On 25th April I joined a roundtable discussion with Christian Aid and local faith leaders at the Town Hall in Jersey. The event was  organised by Business Connect, an outreach work from the Town Church into the Business Community.  For the sake of brevity any interested readers can find a record of the discussion on the Business Connect Jersey website so I will just make a few brief observations here reinforcing why I find difficulty with the Christian Aid position as presented.

 The Christian Aid Campaigns Manager  laid out the vision and role of Christian Aid and their overriding concern to eradicate poverty. In this I am entirely supportive and sympathetic with Christian Aid's aims, as I am sure would be most reasonably minded people. In Jersey I believe we gifted over £8m last year to good causes  through the Jersey Overseas Aid Commission, and when last we did a quick straw poll amongst a sample of our industry members we found that just a small number of service providers had donated considerably in excess of this figure on behalf of their clients. So clearly NGOs and Aid organisations do not have a monopoly on concern for the poor, and in terms of poverty alleviation, we have a common purpose.

The representative went on to say she was not about attacking Jersey, but wanted us to stop offering secrecy vehicles to multi nationals, aiding and abetting them in defrauding developing countries of $160bn per year. Of course it is here I take issue with the representative, as the Christian Aid campaign rests on 'research' which is heavily influenced by the TJN stable, and linked tax  hobbyists.  This is not in my view, nor in the view of many international tax experts reliable information or credible research, but lobbying propaganda. Why do I say that? In the report 'Transfer Mispricing and Child Mortality" published by Richard Teather, a leading tax expert from Bournemouth University, the weaknesses in the 'research' are exposed. 

One simple example is that the trade data on which the Christian Aid position is based contains false transactions, such as the shipment of 66 million fridge freezers from China to Spain (four per family) in 2006 at a price of less than a euro each. This is patently ridiculous and self evidently a huge data recording error.  The inclusion of countries such as China, which clearly has no problem affording an effective tax collection system, given it is the 2nd most powerful economy on the planet, is also a significant distorting factor. Teather believes even based on the flawed methodology used, that the maximum estimate of transfer mispricing which can be deduced from this data is around  $7bn, material of course, for a small individual country, but spread over around 86 low and middle income countries, pretty inconsequential in terms of the impact it might have on tax collections and generating additional funds for poverty relief.

We are not the only people who have spotted significant weaknesses in this reporting methodology. In 'Tax evasion, tax avoidance and tax expenditures in developing countries: A review of the literature"; Clemens Fuest and Nadine Riedel of Oxford University Centre for Business Taxation, in a 2009 report prepared for the UK Government, came to this conclusion:  "Overall it is fair to conclude that most existing estimates of tax revenue losses in developing countries due to tax evasion and avoidance are not based on reliable methods and data. Moreover, it seems that too much emphasis is put on producing aggregate estimates of tax revenue losses for the developing world as a whole". 

So, the game appears to be to generate as big a number as possible even if it is based on dubious data and is in reality raw speculation. Why would these lobbying organisations do this? I think the answer is pretty clear; to get the attention of the politicians and the public, it has to be a big number. In the absence of a real figure, a super inflated guess will do very nicely. Campaign managers in aid organisations measure success based on publicity and how much they can get policy influencers to support the delivery of their agenda, bloggers and tax hobbyists need cash to fund their hobbyism. If they cannot create controversy, they will not be able to recruit donors to fund the cause, they are in effect out of work, and make no mistake a number make a living out of generating this propaganda. The drive for fame and funding necessarily means they cannot acknowledge the shortcomings in their 'research', which is in reality pure speculation.

Having produced a big number to get attention, the lobbyists then point at places like Jersey with the presumption that we are the destination for the proceeds of this phantom mispricing activity.  As long as a multi national has operations in a developing country and Jersey, so the story goes, there must be complicity in defrauding developing countries. The fact that there is no actual evidence to support any connection with transfer mispricing is quietly discounted. It might be interesting if Christian Aid were to run this one by the Chinese Government and the Chinese companies who have used Jersey as a gateway to European investment and to support repatriation of capital flows back to China, helping the globalisation drive which has lifted countless millions out of grinding proverty, not through aid but through trade. I suspect they will get short shrift.  Still, no matter there isn't a scrap of evidence to support the contention, the cry of secrecy, secrecy, dismantle your secrecy, and the call for discriminatory action goes on.

There are though just one or two inconvenient facts for Christian Aid and the tax hobbyists  on this secrecy position.  The IMF, FATF, OECD, and the World Bank have all endorsed Jersey's track record in fighting financial crime, which includes tax fraud, and the fact that we don't have banking secrecy laws is not mentioned in their campaigns. Not really surprising I suppose given that a sizeable chunk of their secrecy index is in fact the invention of its authors, and measures compliance with their wish list, as opposed to globally accepted international standards.

 We held a developing countries capacity building conference here a couple of years back, and the audience, drawn from around 30 mainly small developing countries responded with incomprehension and incredulity when the then Christian Aid chief lectured all concerned on the need for  more effective tax collections, automatic information exchange and the end of 'financial secrecy'. The attendees made it very clear they had much bigger problems than  theoretical speculation about the efficiency of tax collections based on transfer mispricing. Problems such as few years passing  without the outbreak of civil war, embezzlement, ineffective courts, the inability to enforce contracts, bribery and corruption, physical intimidation. All the reasons in fact why Africa in particular has not seen any lasting improvement in poverty levels despite a trillion dollars in aid  being poured in over the last decades. The problem is that  for all their hugely valuable life saving disaster relief work, in the long run, aid organisations are perpetuating a state of dependency, with a great deal of the aid they supply just disappearing and ending up in the pockets of the corrupt.

The only sustainable way out of the poverty trap is through capacity building in these countries, ensuring stable political systems, democratic reform, the rule of law, respect for the enforcement of contracts,  independent judiciaries, functioning debt and equity markets, and yes, effective domestic tax systems. Aid organisations present in developing countries for decades must share in the responsibility for the lack of progress on this more fundamental sustainability agenda, rather than seeking to deflect attention by focusing their lobbying efforts on multi nationals who bring significant employment and wealth creation opportunity w