Transactions with Tax Havens (Sanctions) (Hansard, 8 July 1992)

§ Mr. David Shaw (Dover)
I beg to move, That leave be given to bring in a Bill to provide sanctions against persons or organisations who engage in financial dealings with tax havens; to amend the Companies Acts in respect of audits carried out by accountants who maintain offices in tax havens and in respect of the duties of directors of public companies; to amend the Banking Acts in respect of transactions with banks situated in tax havens; to regulate the activities of advocates, barristers and solicitors with regard to transactions with tax havens; and for connected purposes. Although I am a chartered accountant and I shall mention the accounting profession in my speech, I have no financial interest in tax havens.
The House will he aware that one important aspect of the Maxwell affair is the fact that Mr. Maxwell based his business empire in the tax haven of Liechtenstein. Financial transactions with Liechtenstein are rarely, if ever, for honest purposes. The same is true of many financial transactions with other tax havens.
Recently, we have seen a number of large frauds involving loss to our citizens as a result of transactions involving tax havens. Consequently, I wish to introduce a Bill that would make it unlawful to carry out most types of financial transactions with tax havens. My Bill would provide for sanctions against professional persons—bankers, accountants or lawyers—who provide advice or assistance with financial transactions involving tax havens.
My Bill would further provide that directors of public companies and of companies managing collective investment schemes such as pension funds and unit trusts shall not enter into transactions with tax havens either personally or through their companies. If my Bill had been law in this country, there would not have been the scandal of the Bank of Credit and Commerce International, in which many United Kingdom citizens lost hundreds of millions of pounds, the scandal of Polly Peck in which hundreds of millions of pounds are still unaccounted for, the scandal of Barlow Clowes or the scandal of Mr. Robert Maxwell stealing so many hundreds of millions of pounds from the pensioners who had worked for his companies.
One point that I should like to make clear to the House is that the problem that tax havens cause is not so much related to the low rates of tax that exist in them; if that were so, the United Kingdom might be regarded as a tax haven. The main problem caused by tax havens is that they allow transactions to take place in conditions of extreme secrecy. which can be used by fraudsters like Maxwell and the management of BCCI unlawfully to remove many hundreds of millions of pounds from our citizens.
The use of the words "tax havens" is less and less appropriate as they become more and more fraud havens. Indeed, in my draft Bill I have not sought to construct my definition of a tax haven in terms of it being a low-tax area, since that of itself is of little concern. Instead, I have constructed the definition on the fact that a tax haven or fraud haven is a place where money goes missing and where there are no legal arrangements in operation that enable United Kingdom citizens who have been defrauded to obtain information or help that would assist them in the recovery of the money that they have lost.
Many people will ask, "How serious is the problem of tax havens?" I should like to make it clear that the Government have certainly tried to tighten tax law to 356 reduce avoidance and evasion. However, the effectiveness in practice of some of the changes is open to doubt, and in any event the changes in tax law have not dealt with the problem of business and personal fraud.
Although there are no published figures, it is likely that as much as £2 billion a year may be lost in avoided or evaded tax and business or personal fraud through the use of tax havens or fraud havens. One has only to look at the large firms of United Kingdom accountants that maintain associate offices in the tax havens to see how big the business has become.
Although my Bill is mainly concerned with preventing fraud, a tax haven would not be a tax haven if it were not for the reduction in taxation that could be achieved by a person controlling a business from there or creating tax-efficient transactions re-routed through the tax haven. Often, that person gains the benefit of living in or carrying on a business in the United Kingdom but avoids or evades paying tax here by controlling his or her business assets through an offshore trust.
That is just what Robert Maxwell did. He never claimed to own the Daily Mirror; he claimed only to be its publisher, with ownership controlled by a Liechtenstein trust. That convenient arrangement enabled Maxwell to avoid—some would say evade—about £100 million of capital and other taxes that should have been payable on the profits made by his investment in the Mirror Group.
The loss of tax revenues through tax havens is clearly a serious matter. We could probably reduce income tax by a further 1p in the pound if the Government tightened this area still further. Losses caused by tax havens are by no means limited to the loss of tax revenues. Commercial and personal fraud through tax havens is running at record levels.
In the past 10 years, there have been nine Department of Trade and Industry company investigations which have found extensive details of fraud involving Switzerland and Liechtenstein. Those DTI investigations also detailed the part that other tax havens have played in assisting frauds through the provision of a cloak of secrecy behind which crooks can operate. Consequently, the main purpose of the Bill is to reduce economic loss to the United Kingdom and our people and to discourage white collar crime.
Which are the tax haven countries? According to my definition of a tax haven, the main criterion is that it is a country that assists fraudsters in the taking of other people's money. It is not my intention to penalise a tax haven because it may have a lower rate of tax than the United Kingdom; my concern is that income and capital gains should not be diverted to a tax haven from the United Kingdom to enable a person who benefits from an association with the United Kingdom to evade or even avoid tax in the United Kingdom.
The Bill is directed at the tax havens that assist frauds to take place as well as tax evasion, drug dealing, money laundering and insider dealing. They are crimes that the United Kingdom Government regularly enact legislation to prevent, but all United Kingdom Governments—Labour and Conservative—have failed to tackle the problem adequately in terms of hitting the white collar criminal where it hurts, which is in his or her bank account. The Government must face the issue because the size of frauds involving tax havens is growing and the number of frauds may also be increasing.
Some areas that are regarded as tax havens, such as Jersey, Guernsey and the Isle of Man, could easily adapt 357 their systems to avoid being classed as tax havens. All they have to do is accept that where a monetary loss takes place in the United Kingdom, they will co-operate in righting the wrong. Indeed, I believe that some degree of co-operation from those countries has been available in the past.
My main concerns are with Switzerland, Liechtenstein, the Netherlands Antilles and a number of United Kingdom dependent territories in the Caribbean such as the Cayman islands, the British Virgin islands and Panama. The latter countries and United Kingdom-dependent territories are the countries where many of the fraudulent transactions take place. Too many tax havens have traditional relationships with the United Kingdom. That is no excuse for allowing their economies to develop around fraud. Their people will become lazy and their economies will not develop properly. The Foreign Office has a duty to our citizens to review its policies towards those territories and to suggest policies which benefit this nation and its people.
Too many tax avoiders and evaders have been using such tax havens. Too many creative accountants or company directors have been using them; for example, Mr. Maxwell arranged a number of transactions of such a nature to manipulate the accounts of the Maxwell Communication Corporation. Large international drug dealers are known to use places such as Panama. Share manipulators, a new breed. were found to use tax havens in the Guinness affair, and Goldman Sachs did a large number of share transactions in Maxwell Communication Corporation shares from Liechtenstein trusts in very dubious circumstances.
Tax havens have been found to be used by insider dealers in the United States, and a significant one was caught recently. Sadly, no big insider dealers have been caught here. Those caught have tended to be the smaller ones, and one wonders whether that is because the investigations have gone to the door of the tax havens but, because of secrecy laws, have been unable to go any further.
The case for the Bill, or for measures with a similar effect to be introduced by the Government. is overwhelming. How will the Bill operate? In practice, United Kingdom accountants and accounting firms, lawyers and other professionals who have privileges enshrined in law would have sanctions brought against 358 them if they continued to make transactions with tax havens. Accountants carrying out audits and law firms have significant privileges in law. If the privileges are to be sustained, such people and organisations must also have responsibilities to others. Tax havens and transactions with tax havens should be restricted, and sanctions should be used against those who carry out their work in tax havens.
United Kingdom public company directors also have many privileges. They should not own or carry out transactions in a tax haven—

§ Madam Deputy Speaker (Dame Janet Fookes)
Order. May I invite the hon. Gentleman to wind up?

§ Mr. Shaw
Thank you, Madam Deputy Speaker. I shall conclude.
My Bill would work. I believe that the sanctions, which would be onerous, would be effective because they are necessary to restrict the fraud that has taken place in the companies that I mentioned. The Maxwell fraud and the misery that has been caused to many retired and elderly people make one realise that no measure can be too draconian if it prevents such an evil fraud. I believe that many banks in the City of London would welcome the Bill because it would assist them in preventing and tackling fraud within their own operations.