Tax evasion contention doesn't stack up

A Guardian article dated 7 th May references academic research published in January which promotes the view that centres like Jersey are major sources of tax evasion. The article appears to have been published in advance of a visit to Jersey this week by the Guardian journalist, Simon Bowers.

 A Guardian article dated 7 th May references  academic research published in January which promotes the view that centres like Jersey are major sources of tax evasion. The article appears to have been published in advance of a visit to Jersey this week by the Guardian  journalist, Simon Bowers.  Details of the article can be found via the following link.

Now this is usual fare for the Guardian, a left leaning paper which favours the views of high tax and spend lobbyists. Given this starting point I looked into the new 'research' which can be found here.

Firstly when evaluating what is positioned  as research I am always keen to look into the authors and their motivations and whether we are actually looking at credible research which does not have  a starting bias or in fact is an  opinion piece. The authors of this particular paper appear to be a student researcher and an economics PHD, so not Heads of Faculty or even Professors.   The Guardian refers to them as academics, strictly speaking true, but transparent, not especially. A little further digging reveals that one of the authors is working at Copenhagen University,  where the business school is occasionally host to the tax lobbyist crowd.   So, arguably there could be a lack of objectivity at the starting gate.

The  thrust of the paper is  that the G20 call for action on banking secrecy has not been followed through and that Tax Information Exchange Agreements ( TIEAs) lead to a shifting of deposits from more transparent jurisdictions to the less transparent.  Jersey is cited as having 18 agreements and suffering a fall of circa 60% in its  deposit base as a consequence. Now this is really interesting in that the theory posited is that Jersey as a more transparent jurisdiction has lost funds. Interesting in that the Financial Secrecy Index promoted by the tax lobbyist network, whose authors are cited in this paper,  ranks Jersey as highly secretive, in fact the 7th most secretive jurisdiction in the world. Surely this blows at least one of their theories out of the water, as if secrecy were truly that embedded in Jersey, according to the authors of this latest paper, capital flight would not occur. In contrast to the tax lobbyist work  the authors of the paper referenced in the Guardian, argue deposits have left Jersey due to better transparency. They can't both be right.

The reality is that for all the talk of 'baseline specifications' and 'regression' economic s speak, this study is 'noddyesque' in its fundamental assumptions ascribing all of the movements in deposits in IFCs in the aftermath of the financial crisis to purely tax information exchange. No reference to the Icelandic banking crisis and its impact in Europe, banking stability issues, bank consolidations, the effect of greater regulation and costs such as banking levies, affecting upstreamed deposits for European jursidictions. What the authors  demonstrate is is a lack of understanding as to how different centres work, and their rationalisation of differences in deposit flows is far too simplistic.

Another major factor not even considered in the paper is whether jurisdictions have all crimes legislation whereby tax evasion is a predicate crime for money laundering. Jersey does and is unusual in doing so, leading to around  1700 suspicious transaction reports being filed each year including on tax fraud. A means of investigation and reporting which mostly doesn't touch the tax information exchange process.

The conclusions of this study are for me much too simplistic and misleading. The assumption that the majority of deposits in centres such as Jersey are the proceeds of tax evasion is just raw speculation, with no meaningful evidence proferred to support this view. A study by Professor Jason Sharman of Griffith University, Australia, conducted in conjunction with the recent publication of his new book  The Money Laundry', indicates that the most common vehicle for individuals to launder the proceeds of crime including tax evasion, is the anonymous shell company and or bearer shares. The former has been proven to be much more difficult to open in centres like Jersey than in the US, UK or France and the latter is banned in Jersey, but not in many other countries.

Quite how the researchers have arrived at a near 60% fall in Jersey deposits is also rather baffling. The quarterly statistics issued by the Jersey Financial  Services Commission record a fall in deposits from a peak of £209bn in 2008 to £158bn at the end of 2011, broadly the period covered by the report. This looks to me to be much nearer a 25% move, largely as a result of savers pulling back deposits to home countries to take advantage of depositor protection schemes and more recently due to a non availability of credit. The introduction of depositor protection in Jersey stemmed this flow and more recently fluctuations have been much more modest. In addition as confidence has gradually returned there has been a move from cash deposits into investments, for example over the last two years to the end 2011, the funds administered in Jersey have grown by over £20bn, offsetting to a large degree the lower deposit figures.

Jersey didn't have to react to the April 2009 G20 by way of rushing to enter into Tax Information Exchange Agreements (TIEAs) as it had voluntarily entered the OECD programme in the late 90's and concluded its first agreement with the USA in 2002. Today Jersey has signed 28 TIEAs and 5 DTAs, and is actively pursuing more agreements. TIEAs by and large do not trigger a flood of requests for information as their very existence is sufficient to get most tax evaders to dislcose fully on a voluntary basis, and certainly our experience through the Global Peer Review Forum is that this programme is working, and is increasingly effective.






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