John Christensen ■ The Offshore Wrapper: a week in tax justice #39 – a Luxembourg Special

The Offshore Wrapper is written by George Turner, c/o Wrapper Towers

The Offshore Wrapper is written by George Turner, c/o Wrapper Towers

Throw the Junck out

When Jean-Claude Juncker (pictured) was elected as the president of the European Commission last May, staff at Wrapper Towers had to go into a darkened room. Others went straight to the bar.

One Wrapper employee was heard to mutter: “How could Juncker – the long serving Prime Minster of one of the world’s most aggressive tax havens – become President of the European Commission, particularly at a time when the Commission was taking action against Luxembourg and others for promoting tax avoidance schemes?”

His Serenity the EU President - but for how long?

His Serenity the EU President – but for how long?

Indeed. But now after the leak of over thousands of documents from Luxembourg thanks to sterling work by the International Consortium of Investigative Journalism, Junker’s position looks untenable.

The leak shows that under Juncker’s leadership the tiny European country created a “magical fairyland” where large global corporations could drastically reduce their tax bills.

Well the drums of incredulity are getting louder and influential voices are calling for Juncker to go with Bloomberg leading the charge:

“Juncker, you could say, made his country rich by picking the pockets of other countries, including those of the European Union he is now mandated to serve….His spokesman says he is “serene” in the face of the revelations. He shouldn’t be. At this point, he could best serve the European project by resigning.”

So far, no politicians have demanded Juncker has to go. Instead, they have asked for the position to be “clarified”. One does wonder however what European Leaders were thinking when they appointed Junker to run the commission. Revelations about Luxembourg helping companies to avoid taxes are hardly new.


Are Luxembourg tax tricks legal?

The LuxLeaks saw the inevitable riposte from the finance industry that industrial scale tax avoidance is “perfectly legal”.

Accountants, so the theory goes, are simply taking advantage of the international rules which are decided by governments

The Guardian newspaper, which has led the charge on the tax avoidance issue in the UK, proclaims: “These arrangements, signed off by the Grand Duchy, are perfectly legal.”

Unfortunately, the situation is far from clear. Firstly the European Commission is currently investigating several tax agreements made between Luxembourg and multinational companies precisely to see if there is a case to be made that they contravene European competition policy.

To say something is “perfectly legal” is not a conclusion that anyone other than a judge can come to. The reality of these schemes are that they are typically bespoke and are dreamt up by people trying to test the boundaries of the law. Whether they trip up on the way has never really been tested.

In fact, aggressive tax avoidance schemes have a rather high failure rate. As Prem Sikka has pointed out, PWC said it will sell tax avoidance schemes that only have a 25% chance of surviving a legal challenge.

On top of that, Luxembourg is a secrecy jurisdiction – so if no one can ever see the deals, how can they challenge them? And how can their legality be tested?

The very best we can do is say that we don’t know if the deals exposed by Luxembourg leaks are legal or not.


Caymans afflicted by the Curse of Finance

Caymans afflicted by the Curse of Finance

Get me out of here…

The Luxembourg leaks scandal has provided a further example of how countries can grow incredibly rich by cannibalising the revenues of other governments. Luxembourg went from an agriculture and steel economy to being one of the richest per capita countries in the world.

However that wealth is not equally distributed. The Financial Secrecy Monitor has picked up on some interesting data published in the Cayman Compass. Despite the Cayman Islands being one of the world’s largest financial centres, not all Caymanians are seeing the benefits.

According to the island’s statistics office, 8% of Caymanians have an hourly wage of less than $5.10 an hour. 35% live on less than $10.60 an hour. And life in the Caymans ain’t cheap either – the hourly wage of $10.60 will barely give you any change from a big mac meal, which costs $9.50.

According to the CIA World Factbook, the gross domestic product per person on the Cayman ranks the islands among the world’s top twenty.  In fact, 17 out of the top twenty on the CIA list are secrecy jurisdictions, which shows that the market for secrecy is particularly buoyant these days.  But all these secrecy jurisdictions suffer from low wages for workers at the bottom of the scale, eye-watering prices, structural inequality and rampant corruption.  Is this the Finance Curse at work?


“Did you have a nice day at work today, daddy?”

How committed are the Swiss to cleaning up their financial system? This is a challenge put to the Alpine secrecy jurisdiction by 20 survivors of atrocities at the hands of the North Korean regime.

"Are we Swiss all criminals?" The poster asks.  Good question.

“Are we Swiss all criminals?” The poster asks. Good question.

This group, which includes victims of torture, forced abortion, and escapees from political prison camps, has sent a letter to the president of the Swiss Confederation. They have called on Switzerland to freeze the assets of North Korea held in the country.

In a heartening display of Swiss efficiency, the president took a day to write back, saying the country had controls in place to prevent dirty North Korean money entering. Tell that to the South Korean intelligence services, who told the Telegraph that the North Korean leadership had $4bn in Europe, mostly in Switzerland when Kim Jong Il was in power.

How did the North Korean leadership get so rich? Selling nuclear missile technology, drug dealing, forced labour and other activities.

Sadly, all in a day’s work for Swiss bankers.


Is the FIM heading for a tumble in Qatar?

Is the FIM heading for a tumble in Qatar?

It pays to be nice

First the World Cup, now Moto GP. The Sunday Times has reported on allegations this week that the head of the Qatar Motor and Motorcycle Federation lavished gifts on voting members of the Federation of International Motorcycling (FIM) in the run up to a vote on the presidency of the organisation.

The FIM vice president criticised the move, saying: “There seems to be a National Strategy in Qatar… to use financial influence to bring major sporting events to their country”.

Nasser Khalifa Al Attyah, the man accused of trying to rig the elections, defended the practices of the country. “This is the way we have in Qatar, to show that we are nice people and we want to welcome people,” he said.

Let that be a lesson to all readers: being nice does cost something – allegedly.



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