John Christensen is co-founder of the Tax Justice Network. Trained both as an auditor and economist he was employed by Touche Ross in his native Jersey as a company and trusts administrator. He holds an honours degree in applied economics and an M.Phil in economics and law. He has contributed to many publications on tax avoidance.
BENGER: You started out with Deloitte Touche, right?
CHRISTENSEN: I started out in London, I trained in forensic auditing in London. But I was also working as a volunteer with an organisation called Oxfam. And Oxfam had this something of a group and we were looking at systemic causes of poverty.
Sitting in London, school of (inaudible) studies, we were talking about illicit financial flows, we were talking about tax havens in the 1978, ’79, wanting to build up a better understanding of how the rich get richer, and how they were reacting, had been reacting.
It was quite clear from the 1070s that tax havens were becoming the key part of the global economy. Britain itself had been investing a lot of effort into creating what we call the spider web of tax havens, not just in the Caribbean and the European regions, but more extensively in places now like Mauritius, Singapore, Hong Kong.
Hong Kong was a very, very major financial offshoot of the City of London.
So in the 1970s we were trying to look into this and not getting very far. There was no research and no overarching theory about why they fitted in. So by the time I finished my training, I trained both as an economist and a forensic accountant — forensic auditor I should say.
By the time I’d finished my training I had resolved that I was going to go into the world of tax havens. That was my future and the best way back into this was to go back to Jersey. Joined Deloitte Touche, worked offshore for a while and worked from the inside. So that’s where you might start the story.
BENGER: We went to Guernsey and filmed the young business guys flying from the City and back every day.
CHRISTENSEN: Places like Jersey, which is a British Crown dependency, it is exactly 45 minutes out of London, it’s easy to catch the red eye out of London, do a whole day’s work there and get home, back in London or southeast England in time for a late dinner.
So you have an awful lot of people shuffling back or forwards, not necessarily every day but certainly on a regular basis. You have to see a tax haven like Jersey as a satellite or branch office of the city of London–
You have to see Guernsey and Jersey as satellites or offshoots, branch offices of the city of London. This is where they can go and do their dirty business because they don’t… London allows…
The concern is that you might actually one day have a progressive government in London that might want to regulate effectively so you do your lax stuff, the dirty stuff offshore in places where there’s very little risk that there will be a change of government, and that you might suddenly find yourself being regulated or heaven forbid, even taxed.
So a lot of this stuff happens offshore outside London, precisely because the regulations and the taxation in these places is very much more lax and in most cases no taxation at all.
So Jersey and Guernsey are used as booking centres.
BENGER: We saw Antony Travers in the Caymans.
CHRISTENSEN: He saw the Cayman Islands, which at that time was nothing apart from a (inaudible) fishing centre. He saw the opportunity to go in there. I think he wrote their original trust law and everything, everything was based around British Common Law practices because they could very quickly set up a fully fledged tax haven in the Caymans with no oversight, no worries about democratic accountability or anything like that.
BENGER: What about Canada’s place in the tax haven story?
CHRISTENSEN: I grew up with the impression that Canada was one of the most law-abiding, one of those states which had everything right and people bought into the idea that the state had a key part of play in providing education and health service.
But I grew up in St. Helier Jersey and one of my first connections with any Canadian institution was Royal Bank of Canada. A very large branch in St. Helier, Jersey. This is in the 1960s. And I kept scratching my head wondering why is RBC so firmly established? Why does it have such a large establishment here in Jersey.
There are no Canadian investments in Jersey whatsoever. No mining industry interests or anything at all.
Over the years I’ve heard exactly this discussion about the leading role that Canadians have played in many of the Caribbean, in the development of many of the Caribbean tax havens — Bahamas, Cayman, which I’ve heard Cayman described as “little Canadia”.
It’s quite clear that Canada, Canadian institutions have been lead players in the development of many of the world’s leading tax havens.
BENGER: Canadians have prided themselves on being the good guys. What’s your understanding of the importance of Canada in the offshore?
CHRISTENSEN: Britain has been a key player, possibly the key player in developing the global tax haven economy. It’s not coincidence that if you look at the proliferation of small islands as tax havens around the world, many of them fly the British flag or are in some way accountable to British government or use British Common Law. It isn’t coincidence.
When I first started looking into the development of tax havens, I began by going through the Public Records Office in the United Kingdom and then Bank of England Archives and Treasury Archives.
And going way back to the late 1950s it was clear that there were discussions happening within the Bank of England, for example, about how Britain could start developing, recapturing its prominence. London had been during the imperial time, had ben preeminent financial centre.
And despite the industrial revolution actually, if you look at Britain’s empire, strength lay less it industrial exports. Germany, France, and increasingly the United States became much, much bigger players in industrial capitalism from the late 19 century onwards.
It is quite clear that it was financial capitalism that was driving the
British empire, shipping insurance services, banking services, and other related financial services were really big players in the empire. London was at the centre.
As the empire wound down in the 1050s, something strange happened. In 1956 the Bank of England stated to turn a blind eye to the emergence of what’s now known as the Eurodollar market. In other words large accumulation of offshore non-sterling denominated savings arriving in London with all the special treatments and so on.
And as this market developed, it was clear that the bank was involved, not just British banks but American banks and Canadian banks, this was very lucrative and they started to shift it further offshore to places like Guernsey and Jersey and later Cayman Islands and so on, because they could handle all this incredibly productive activity in a tax-free environment.
So happy days for everyone concerned.
And it was clear that there was a lot of division in Whitehall. If you look at the internal revenue, (inaudible) revenue, for example, their position was, we are losing millions of revenue. We must crack down on this.
The Bank of England, however, saw this as a very good way of strengthening the sterling here. There were huge pressures on the sterling at the time, and they were quite happy to see a revival of the city of London. And part of Britain’s post-(inaudible), post-collapse of the British empire, this was a way of boosting a second British empire without having to militarily occupy them.
So they were very happy indeed to see billions of dollars flowing not just out of North America but out of Latin America, out of Middle East, petrol economies out of the Middle East, Africa and Asia into London via this vast network of conspirers (inaudible) tax havens that had been colonies and many of us suspect are now still colonies, British embassies, territories and crown dependencies.
And, you know, most other things we dug out of the Bank of England reports headed “secret”, “top secret”, which only came out into public record in 2009, in which they state quite clearly “whilst what we are concerned about is maintaining the integrity of the sterling and would like to crack down on some tax evaders, within Britain, we have no problem whatsoever with these tax havens being used by non-residents for any purpose what”… They didn’t see any need for them to crack down on these tax havens by non-residents.
BENGER: We’re dealing here with the enablers, the big four accounting firms?
CHRISTENSEN: I think this is possibly the biggest surprise to most people when they start looking at many of the tax havens. It is the largest banks in the world and the largest accounting firms — KPMG, Pricewaterhouse Coopers, Earnest and Young — these have been the agencies that have played the biggest part in developing the tax haven economy, alongside the very large law firms.
If you look at the law firms involved, and they like to call themselves the offshore magic circle, mirroring the magic circle of big law firms in the City of London.
The offshore magic circle actually boasts about the extent to which they have been able to influence legislation, and in many cases actually joined, they have become elected members of government in order to shape the tax haven policies to suit their clients.
The big drivers have been very large accounting firms. They have invested a huge amount of resource into shaping the tax law of tax havens and into creating the kind of permissive regulatory environments that suits themselves and their clients.
And I think the extent of the problem has reached the point where we can talk about many of the tax havens as being captive states. In other words, their political processes are entirely hostage to the interests of these very large transnational corporations.
With the big accounting firms playing an elite role in that capture, you have constantly revolving doors, not only at the elected level but at the official level with officials coming out of the accounting firms, into the tax departments and into the regulatory departments.
Ostensibly they are to provide expertise, but actually they’re there to shape this permissive environment on behalf of their clients.
But you see exactly the same symptoms in many of the world’s leading offshore financial centres, including London. But Cayman is a classic example, Guernsey is an example, Jersey is an example, Cyprus is perhaps the most stark example of the finance curse.
We found right across the political spectrum from the far left Communist Party through to the far right, (inaudible) parties, all of them captive and in some respects held hostage, not least because they’re financially dependent upon the big players in the finance industry.
BENGER: How do the firms compete and pitch?
CHRISTENSEN: Perhaps the most frightening part about the way in which the tax avoidance industry has grown in the last 40 years has been the emergence of tax factories, tax avoidance factories. These are literally large centres, desks filled with people who spend their time pouring over the tax codes looking for loop holes and actively going out there selling these because this is very, very profitable fee raising activity for the big accounting firms.
And recent parliamentary inquiries in the United Kingdom, which have been quite astonishing and very theatrical, have revealed how leading accounting firms, for example, have publically fessed up now to the fact that they have identified loop holes which they recognise had a 75 per cent chance of failing if they were taken to court.
But nonetheless, because the fees they could generate from selling these loop holes to their clients were so extraordinary, they went ahead and sold their clients tax avoidance products that they like to call these things – tax avoidance products — even though they recognised there was 75 per cent likelihood that if these products were challenged by the England Revenue, they would fail in front of the courts.
And what was amusing was that some of the other accounting firms sitting in the background stepped forward and said, “Well, we don’t see it that way at all, we’re not nearly that aggressive. We only went ahead and sold our tax avoidance products when we thought there was a 50 per cent chance that they would be challenged and fail before the courts.”
So this gives you some idea of the extraordinarily aggressive attitudes the big accounting firms, and the second tier accounting firms, have towards tax codes and the way in which capitalism has evolved in the direction of seeing this as quite legitimate for professionals with all the professional (inaudible) as they are recorded under our laws and the protections that are given for the professionals to spend their time attacking democracy.
Starbucks created a see-change that we’ve been looking for. We’ve had a few earlier big successes. The Uncut movement really took off in late 2010 and their initial focus was on the austerity program in the United Kingdom, and they targeted Vodafone, the big telephone giant and also TopShop, and there are good reasons for that.
But we’ll step back a little bit. Just a year earlier I’d had a series of
meetings with ministers in the last government in the UK and they were saying, “Look we understand the situation, John, but no one’s interested. No one is interested at all.”
And that was the problem. Tax Justice Network, which is an expert led network, we were a group of experts of lawyers and accountants and economists like myself, and, you know, no one was disputing our analysis but the politicians were saying, “The public’s not interested, John. When you get people on the streets demand, start shouting ‘what do we want? Automatic information exchange. When do we want it? Now’ — at that stage you might get some vertical purchase.
So I think they were as surprised as I was when just a few weeks later
activists took to the streets and started occupying headquarters, branch offices of-, sorry, headquarter offices of Vodafone and TopShop, and then more recently Starbucks.
Starbucks was the big game changer for a number of reasons, most of all because everyone had a Starbucks within easy walking distance, but also because the Starbucks’ case was so egregious. And they didn’t help themselves by saying, “Okay, well we recognise that there’s a bit of a problem so we’ll get out our chequebook and write 20 million and you can settle that.”
That actually aggravated the situation because the public saw for the first time a multinational company saying, “If we don’t pay taxes the normal way, we’re prepared to make a contribution even if our contribution is tiny compared to our tax liability.”
And this brought home to the public across the entire spectrum, that we have a really deep problem with taxing transnational corporations. They have become a law unto their own.
And from the more conservative end of the spectrum, this drove home the idea the rule of law no longer applies. We, if we can’t tax transnational companies, then we have a big problem.
BENGER: Margaret Hodge at the UK Committee made the COO’s squirm.
CHRISTENSEN: The real drama, as far as I’m concerned, is being played out at these committees of inquiries. The Public Accounts Committee has been extraordinarily good at doing this, is to expose the sheer mendacity of the transnational corporations who time and time again are saying, “We were acting within the law, we’ve done nothing wrong.”
This really doesn’t wash with the public because the public knows two things. First of all, they understand the golden rule, which is those how have the gold have made the rules and tax laws, in other words, have been precisely shaped by transnational corporations, lobbying for the last 40 years, and the current rules are entirely what they wanted to have right the way along.
So the public aren’t taken in by this kind of “don’t blame us, we’re the victims of the situation,” they are in fact the perpetrators of the system.
But the second thing that the public reacts very strongly against is when corporations claim, as many of these do — Google — do no evil. And Google’s hauled up in front of the Public Accounts Committee and the chair of that committee, Margaret Hodge says, “We look at your tax performance, it’s clear that you do evil. You are an evil company.”
And she said this very publically and it was lovely to see them squirming there because they’re saying, “Well, we abide by, we abide by the law absolutely. We’ve done nothing here illegal.” She said, “That’s not the point. Tax is not just about the letter of the law, there’s a spirit here. You cannot claim to be a good corporate citizen if you’re not prepared to pay tax in the very countries where you make your profit.”
BENGER: Cameron said tax avoidance was going to be the #1 issue. Here’s a man whose father was an architect of the offshore.
CHRISTENSEN: It is an extraordinary situation. I mean, if any British prime minister really wanted to lead the world in closing down tax havens, the British prime minister could lead from the front and close down all of the British (inaudible) territories. Cayman could be closed down tomorrow, Guernsey could be closed down tomorrow, Gibraltar, the whole damn shebang could be closed down instantly if the British prime minister is serious about this.
But Cameron faces, he certainly has a coherence problem. On the one hand he talks a language of tax competition, which is from an economist point of view complete nonsense. Tax competition is essentially economic warfare.
On the other hand he says he wants to lead, he wants the G8 to become the leading agency to tackle tax havens. He faces a big political problem and the problem is as follows. First of all, austerity hasn’t worked. It hasn’t worked in Britain, it hasn’t worked anywhere else in Europe, and it isn’t working in any other country.
It was an incoherent response to the banking crisis to begin with.
But secondly, we now have really deep structural problems across Europe and elsewhere. Public finances have collapsed in countries like Greece and it turned into a political crisis. The fascists are walking the streets of Europe as this economic crisis develops into a political crisis.
And the spectre of repeating the 1930s is becoming more grim by the day. We have unemployment rates, youth unemployment rate in Spain at 27 per cent, Greece it’s heading well into the 30s and we think those figures are massively understated.
And a bit like North America, it’s mid-2013, there’s talk about some signs of recovery but no signs of job creation. And this is deeply worrying, it’s worrying economists across the world.
Cameron has to do something. And it’s, he’s recognised that if we can’t restore public finances by, through austerity, and there’s no chance of that, he’ll have to change the tax regimes and he’s going to have to start taxing capital.
And that means he’s going to have to completely rewrite the rules of taxing corporations and he’s going to have to start tackling rampant tax evasion across the world. So he’s caught between a brick and a hard place and I don’t have any sympathy, but he certainly, he’s going to have to recognize that his current political program in Britain is not coherent with what he’s trying to get G8 to achieve.