Offshore Financial Centres (Hansard, 20 January 2004)

§ The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey)
My Lords, it is important that all financial centres comply with international standards, regardless of whether they are offshore or onshore. The Government are firmly committed to seeing international standards of regulation and anti-money laundering implemented effectively throughout the world. We are equally firmly committed to encouraging the Crown dependencies and overseas territories to match international standards on exchange of information for tax purposes and on fair tax competition.

§ Lord Wallace of Saltaire
My Lords, I thank the noble Lord for that Answer. Does he accept that, on some estimates, nearly half the offshore business which goes to offshore financial centres goes to such centres under British sovereignty—both in the Crown dependencies and in the dependent territories? Therefore, it would seem to he a duty for the British Government, in particular, to consider the role of offshore financial centres in the world economy. Is he familiar with the recent report of the Public Accounts Select Committee in another House, which states: Around a quarter of serious fraud cases investigated by the [Inland Revenue] involve the use of offshore accounts and structures"? Did the noble Lord see the report in the New York Times which stated that, of the 881 subsidiaries of Enron in offshore financial centres, 692 were in the Cayman Islands, 119 in the Turks and Caicos Islands and eight in Bermuda? Does he recall that in the Parmalat saga, both the British Virgin Islands and the Cayman Islands played a substantial part in the disappearance of money? Is it not time that the British Government examined the costs and benefits to the world economy of those offshore financial centres, which are under our eventual control?

§ Lord McIntosh of Haringey
My Lords, to begin with, I believe it would be wise for the noble Lord, Lord Wallace, to distinguish between the Crown dependencies and overseas territories. Crown dependencies are far more limited. They have different tax regimes but we are satisfied that they comply with all the regulatory conditions that we have in this country. We are also satisfied that they have adequate protection against fraud.
As for overseas territories and other offshore jurisdictions, this country, together with the OECD in particular, has been relentless in pursuing cases of fraud and bad regulation. I shall not comment on the 905 Parmalat aspect of the Cayman Islands, but those islands, as an overseas territory, were on the blacklist of the Financial Action Task Force on Money Laundering and have been taken off because they have conformed. They have still not conformed to the savings directive but we are working very hard at that. If the noble Lord, Lord Wallace, looks at the record, he will see that we are collaborating powerfully with other OECD members in pursuit of the non-cooperative jurisdictions.

§ Lord Barnett
My Lords, does my noble friend agree that there is often a fine line between tax evasion and tax avoidance, particularly in the case of offshore islands? Is it not possible to ask the Inland Revenue, the Treasury or Parliament to decide how to deal with some of the large amount of tax avoidance which is really tax evasion by another name?

§ Lord McIntosh of Haringey
My Lords, I was always taught that tax evasion was illegal but that tax avoidance was not. It depends on the tax jurisdiction with which one is dealing. As I said to the noble Lord, Lord Wallace, I believe we should make a distinction between the offshore jurisdictions which are attractive because they have low tax regimes, which is legitimate, and those which have poorer regulation and which fail to comply with international standards of exchange of information or, indeed, of withholding tax. That is the direction in which we should target our efforts.

§ Lord Phillips of Sudbury
My Lords, turning to the financial scandals aspect of this Question, can the Minister say whether this is one of those rare occasions when the Government can throw the challenge where it should lie—that is, with the leading firms in the major financial centres? I think particularly of the City and Wall Street and the leaders of those leading firms. Is it not the case that a year ago on Wall Street an unprecedented ramp, fraud or conspiracy—call it what you will—took place, involving more than 50 of the leading merchant banks there, including all the major players in the City of London, and where the 11 malefactors were fined 1.35 billion for concerted fraud? Is it not the case that, unless these great firms show an example, frankly, laws will not do the trick?

§ Lord McIntosh of Haringey
My Lords, I believe that those who practise to deceive do, indeed, weave tangled webs. One of the tangled webs that they weave is the use of offshore havens. I believe that it would be good advice to investors in any country to look at the extent to which the companies in which they seek to invest use offshore tax havens and the extent to which they seek to complicate, and therefore to obfuscate, the nature of the financial control. I believe that that is all good advice for investors, wherever they may be.

§ Baroness Noakes
My Lords, the Question of the noble Lord, Lord Wallace, referred to tax evasion and not tax avoidance. Will the Minister say whether he believes that the Government have in place adequate 906 measures to deal with tax evasion in these offshore centres? If he believes that they have, will he say what effect those measures have had?

§ Lord McIntosh of Haringey
My Lords, we pursue tax evasion at every possible opportunity. We are frequently criticised for the complexity of the Finance Act and of our tax legislation. Much of that complexity arises from the necessity to do precisely what the noble Baroness, Lady Noakes, said—to pursue tax evasion. We do not apologise for the complexity when it is necessary for the effective pursuit of tax evasion.

§ Lord Wallace of Saltaire
My Lords, there is concern both in Britain and in the United States about the use of offshore credit card accounts as a means of tax evasion. Are the Government paying particular attention to that and are they also collaborating with the United States on the use of Caribbean tax havens?

§ Lord McIntosh of Haringey
My Lords, I am not familiar with the point that the noble Lord, Lord Wallace, is making. However, I shall become closely involved in it as I pursue the draft Gambling Bill, which is now before a Joint Committee, because clearly offshore credit cards are a particular risk there. I take seriously the point raised by the noble Lord, Lord Wallace, and I shall pursue it.

§ Baroness Noakes
My Lords, the Minister put up a spirited defence of complicated tax legislation. However, that was not the question that I asked him. Will he say whether the measures that have been put in place are effective against tax evasion?

§ Lord McIntosh of Haringey
My Lords, they are generally effective, but people find ways of getting round them. The lawyers and accountants available to the private sector are paid more than the lawyers and accountants available to the Government. Sometimes they are ahead of us, but we catch up.