullett is registered in England, but it owns subsidiaries in secretive, low-tax jurisdictions including the Channel Islands, Switzerland and, until last year, Bermuda. He moved from chairman to non-executive director in 2009 after an outcry over the company’s decision to offer help to move staff to countries with more favourable tax regimes after the announcement of a tax on City bonuses.
Fallon said none of Tullett’s subsidiaries in Guernsey, Jersey and Switzerland were set up for tax reduction purposes and that the Guernsey and Jersey companies were resident for UK tax. The company said its Swiss arm was serving customers there and that Tullett had achieved HMRC’s “low risk” status.
Rees-Mogg declares his directorship of three separate companies related to Somerset Capital Management LLP on parliament’s register of financial interests. However, he says he is not required to declare Somerset Capital Management (Cayman) Ltd (SCMC), which he also controls with two other directors, because it has no turnover or profit and the UK company receives all its revenue. “I do not believe people have any obligation to pay more tax than the law requires but SCMC has no tax benefit to me, Somerset Capital Management or to our clients,” he said.
Tony Baldry, the Conservative MP for North Oxfordshire, was awarded a knighthood in the Queen’s birthday honours. On a £64,000 salary, he acts as an independent non-executive director at Woburn Energy whose parent company is registered in the British Virgin Islands tax haven. He said the company was independent from its parent, Cetus, and the offshore links were “entirely as a consequence of the ownership structure of Cetus prior to its investment in Woburn”.
Peter Lilley was recently appointed non-executive chairman of Tethys Petroleum, which has interests in Kazakhstan, Tajikistan and Uzbekistan. The company is registered in the Cayman Islands.
He said: “Tethys would not have a UK tax liability if it migrated to the UK since, as an exploration company, it reinvests its revenues in exploration, which extinguishes any tax liability under UK tax law. It of course pays taxes, royalties and production share to local governments in countries where it operates.”
The Tory former defence minister Nicholas Soames is chairman of private security contractor Aegis, owned by a Swiss holding company and with subsidiaries in the British Virgin Islands. Soames said: “All trading profits of the group are either paid to or taxed as part of Aegis Defence Services Ltd’s own activities and that company is fully taxable in the UK.”
Jonathan Evans, MP for Cardiff North, is non-executive chairman of Phoenix Life Ltd. Accounts from Companies House show Phoenix’s parent company is incorporated in the Cayman Islands and resident in Jersey. Evans did not respond to questions about the company.
The superb Langdale Folk Festival was on last weekend and featured many well known musicians from all over the country – including a few talented artists from Lytham St Annes. Situated at the Old Dungeon Gill at the foot of the Pikes, it was, by all accounts, a fabulous weekend. Next year perhaps – providing there’s no more unforeseen disasters or emergencies – knowing my luck these days, my presence could very well spark off a volcanic eruption or earthquake in the region. This was taken two years ago at the end of September – another visit is long overdue….
I apologise for the absence of posts on the blog in recent days and by way of explanation I would like to share with you a short story about what happened to me over the last week – a little diversionary excursion from the usual matters, which you might find interesting – as long as you have a strong constitution and you’re not reading this over breakfast or lunch!
Last Thursday I had a day off. I’m doing a concert in Lytham St Annes in November to raise funds for our local Hospice so I had planned a day with a couple of friends to practise some songs that we’re aiming to do, so I rose about 9am and went in the shower just after my better half had left for work. When I came out the shower I thought my nose was running – but when I looked in the mirror I was surprised to see that it was, in fact, a nose bleed. Nothing too desperate, so I did what we’re told to do and pinched the fleshy part for 15 minutes until it stopped, then finished shaving and towelling dry and dressed and went downstairs to make a coffee. As I drank the necessary, my nose started bleeding again – so I spent another 15 minutes pinching it and watching the news. I’ve never had a nose bleed before as an adult – so it was a new – and annoying – experience. However, fifteen minutes later, it had stopped again, so I finished my coffee (cold by now – but isn’t it always?) and picked up my guitar and started playing. Within 10 minutes my bleed had started again, so this time I decided to pack it with gauze and gripped it with a clothes peg for good measure – and kept on playing. Goodness knows what the postman thought when he delivered the post around 11am – having a clear view in the front music room!
An hour or so later I removed the gauze and studied the nose for any permanent disfigurement from the peg, but was delighted to note the haemorrhage had stopped and what’s more – so had the bleeding down the back of my throat. The next few hours were uneventful and we managed to rattle off some John Martyn, Nick Drake and Amy Winehouse covers – as well as a few of my own – and near 6pm we wound up and I cooked dinner and opened a bottle of shiraz for the evening.
Four hours later I was tidying up in the kitchen when suddenly my bleed started again – only this time it was quite prolific and involved both nostrils. Back to the pinching and gauze packs and a couple of hours later, with my better half in a deep sleep I removed them and headed for bed, fairly exhausted by this time. No sooner than my head hit the pillow, the bleed started again so I ran back to the bathroom and went through the whole rigmarole again – only this time, as soon as I released the pressure, it continued at an alarming rate, saturating the gauze packs within seconds. And so it was thus throughout Thursday night and into Friday morning. As I was awake, I even managed to post on some discussion forums at some unearthly hour – 3.40am or so – which perhaps demonstrates the addictiveness of this Internet and the obsessions it produces in its members! But few, I suspect, can make claim to have written posts with gauze packing and three clothes pegs or their nose at the same time. Be glad my computer isn’t more interactive and has live webcam facilities, my friends!
Next morning I was still at my desk and the bleed was still prolific when I removed the pressure. I had lost over two pints of blood by now and even though I hate the thought of hospital treatment, it was obvious that’s where I would have to go to get it stopped. I had a busy surgery on Friday and didn’t want to cancel, but had little option. As tolerant as my patients are, I don’t think the prospect of me sitting with blood soaked gauze pack and clothes pegs would have been very attractive to them. Besides, I was beginning to feel a little unwell by this stage. I sent my other half off to work and headed for A&E in a taxi with just my phone and enough money to get a taxi back home – but by the time I arrived at the hospital, ten minutes later, the fresh gauze packs were leaking badly and my hands were covered in blood. The one positive manifestation of this was priority triage and admittance to the emergency ENT ward, where, after a brief examination, the decision was taken to plug my nostrils with an inflatable nasal pack. Now, like me, you’ve probably never seen a dressing like this before. I don’t think we can ever have any use for them in podiatry – but for your elucidation, they are similar to a seven-inch tampax with an inflatable core attached to a plastic tube, instead of a string. The procedural insertion of these packs – into an already very tender conk – was not a pleasurable experience, by any description. Even though it was performed superbly by a beautiful Iranian doctor with a delectable smile! The entire length of the pack was inserted and I was then told that I would have the pack in place – and inflated for between 24 and 48 hours and furthermore I was being admitted as an emergency patient onto the ward.
One thing should be understood here is the anatomy of the nasal passage, which aside from being an extremely vascular plexus, is connected to a number of sinus passages – and it was up one of those, behind my right eye that the epistaxis was occurring – or so they thought. Once the packs were inflated, I could feel the pressure building inside my head – a curious feeling at first, but within an hour or so, it started to become acutely painful. Within half an hour of notifying the ward doctor, I was started on a pain management regime which consisted of paracetamol, dihydrocodeine, diazepam and morphine – which lasted initially six hours before the acute pain started back up behind my right eye. More drugs – then the consultant came round to take a look and asked a few questions – what I did, recent trauma, medical history. Like most people in my profession, I’ve had a few episodes of irritation in the nostrils – years of working in environments of dust and debris take their toll from time to time, but usually a few days of some topical antibiotic cream clears it up – but I recalled a paper a few years ago detailing some cases of unpleasant nasal lesions in podiatrists and I mentioned it to the consultant who said he would give it some thought and see how I was after 48 hours. Until then, I was to have complete bed rest, no standing – and whatever pain management I needed.
By Saturday night, 36 hours after admission, I was in a bad way – barely recognising my visitors – and fluctuating between lucidity and unconsciousness, depending on the cycle of drug administration and recurrence of the pain, which, by this time was incredible. Worryingly, I was quickly building a tolerance to the drugs – so the frequency and dosage were increased to compensate and by early Sunday morning, I was having morphine every two hours and the remaining three every six. Strangely, despite the fact I was taking more Class A’s in a day than the average Glasgow junkie enjoys in a month – I had moment of incredible lucidity – or so it seemed – and even managed to send some texts and emails to friends and colleagues (apologies to anyone who received one), which on retrospective reading, were, of course, complete gobbledygook!
On Sunday evening, the consultant made his ward round again and decided to deflate the pack and see if there was any evidence the bleed was still occurring. Within a few seconds, it was obvious that it was – so to my dismay, the pack were re-inflated – slightly larger this time and off he went home, no doubt to a comfortable night in front of the telly, leaving me to my drug-fuelled exploding-headed nightmare.
I don’t remember much during the next 24 hours or where I had descended to, but I managed to escape somewhere by listening to some relaxing nature sounds on my iPod and headphones, interrupted only by the regular visit of the ward dealer with the cups of morphine every hour or so or whenever I called for more. At one point I remember crying blood through my tear ducts which was a novel experience, if a rather distressing one, for my nearest and dearest, who were, by then, keeping a worried vigil at my bedside during visiting hours. I had nothing to eat during Sunday or Monday, but had a few units of plasma and some boiled sweets to keep the taste of blood out my mouth. At one point, early Monday morning, I had drifted away for a few moments and when I woke again I nearly chocked on some ice or a boiled sweet and had to swallow it quickly and coughed in the process. I cannot begin to describe the next half hour or so, but I was almost ready to quit at the end of it – until the morphine worked its magic again.
Monday lunchtime, the decision to remove the pack was taken and if the bleed was just the same it was down to theatre to cauterize it manually. Now, if any of you are unfortunate to experience a posterior arterial epistaxis and have to have inflatable nasal packs inserted, you might care to forget the next part where the ENT sister comes over to your bedside and deflates the packs and gently smears some Vaseline around the bottom of your nose and reassures you that it’s going to be a gentle, painless process when she slowly slips the packs out – remembering they are six or seven inches inside your head at that point. Because she’s lying. Really she is.
She grips the end of the plastic air tubes and pulls them down as quick as she can and in that half second or so you feel as if your brain has just been evacuated down your nostrils into the waiting cardboard waste bowl you’re holding under your chin. If it had been a less horrific experience I would have floored her, but as it was I simply couldn’t – just slumped forward and moaned uncontrollably whilst she patted my back with a “there, there, it’s all over now – nothing to worry about, it’s all better…!” Remember, she will lie: you have been warned!
Thankfully, this time, the bleeding had stopped – well to the most part – like a normal nose bleed, I guess – and after 15 minutes it was under control – so after another morphine and a few hours sleep I was examined by the consultant who was delighted to tell me that I had a large secure clot in my sinus which had effectively stopped the arterial bleed and that I could go home and get some well deserved rest – and what’s more the pain would disappear completely, even after the opiate had worked off. I am to go back to clinic after two weeks to have the clot removed and have it scoped – but hey that’s two weeks away – whoopee!
Thirty six hours later, I’m still pain free and nice and dry, but starting to come down from the morphine and codeine high and was looking forward to a nice restful sleep….however, I discovered earlier this evening, after sucking on some ice – that a large gold molar crown, which cost me more than £500 recently, is missing and that it was this, rather than some ice or boiled sweet, that I had swallowed in the delirious small hours of Monday morning! Given the amount of morphine and codeine I have had in my system over the last four days and their well-known effect on the alimentary compositions, I fear that as I sit here, contemplating a large glass of Epsom salts and Moviprep and with a bucket and sieve outside in the garage, I am in for another interesting evening. Only this time, after this, I will not be posting further on the Internet – for 24 hours at least. Just in case you were wondering.
Wish me luck!
My angels of mercy!
Nick Shaxson’s new book “Treasure Islands” goes much of the way to explaining the current global financial crisis and lays bare the sordid world of offshore and secrecy jurisdictions, which, until recently, was thought to be restricted to the likes of the Channel Islands and Bahamas. Not so. Offshore is all around us – it is the carefully constructed web of financial instruments that has – at its centre – the respected and venerable institutions that, we are led to believe, essential for the global economy. It is a spiders web of deceipt and greed that is responsible for the greatest flow of capital from the poor to the rich and powerful and whose influence reaches far beyond the financial services industry – to the very heart of governments throughout the developed world. This is essential reading for everyone. The following is an extract from Nick’s book which explains just how far the rich and powerful are prepared to go to maintain their opulent and lavish lifestyles to the detriment of everyone else.
In 2009 I met a former private banker, Beth Krall, to explore a question that had been nagging me: how do bankers who shelter the wealth of gangsters and corrupt politicians justify what they do? We met one Sunday in Washington DC. She had left private banking and joined the non-governmental sector. Dressed in a striking black-and-white coat, she still looked very much the stylish international financier. Aged 47, and with nearly 24 years in the banking business, Krall (not her real name) was still coming to terms with her past life.
Krall’s last offshore posting was in the Bahamas, an island archipelago with over 300,000 residents that has been an important offshore centre since the golden age of American organised crime. A few months earlier, a practitioner in the Caymans had warned me to watch out for my personal safety if I went “asking all these questions” in the Bahamas. Krall said she was unsure what might happen to her if she went back, as she was partly breaking the private bankers’ code of silence. “I don’t want to have concrete shoes put on me,” she said without smiling. One reason for her fear was something that had angered her in the first place: so many of the people she dealt with were powerful members of society in their home countries.
Krall took her banking exams straight after school, and then worked for a number of banks before moving to Cititrust in the Bahamas, where she ran evaluations and accounting for their mutual funds business.
From this point, Krall declined to name her employer. She became a client relationship manager with the private banking arm of a well-known international bank in the Bahamas. They worked with what are euphemistically known as managed banks or shell banks, an offshore speciality. These have no real presence where they are incorporated, so they can escape supervision by regulators.
The terrorist attacks on 11 September 2001 prompted the US to legislate against shell banks. A bank in the Bahamas must now employ two senior bankers and keep its books and records there to be judged real enough to do business. “That means a bank maybe with a room or suite in a building, with two people in it – that’s a bank now,” Krall said. She directed me to the website of a Bahamas-based trust company that will provide you with exactly that: the appearance of being a real bank – including two staff members as directors and a place to keep the books. Such a setup can allow business almost as usual, yet still tick the regulators’ boxes.
Krall moved to a big European bank, again as a client relationship manager – in effect, someone who finds wealthy clients and keeps them happy. Trawling for business, she was routinely pointed towards Latin America, where she travelled frequently. “On the immigration form you would write that you were going for pleasure, though your suitcase would be full of business suits and portfolio evaluations, or marketing materials and presentations explaining the advantages of a trust in the Bahamas.” The client’s name didn’t appear on their portfolio evaluation: in fact, the bank would not even record it as the account name. It was nerve-racking, sometimes, going through airports, but she always got through unchallenged.
Despite her growing qualms, Krall ended up working for a boutique Swiss private bank in the Bahamas. This was no ordinary bank, and was the only one where she actually saw a suitcase full of cash. “My bank never once had a client walk through the door,” she said. “The bankers and their clients go on big-game hunting trips, or to the ballet in Budapest. That is where it happens.”
Her colleagues hailed from old European aristocratic circles. While Krall was perfectly good at her job and had close working relationships with top lawyers, asset managers and so on, a gap remained. “They went to parties with royalty, with ambassadors,” she said. “I wasn’t in their circle.”
At the time, laws in the Bahamas were being tightened a little, following a feeble global crackdown, and she moved sideways in the bank to work as a compliance officer. These days, offshore bankers make a big show of their know-your-customer rules to keep out the bad money. Depositors may have to supply a certified copy of a passport, for example, and divulge where their money came from. Jurisdictions such as the Bahamas and the Cayman Islands put these requirements into their statutes, and banks employ compliance officers such as Krall to enforce this. That, at least, is the theory. But there are many ways around the restrictions.
Krall was supposed to check for suspicious movements through the accounts – of which there were plenty. She raised many red flags. “They [her managers] would say, ‘This was a commission’.” Were these bribes? Commissions on what? “I went back, and never got an answer.” One Swiss-based trust company that had a relationship with her bank displayed almost nothing on its website, bar some photos of a nice fountain in Geneva. “The crap they brought to us was unbelievable. There is no way a responsible trustee should take this on. You would have no idea who the trust settlors were, what the assets were or where they came from. I objected strongly, but the bank took them on.”
There is something about island life that stifles dissent. In the island goldfish bowl, you cannot hide. The ability to sustain an establishment consensus and suppress troublemakers makes islands especially hospitable to offshore finance, reassuring international financiers that local establishments can be trusted not to allow democratic politics to interfere in the business of making money.
John Christensen, Jersey’s former economic adviser-turned-dissident, describes encountering extremist right-wing offshore attitudes when he returned to his native island in 1986 after working overseas as a development economist. It was the year of the City of London’s Big Bang of financial deregulation, and he found the tax haven amid a spectacular boom. Old houses, tourist gift shops and merchant stores in Jersey’s beautiful capital St Helier were being knocked down and replaced by banks, office blocks, car parks and wine bars. He went to an employment agency and they told him he could have any job he wanted. The following day he had three offers. In his work he soon became aware of practices such as reinvoicing, in which trading partners agree on a price for a deal, then record it officially at a different price in order to shift money secretly across borders.
As the river of money flowing into Jersey became a tide, he expressed unease about the origins of some of it, much of it from Africa, but he was brushed aside.
The concentration of extremist attitudes in Jersey was self-reinforcing, as Christensen explains. “Most liberal people like myself left,” he said. “My socially liberal friends from school, almost all of them left Jersey to go to university, and almost all of them didn’t go back. I can’t tell you how dark it felt.” He almost left, but was persuaded to stay by academic researcher Mark Hampton, who was putting together a framework for understanding tax havens and convinced him how important it was to understand the system from the inside. “I went undercover,” Christensen said, “not to dish the dirt on individuals and companies, but because I couldn’t understand it – and none of the academics I spoke to could either. There was no useful literature.”
Jersey is riddled with elite, secretive insider networks, typically linked to the financial sector. After being appointed economic adviser in 1987, Christensen found that many people who came to see him wanted him to join their Masonic lodge, and gave him the secret signal. “Their thinking is very much of the old-boy network – you are either one of us or you are against us,” he continued. “It means they can trust you to do the right thing without having to be told – an insidious meaning of the word ‘trust’.”
Unaccountable elites are always irresponsible, and I got my own flavour of Jersey’s mouldy governance on the first day of a visit in March 2009, when the Jersey Evening Post carried a front-page story headlined “States in shambles”, referring to the States Assembly, Jersey’s parliament. “The States resembled a school playground yesterday as foul language and personal insults flew across the chamber,” it said. Senator Stuart Syvret, a popular but controversial politician, had complained in the assembly that the health minister was whispering in his ear.
Syvret, the newspaper reported, stood up and said: “On a point of order, I am sorry to interrupt the minister. But the minister to my right, Senator Perchard, is saying in my ear: ‘You are full of fucking shit, why don’t you go and top yourself, you bastard.’” Senator Perchard responded by saying: “I absolutely refute that. I am just fed up with this man making allegations.” The BBC, which was broadcasting the sitting live, had to apologise for the language.
Syvret has been a regular victim of efforts to suppress dissent. “Any anti-establishment figure here is bugged,” said Syvret. “There is a climate of fear. Anyone who dares disagree is anti-Jersey, an enemy of Jersey. You are a traitor, disloyal. There is all this Stalinist propaganda.” A few weeks after my visit eight police officers arrested Syvret and held him for seven hours while they ransacked his home and personal files, including his computer.
In October 2009, having been accused of leaking a police report about the conduct of a nurse, Syvret fled to London and claimed asylum at the House of Commons, saying he could not get a fair trial in Jersey. British Liberal Democrat MP John Hemming put Syvret up in his flat, declaring that “we should not allow him to be extradited, to be prosecuted in a kangaroo court”. When Syvret returned in May 2010 to fight an election he was arrested at the airport. “This is a society with no checks and balances, run by an oligarchy,” Syvret said. “It is a one-party state, and it has been for centuries.”
At the Smugglers’ Inn on Jersey’s beautiful coast, I sat with John Heys, a tour guide at the world-famous Durrell zoo, and his friend Maurice Merhet, a retired printer and pig farmer. The two had spoken out – in letters to the Jersey Evening Post and in other forums – and have been decried, publicly and regularly, as traitors. Both described the same climate of fear that Syvret had: the dread of being squeezed out of a job, of never getting anywhere, of being blacklisted.
Heys showed me an email from a government minister to a dissident friend who had, in a cheeky Christmas message to the minister, pointed out the large sums stashed away in Jersey amid global poverty. The minister responded – mistakes included: “Hi Traitor, Please refrain from sending me your unsolicited garbage … I am surprised you still decide to live in this ‘tax haven’ island … ifs its so bad why do you not leave to live somewhere else … good riddance I would say … but perhaps NOT because you get a damm good living here, no doubt perhaps funded by banks and your morgage lender … in fact my family have lived in Jersey for several generations and I am so very proud of it but to listen to traiterous idiots like you makes me furious. I would not have the nerve to wish you a happy christmas in fact I hope you continue to live a miserable existence in your traiterous world.”
One night in 1996, towards the end of his time in Jersey, Christensen opened the books for a reporter from the Wall Street Journal, who was investigating an alleged fraud ring involving American investors and a Swiss bank operating out of Jersey. The story, headlined “Offshore hazard: Isle of Jersey proves less than a haven to currency investors”, ran on the front page several months later. Jersey’s finance industry and politicians went into spasm. This was one of the first times Jersey’s supposedly clean and well-regulated finance sector had been challenged in a serious global newspaper. The end of the article quoted a senior civil servant. Everyone in Jersey was sure it was Christensen. He knew that, in talking to the reporter, he had effectively resigned.
Finance can take advantage of insularity, timidity and moral shortsightedness, but the ethos of the Jersey establishment derives ultimately from the offshore industries and their onshore controllers, not from innate island character. Offshore repression can happen in larger jurisdictions, too. Rudolf Elmer, a Swiss banker who had worked for banks in several offshore centres before becoming a whistle-blower on some of the corruption he had seen, felt the pressure in Switzerland, a country of eight million people.
In 2004 Elmer noticed two men following him to work. Later, he saw them outside his daughter’s kindergarten, then from his kitchen window. His wife was followed in her car. The men offered his daughter chocolates in the street and late at night drove a car at high speed into the cul-de-sac where he lived. The stalking continued, on and off, for more than two years. The police said there was nothing they could do. In 2005, they searched his house using a prosecutor’s warrant, and he was imprisoned for 30 days, accused of violating Swiss bank secrecy, which is, as he put it, “an official violation, like murder”.
“I was thinking of suicide at this stage,” he said. “I would be looking out of the window at 2am. They intimidated my wife, children and neighbours. I was an outlaw. I was godfather to a child whose father is in finance. He said I have to stop – ‘you are a threat to the family’.” A relative was pressured at work to avoid contact with Elmer; after one warning he left the office in tears. “I was bloody naive to think that Swiss justice was different,” Elmer said. “I can see how they might control a population of 80,000 people in the Isle of Man, but eight million? How can a minority in the banking world manipulate the opinion of an entire country? What is this? The mafia? This is how it works. Jersey, the Cayman Islands, Switzerland: this whole bloody system is corrupt.”
This is an edited extract from Treasure Islands: Tax Havens and the Men Who Stole the World by Nicholas Shaxson, published by The Bodley Head. Price £8.99 from Plackitt and Booth, High Street, Lytham – or in any good bookshop. www.plackittandbooth.co.uk