Wednesday, July 29, 2015

Funny money in London – Perfidious Albion makes another hypocritical statement.

Is it too much to surmise that David Cameron is reading these blogs of mine?

Only a day after publishing my last blog dealing with H.M.Treasury’s delight in accepting a significant chunk of the dirty money being laundered through London, David Cameron was on his feet, making a policy statement about criminal money in London.

Speaking at a press briefing in Singapore, the prime minister vowed to expose the use of "anonymous shell companies" to buy luxury UK properties - often in London.

Corruption, he added, was "a cancer which is at the heart of so many of the world's problems" and must be tackled.

"But I want to ensure that all this money is clean money. There is no place for dirty money in Britain. 

"Indeed, there should be no place for dirty money anywhere. That's my message to foreign fraudsters: London is not a place to stash your dodgy cash." 

The Prime Minister indicated that he would put fresh pressure on Britain's offshore tax havens to increase transparency around company ownership. 

"To really tackle corruption effectively, we need to be able to trace data from one country to another. We don't want criminals to be able to go unnoticed, just because they move money across borders or have assets in different countries. 

"The torchlight should be able to follow them. If we are to win, we must make sure that there is nowhere to hide. 

"Corruption is one of the greatest enemies of progress in our time." 

Mr Cameron said the global Anti-Corruption Summit in London next year will be a meeting where "the whole world can work together to strengthen all the tools we have to take on corruption". 

Now, these statements have all the ring of strong leadership, which is after all what they are expected to achieve but the question we are entitled to ask is whether Cameron is just being naive and he genuinely doesn’t know how much or what kind of criminal money is flowing through London; or is he engaging in that classic British public utterance stance, and demonstrating a huge degree of perfidious hypocrisy?

We already have well-defined procedures and processes which those who handle the proceeds of foreign capital are supposed to undertake in order to prevent the likelihood of foreign corrupt money from finding a safe haven in London. These procedures are well documented and exist specifically to facilitate the ability to ‘follow the money’. 

The major problem is that none of these actors, the lawyers, the estate agents, the intermediaries do anything more than pay a degree of superficial lip-service to these regulatory requirements. They know that too great a degree of incisive questioning will result in the client taking his business to another firm who will ask fewer questions.

The intermediaries are among the most egregious of all the agencies which are required to provide a strong level of compliance with anti-money laundering laws, and in so many, many cases, the rules and the regulations are routinely ignored.

The reason I am stressing these points is that I want to try and put some realistic shape into the true picture of world-wide funny money.

Cameron does what others of his class and type do – he refers to ‘foreign fraudsters’, while never once referring to dirty British intermediaries, middle men, lawyers, accountants and financiers, who are more responsible for facilitating the transmission of secret money.

The political class has to have a demonstrable villain to be able to blame for the creation of criminal proceeds, hence Cameron talks so glibly about ‘fraudsters’. He feels more comfortable having an identifiable ‘Mr Big’ to blame.

What he manifestly fails to realise is that the vast majority of the world’s fleeing cash, secret capital, funny money, is not necessarily the proceeds of identifiable traditional criminal conduct, but is usually comprised of capital flight and tax evasion.

This money is less-obviously identifiable as a criminal proceed, but once it becomes evaded taxation, it is criminal, and is interdictable in the same way as drug money of the proceeds of a robbery.

Most tax evasion is facilitated through a corrupt relationship, it is the proceeds of a corrupt transaction, and is as dirty as any other kind of funny money.

The world's super-rich have taken advantage of lax tax rules to siphon off at least $21 trillion, and possibly as much as $32tn, from their home countries and hide it abroad – a sum larger than the entire American economy.

James Henry, a former chief economist at consultancy McKinsey and an expert on tax havens, has conducted groundbreaking new research for the Tax Justice Network campaign group – sifting through data from the Bank for International Settlements (BIS), the International Monetary Fund (IMF) and private sector analysts to construct an alarming picture that shows capital flooding out of countries across the world and disappearing into the cracks in the financial system.

Despite the professed determination of the G20 group of leading economies to tackle tax secrecy, investors in scores of countries – including the US and the UK – are still able to hide some or all of their assets from the taxman.

"This offshore economy is large enough to have a major impact on estimates of inequality of wealth and income; on estimates of national income and debt ratios; and – most importantly – to have very significant negative impacts on the domestic tax bases of 'source' countries," Henry says.

Using the BIS's measure of "offshore deposits" – cash held outside the depositor's home country – and scaling it up according to the proportion of their portfolio large investors usually hold in cash, he estimates that between $21tn (£13tn) and $32tn (£20tn) in financial assets has been hidden from the world's tax authorities.

"These estimates reveal a staggering failure," says John Christensen of the Tax Justice Network. "Inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people.

When we start to consider this kind of wealth, and more importantly, what it can buy, it makes Cameron’s rather childish interpretations pale into insignificance.

Part of the problem is that the City of London has always traditionally looked upon other people’s funny money as being somehow fair game to be applied for investment purposes.

The players in this game have hidden behind a series of tax fictions for many years, but the introduction of a concept of ‘all crimes money laundering’ immediately put paid to any sense that tax was not included in the list of proceeds that could be laundered.

Tax evasion or tax fraud is a crime, and the proceeds are just as criminal as any other wrongdoing.

So when some Russian oligarch or Chinese businessman seeks to use his secret slush fund to buy property in London, those who have the duty to facilitate the transaction, the lawyers, accountants, estate agents, etc, also have a legal duty to ensure that this money is not of an illegal provenance.

They are required to undertake specific investigations demonstrating that they truly ‘know their customer’. They have to do this to ensure that the client is not a PEP or a politically exposed person, because that requires further and enhanced due diligence to be undertaken before any financial transaction can be undertaken.

They are also required to demonstrate that they know where the money has come from. Now, in many cases, the money is transferred from some offshore tax secrecy jurisdiction, and the intermediary is still required to demonstrate that they know who is the beneficial owner of the funds before the transaction can be undertaken.

That is why a lot of single purpose uk companies are being formed, merely for the purpose of facilitating the money flow. You see, in order for the transaction to go through smoothly, in many cases purchase money will be lodged in the solicitor’s client account. As  long as the money itself comes from a British bank account to lodge in the solicitor’s client account, it is unlikely that too many questions will be asked. That is why in so many cases, a UK company will be formed, with a bank account, merely for the purpose of receiving one specific transaction. The money will flow from the tax haven, into the UK account and straight onwards to the lawyer’s segregated client account.

In total, 10 million individuals around the world hold assets offshore, according to Henry's analysis; but almost half of the minimum estimate of $21tn – $9.8tn – is owned by just 92,000 people. And that does not include the non-financial assets – art, yachts, mansions in Kensington – that many of the world's movers and shakers like to use as homes for their immense riches.

"If we could figure out how to tax all this offshore wealth without killing the proverbial golden goose, or at least entice its owners to reinvest it back home, this sector of the global underground is easily large enough to make a significant contribution to tax justice, investment and paying the costs of global problems like climate change," Henry says.

He corroborates his findings by using national accounts to assemble estimates of the cumulative capital flight from more than 130 low- to middle-income countries over almost 40 years, and the returns their wealthy owners are likely to have made from them.

The sheer scale of the hidden assets held by the super-rich also suggests that standard measures of inequality, which tend to rely on surveys of household income or wealth in individual countries, radically underestimate the true gap between rich and poor.

In fact, some experts believe the amount of assets being held offshore is so large that accounting for it fully would radically alter the balance of financial power between countries.

The French economist Thomas Piketty, an expert on inequality who helps compile the World Top Incomes Database, says research by his colleagues has shown that "the wealth held in tax havens is probably sufficiently substantial to turn Europe into a very large net creditor with respect to the rest of the world."

Whatever the source of the money, drugs, fraud, extortion, corruption, people trafficking or tax evasion, it all finds its way to and through the City of London at some point in its journey.

This is because London sits at the epicentre of the world’s financial freeways, it is the leading point where the upperworld and the offshore economy meet, and it provides the UK with a massive secret and hidden income stream, which those making the money by facilkitating the world’s super-rich, are going to be loathe to give up.

David Cameron can talk up the need to crack down on corruption and money laundering, but his message is falling on deaf ears. The National Crimes Authority may be well aware of the statistics and the measure of the wrongdoing being perpetrated, but they are just talking still, no-one has been arrested for this money laundering. The banks don’t want to discuss it, why give up a good thing?

London will continue to be the money launderer to every crook in creation, and no-one wants to do anything about it, no matter what David Cameron may say!


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