© Jeffrey Robinson 2013


For the past few weeks, leading up to this week’s G8 meeting in Belfast, there has been a lot of talk about offshore tax havens and how to stop them from playing a role in tax avoidance, tax evasion, capital flight, money laundering and terror financing.

It began with the International Consortium of Investigative Journalists (ICIJ) and the release of their eBook, “Secrecy for Sale.”

Nothing short of spectacular, 86 journalists working in 46 countries spent more than a year digging through 2.5 million files to uncover the offshore financial secrets of politicians, power brokers, business leaders, government officials and celebrities, among others, from over 170 different countries.

Essential reading for anyone interested in the sorry state of the world today, it is available in PDF form here:

As a stand-alone, the eBook is an unprecedented success for investigative journalism. But then the ICIJ, brilliantly led by Gerard Ryle, outdid themselves by opening their database on offshore shell companies to the world to see. Transparency lives despite politicians, and here it is:

British Prime Minister David Cameron pledged to put the subject of transparency high on the discussion list at the G8 and, he says, to make something happen.

His office even announced that he had “secured” a deal with Britain’s overseas territories to back a tax clampdown. At first glance, it appears he’s won a big battle. In reality, it turns out to be one of those promises to promise.

Over the weekend, four former Home Secretaries jumped onto this bandwagon, declaring that terrorists are using tax havens to fund violent hate campaigns in the UK and that “warlords” were channeling cash through offshore accounts. In an open letter to The Sun newspaper, they wrote, “Anonymous shell companies, mostly based in tax havens, have consistently obstructed our efforts to tackle money laundering and disrupt terrorist financing.”

What’s so astonishing about this is their total ignorance about the offshore world and how it functions in relation to terror financing.

To begin with, one third of the money funding terrorist activities comes from individuals and charities which, in most cases, doesn’t need to be laundered offshore. The remaining two-thirds derives from criminal activities designed to raise cash, which doesn’t have to be laundered anywhere.

Unlike drug trafficking, which relies on street cash (dirty money) being turned into blips on a computer screen and legitimate looking assets (clean money), terrorism is a business that depends on cash.

The idea of terrorists laundering billions through the offshore world is fantasy.

In the wake of 9/11, the then Chancellor Gordon Brown announced that the British government had frozen dozens of bank accounts containing in excess of $100 million in terrorist funds. Included in that figure were accounts on shore and in the Channel Islands. It made for a great sound bite.

I responded the next day on BBC Radio 4’s Today Programme by saying that Mr. Brown didn’t know what he was talking about because terrorism doesn’t cost anything and laundering money in not part of their game plan.

Since then, I have never found any prosecutions related to those frozen accounts, and understand that all of them have since been unfrozen.

The costs related to terrorism are minimal. The biggest expenses come with living the life of a terrorist while planning the attack. That includes motels, rental cars, cell phones, food and hookers. Explosives are usually stolen (the airplanes in 9/11) or homemade (the bombs in Paris, Madrid and London). More often than not, the money they use to pay for their planning stage lifestyle comes from check fraud, credit card fraud and welfare fraud. In the case of the Millennium Plotters (looking to blow up Los Angeles Airport on January 1, 2000) it also came from the theft of laptops as passengers went through security at Montreal’s Dorval Airport.

It’s petty crime that finances most terrorism, not money laundering and the offshore world.

The Groupe Islamic Armee (GIA), an Algerian organization that helps fund terrorist activities with stolen checks and debit cards, sends out teams across Britain to buy electronic items in chain stores that specifically refund all purchases under £100 with cash. They buy in one branch and return items to another. It is believed that as many as 100 GIA cells are currently operating in the UK. The cash they earn never sees a Caribbean palm tree. It leaves the country in their pockets.

Yes, the training camps cost money. But, typically, charitable contributions account for that. Whether it’s wealthy Middle Easterners or coins collected in Masques on Friday, contributions can be made directly to the cause. There are even terror group websites that accept credit cards.

Yes, again, some money goes through the offshore world. But those sums seem relatively negligible. So a crack down on the offshore havens as a way of fighting terrorism is mostly a red herring. The real crackdown must begin at home, fighting terror related petty crime.

Now, I totally agree that anonymous offshore shell companies — and, in particular, bearer share companies — serve no legitimate purpose, whatsoever. But this is where criminals wash funds and tax avoiders/evaders cheat governments. The way you eliminate them is not by “invading” the sovereignty of Antigua, the Bahamas, Turks and Caicos or the Caymans. And certainly not justifying your cause on the grounds of stopping terrorists. Instead, it is by outlawing the use of these techniques at home.

In other words, Mr. Cameron doesn’t need the G8 for anything.

All he, or Mr. Obama, or Mr. Hollande, or Mrs. Merkel have to do is a little two-step.

First,  they need to pass laws in Parliament and Congress that outlaw offshore tax avoidance/evasion strategies. In other words, close the idiotic loopholes.

If major world class companies evade taxes offshore, that’s illegal and people need to go to prison. If they simply avoid taxes offshore, that’s not the fault of the offshore world, it’s thanks entirely to their accountants and legislators who have gamed the system in their favor.

Currently, more than one-third of the member states in the United Nations offer shell companies for sale, allowing anyone to operate with near-invisibility behind nominee directors, and to use shell companies to open, manage and benefit from financial accounts that are equally opaque. What’s more, you don’t have to go offshore to be offshore, you find this nonsense in Delaware and Nevada.

Second, they need to recognize the legitimacy of an offshore world and encourage it’s development along acceptable lines.

In return for the two-step, the havens need to renounce the dark arts of money laundering and anonymity, and seek out legitimate offshore business.

With the material support and encouragement of the G8, the G20 and others, the offshore havens need to reinvent themselves.

I first put forth my “Ultimate White List” in April 2013 to a major financial crimes gathering in Antigua. I present it again, here, as a serious step towards a long term solution.

To obtain “White Listed” status, recognized by the G8, the G20 and others, an offshore jurisdiction must proclaim:

1 – We are a sovereign state of absolute transparency. That means, we accept the fact that there is no legitimate argument whatsoever in favor of anonymity.

2 – We do not sell bearer shares. All anonymous shell companies, trusts and IBCs are immediately invalid. Former holders will have to reapply to own the new form of IBC.

3 – The new, fully transparent IBC provides that beneficial owners must have a stake in the island. Among other things, beneficial owners employ a local company formation agent, a local lawyer, locally accredited accountants, local nominee directors and have a local office. No companies in the jurisdiction have been or can be formed by foreign company formation agents, nor are foreign based nominee directors permitted. Furthermore, all of these new IBCs have a banking relationship on the island, and meet fair but serious capital requirements. Only Class A (onshore) and Class B (offshore) banks are permitted and in both cases, the treasury is physically present on the island.

4 – No licenses are granted for online gambling. Sports betting, with reputable firms, is considered on an ad hoc basis but, then, only as long as their servers are on the island. These companies have also hired local directors for oversight and meet fair but serious capital requirements.

5 – Local directors are held responsible for failing to take sufficient steps to prevent money laundering, fraud, mis-invoicing, and/or other crimes. We demand strict requirements for enhanced due diligence and violators are subject to prosecution.

6 – Inquiries by competent law enforcement or judicial authorities are answered and fully met.

7 – We maintain an active and up to date database of beneficial owners. There is a second, active and up to date database of shareholders. Both databases are publicly available. That’s because we believe that corporations and corporate rights and privileges are granted by the state. It is only right and proper that the public knows to whom the state has, in their name, given those rights and privileges.

8 – All locally licensed entities file reports, similar to SEC form 8K, to announce major events that regulators should know about. Failure to do will result in an immediate revocation of the company’s license.

9 – No activities, even subsidiary activities, take place in FATF and/or CFATF blacklisted jurisdictions.

10 – Subsequent to a court order, assets of companies suspected of illegal activities are frozen. In the event of conviction, all assets are confiscated and civil proceedings begin immediately to assess damages.

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