In the 1920s, an embryonic tax collecting organisation was steadily growing in the US. The Internal Revenue Service (IRS) was an agency ignored by the majority of Americans. However, the tide turned in 1931 when the IRS secured the conviction of Chicago gangster Al Capone for tax evasion. Capone’s trial and subsequent 11 year jail sentence acted as free publicity for the agency. Both the public and corporations began to fear the American Tax Man.
The IRS used their fearsome reputation to target other high profile alleged tax delinquents including Andrew Mellon, heir to an aluminium fortune, banker, and Treasury Secretary under President Hoover. This culminated in tax cheats, (including bankers and gangsters) posting and hand delivering tax returns with cheques to Internal Revenue offices all over the country. This fear, therefore, had a silver lining since the collected revenues first helped push America out of its Great Depression and built and rebuilt the industrial and financial infrastructures of the modern American state.
Fast forward several decades and by the 1970s the IRS had retreated from effective criminal law enforcement. Capone’s gangster successors and Mellon’s corporate cronies had learned how to manage their profits in ways that avoided or evaded the tax revenue agents not only in the US but also those in the UK and beyond. In fact, it could easily be asserted by any reasonable person that crony capitalism was flourishing by the 1980s, particularly in relation to the UK and its British Crown Dependencies and Overseas Territories. By the end of the 1980s tax evasion was on an industrial scale, made easy by the favourable bank secrecy laws and customs that characterised financial secrecy havens.
Criminal money management was, and continues to be, enabled by the UK and its financial secrecy havens. Taxes can be evaded with greater ease than ever before. The internet hosts a plethora of ‘creative tax planning’ companies and ‘wealth management’ businesses, who offer their expensive services to criminal individuals and groups intent on hiding their ill-gotten gains. Thanks to the immediate accessibility of the world wide web, it is not difficult to locate any one of a huge number of willing and industrious intermediaries who with their combined accounting, legal and banking skills, facilitate criminal money management in the UK’s territories and dependencies.
Despite repeated calls by advocacy groups and bodies such as the Tax Justice Network, to address the ongoing issue of tax evasion (a criminal act) in the UK’s financial secrecy havens, the UK shows scant interest in combatting secrecy havens that make tax evasion simple. Strengthening the authors’ assertion that crony capitalism is embedded in the UK’s political and corporate establishments, the renowned economist Joseph Stiglitz noted in an interview that it was the overriding interest of the moneyed “to allow secrecy and evasion to occur”. The authors of this blog have also called for large scale tax evasion to be recognised as organised crime – most notably in Written Evidence delivered to the Parliamentary Joint Committee on the National Security Strategy.
However, there has been little movement on the part of the UK Government to acknowledge and end the crimes taking place in its numerous financial secrecy havens. To help disguise the absurdity of this situation, the UK Government, represented by Theresa May as Home Secretary since 2010 and currently as Prime Minister, regularly produces lists of security threats the UK faces from organised crime; including fraud, identity crime and money laundering, all of which are facets closely associated with tax evasion.
The mechanisms to evade taxes such as the creation of multiple subsidiary companies held offshore and the use offshore bank accounts, are also utilised by money launderers. Yet there remains a curious absence of the explicit mention of large scale tax evasion as an organised crime. This leads to many inconsistencies, for example in the UK we are told to report tax evasion by ringing the HMRC Fraud Hotline. This essentially underlines that tax evasion is equated with fraud and fraud is accepted as being an organised crime. Therefore, it is only logical that tax evasion should be viewed as an organised crime in its own right.
The Conservative and Unionist Party launched its 2017 Election Manifesto on 18 May and had this to say on ‘Stopping tax evasion’:
‘We have taken vigorous action against tax avoidance and evasion, closing the tax gap – the difference between the amount of tax due and the amount collected – to one of the lowest in the world.’
We would argue that the Government cannot possibly know the amount of tax being evaded due to the fact that evasion takes place in the most secretive of the UK’s financial havens. The ball of hot money rolling round the secrecy havens is simply invisible under current arrangements.
The Manifesto continues,
‘We will now go further. We will legislate for tougher regulation of tax advisory firms. We will take a more proactive approach to transparency and misuse of trusts.’
Sadly, tax planning firms (creative accountants and financial intermediaries) located offshore create such obstacles to investigations that the HMRC agents are unlikely to fulfil the promises made by Teresa May. There is no indication that this situation will change.
The above quotes are taken from pages 16 and 17of the Manifesto. Tax evasion is acknowledged as a problem but it is not viewed as an organized crime ‘threat’. Nearly 30 pages later, the Manifesto announces the kind of bureaucratic reshuffling that so far has characterised the UK’s efforts against all kinds of organised crime:
‘We will strengthen Britain’s response to white collar crime’, the Manifesto promises, ‘by incorporating the Serious Fraud Office into the National Crime Agency, improving intelligence sharing and bolstering the investigation of serious fraud, money laundering and financial crime’.
Al Capone was born in the wrong place in the wrong time. Had he lived in Britain all he would have had to do to hide his bootleg, gambling and prostitution profits would be to type “Offshore Banking” into a search engine, and plan his retirement.