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Join Our Mailing List. Drawing on his time running businesses in Nigeria in the s and s, and his subsequent research into money laundering as a guest scholar at the Brookings Institution, Baker dispels any notion that offshore corporate lawlessness began with Enron, WorldCom and Parmalat. Things may have got worse since the s, but Baker compellingly demonstrates the extent to which international trade and investment patterns have been constructed around elaborate tax evasion schemes in use since colonial times.

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With at least half of all world trade now being conducted on paper via tax havens, the opportunities for fraud and skulduggery are immense. The ability of multinational businesses to structure their trade and investment flows through tax-haven subsidiaries provides them with a massive financial advantage over nationally based competitors.

Local firms, regardless of whether they are technically more efficient or more innovative, find themselves competing on an uneven basis. In practice this market distortion favours the large business over the small, the international business over the national, and the long-established business over the start-up. Fundamentalist advocates of a no-holds-barred approach to free trade have persistently turned a blind eye to this problem.


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For those like Baker — and myself — who believe that free and fair trade can generate viable economic growth and spread its benefits across society, the blatant unwillingness of key players like the IMF, the World Bank and the UK government to tackle these global market failures says a lot about their real intentions. Having suffered decades of venal dictatorship, Nigeria is a world-beater when it comes to dodgy financial practices.

Some of these aiders and abetters came from Jersey. They would have been aware of the source of the funds and must have profited magnificently from handling this stolen property. Rules are rules, but rules are meant to be broken. Much of the growth of the offshore economy has been driven by British lawyers and accountants. As early as the s, they pioneered the use of trusts, shell companies, transfer mispricing, re-invoicing, dummy wire transfers — which give the impression a company is operating out of a tax haven rather than its actual location — and special purpose vehicles.

Dodging tax was the prime motive, but inevitably, as Baker explains, laundering narco-dollars and paying off corrupt officials involve the same processes as tax evasion.


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In most countries of the South, there is general public resentment that the proceeds from national resources have been expropriated and exported wholesale to Western bank accounts. The corrosive outcome of poor education, failing infrastructure and entrenched unemployment is widespread discontent and an increase in poverty and crime. Terrorism feeds off crime and poverty. It is the middle link in this chain — crime — that unites poverty and terrorism, a linkage that needs to be well understood.

With no concern for justice and equity, fundamentalist utilitarian theories have been deployed to justify expropriation and lawlessness in the name of efficiency and freedom. Nowhere does he mention the Financial Services and Markets Act of , or the legislation dealing with money laundering, or the position of the UK regulator the Financial Services Authority or, for that matter, the financial regulatory authorities of Jersey.

He may not be aware that all staff of the FSA have to undertake rigorous tests in anti-money-laundering legislation.

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Christensen includes not one precise piece of evidence of wrongdoing by the Jersey or the UK government authorities. If he means that the proceeds of crime are being passed through a network of offshore accounts, then that is money laundering and it is a criminal activity. Or does he mean money gained by means he disapproves of but which is processed according to legitimate methods of tax avoidance? He seems to confuse avoidance with evasion. There are far more foreign banks in the City than UK banks. Christensen also neglects to mention the Financial Action Task Force FATF , an inter-governmental body whose purpose is to develop and promote national and international policies to combat money laundering and terrorist financing.

The reality is quite different. Criminals are skilful, and technologically adept. There is nothing necessarily illegal or suspicious about these things, when used legitimately. The process is subject to rigorous auditing, and is scrutinised by the FSA whenever a supervised firm is involved it nearly always is, as banks are required to undertake the work.

It is usually a matter of convenience, not secrecy. Indeed, when served with the appropriate notice by the authorities, the nominee company must divulge the name and address of the beneficial owner. Of course we would all like there to be less corruption, and fewer opportunities to promote it. But Christensen does his cause no good by using the language of accusation without substantiating his argument. Where does he get his figures from? Whose calculations are they? If he knows of individuals or bodies that have broken the law — principally the Money Laundering Regulations or the FSMA — he should report it to the authorities.

John Christensen reviews ‘Capitalism’s Achilles Heel’ by Raymond Baker · LRB 6 October

Indeed, in the case of money laundering, the regulations require him to do so. Alex Smith ignores my key point on offshore finance, which is that for all the efforts of the Financial Action Task Force and others, the flow of dirty money continues to increase, and that this increase is facilitated by tax havens, half of which are linked to Britain Letters, 20 October.

Dirty money is money that is obtained, transferred or used illegally. It is useful to distinguish between proceeds from crime, proceeds from corruption, and proceeds from illicit commercial activities transfer mis-pricing, reinvoicing and similar profit-laundering transactions.

The IMF and the US and UK governments have pursued financial deregulation policies for ideological reasons, without paying sufficient attention to the problem of dirty money, and the situation has deteriorated markedly. The Dark Side of the Global Economy. The far from clear cut distinction between tax evasion and tax avoidance is considered in our guide to tax justice, downloadable from www. Log In Register for Online Access.