UBS whistle-blower hunts trillions hidden in treasure islands

  • Business
  • Saturday, 27 Jul 2019

UBS on Tuesday beat forecasts with a $1.4 billion net profit for its second quarter of 2019.

JOHN Christensen called Jersey home. A native of the scenic isle off England’s southern coast, he was a government economist with a hillside villa that had views of France.

“I was set,” Christensen said last month in an interview at a London cafe. “We had a pretty good lifestyle and plenty of friends.”

That ended two decades ago when he spoke out on a fraudulent currency-trading scheme involving a Jersey subsidiary of UBS Group AG, resulting in him relocating to London. Christensen, 63, has spent most of his time since fighting governments and campaigning against financial secrecy, including in Jersey.

Representatives for the Zurich-based bank and Jersey’s government declined to comment.

In 2003, Christensen co-founded the Tax Justice Network, an independent advocacy group that pushes for greater regulation of tax havens. No one knows for sure how much money is stashed offshore, but economists estimate it’s US$5 trillion to US$32 trillion, or more than a third of the entire global domestic product. Christensen puts the figure toward the top end of that range.

“We’ve won many of the intellectual and political arguments,” he said. “And yet we’re not seeing it happen in practice. Look at where we are now. Rates of tax on capital have collapsed, inequality has gone through the roof and we’re now in a very dark place for democracy generally.”

Wealthy individuals often have legitimate reasons for using offshore financial centres. US hedge funds and other money managers pool assets into Cayman Islands master funds to reduce financial and administrative costs. Offshore havens also can offer protection against unstable political regimes in investors’ home countries. On the flip side, their lack of transparency has made these places a destination for kleptocrats, drug traffickers and money launderers to stash ill-gotten gains.

Cat-and-mouse game

Bolstered by public outrage after leaks of confidential documents from offshore law firms including Panama’s Mossack Fonseca, governments are increasingly pressuring offshore tax havens to reveal previously sacrosanct details. But that’s also triggering a cat-and-mouse game. As regulators home in on long-established locations, the tax-averse rich are now seeking out mainland arrangements, with Hong Kong, London and the US among the beneficiaries.

“Capital has moved literally lock, stock and barrel beyond the ability of nation-states to regulate tax,” said Christensen, who compares the situation to a soccer match. “If you don’t have a good referee in a football game, neither team is any good and it becomes a free-for-all and everything deteriorates.”

Russia, along with Gulf countries and much of Latin America, lead the way in how much of their citizens’ money is stashed overseas. The equivalent of 60% of Russian GDP is held offshore, compared with about 15% in Continental Europe and only a few percent in Scandinavian countries, according to Gabriel Zucman, an economics professor at the University of California at Berkeley.

Russians are increasingly abandoning one of their favourite destinations: the British Virgin Islands (BVIs), according to Moscow-based lawyers Sergei Alimirzoev and Mikhail Zimyanin. Increased financial transparency between governments and tighter local tax laws on overseas companies mean rich Russians can no longer anonymously accumulate tax-free funds in the territory, said the attorneys, who help set up offshore accounts for clients. Legislation adopted this year in the BVIs and other tax havens also requires companies registered locally to show real economic activity – including hiring employees and renting offices – or face fines.

To help abolish offshore secrecy, Christensen and the Tax Justice Network are campaigning for public registers of company owners. And there are early signs of success. The UK’s overseas territories and crown dependencies, from Jersey to the BVIs, are set to introduce such legislation by the end of 2023.

But change isn’t coming fast enough for Christensen.

“It took the allied powers six months to plan and successfully carry out the D-Day landings,” he said last month after Jersey, Guernsey and the Isle of Man announced the same time frame on public registers as the UK’s overseas territories. “It took Thomas Edison two years to create the light bulb.”

Tea and cake

Christensen had a head of dark hair when he helped to expose the Jersey currency scheme, which resulted in UBS’ Jersey unit and accounting firm Touche Ross & Co – now Deloitte – paying almost US$40mil to settle lawsuits. Regular bike rides keep Christensen as trim as two decades ago, but his hair has turned pearl white.

The Tax Justice Network traces its origins to three Jersey natives visiting Christensen in 2002. Over tea and cake, the trio expressed concern over the growing grip of the financial industry on Jersey’s economy. The advocacy group was officially founded a year later, with some initial funding from cake and yard sales.

By writing reports, posing questions at conferences and working with non-profit groups, the network eventually caught the attention of policymakers. Two ideas that Christensen and his colleagues championed from the start – country-by-country breakdowns of multinational firms’ finances and improved exchanges of tax data between nations – helped shape global tax reforms this decade by the Organisation for Economic Cooperation and Development (OECD).

“Their campaigning work is grounded in good analysis and proper facts,” said Labour Party lawmaker Margaret Hodge, who grilled executives from Google, Starbucks Corp and Inc seven years ago over UK tax matters. “Without them, I wouldn’t have achieved as much as I’ve been able to do in Parliament.”

Two years ago, the OECD introduced its tax-disclosure system – known as the Common Reporting Standard – with tropical locations including the Cayman Islands and British Virgin Islands among early adopters. Both territories have avoided the European Union’s blacklist of alleged tax havens, which now singles out 15 jurisdictions – including Bermuda and the US Virgin Islands, where disgraced financier Jeffrey Epstein has a private island.

Rather than signing on to the measure, the US opted to stick with its Foreign Account Tax Compliance Act, or FATCA. The rule requires foreign banks to scour client lists and report anyone who could be a US citizen, or face being barred from operating in the country. — Bloomberg

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whistle-blower , UBS Group AG , secrecy


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