Blowing the Whistle - Times for Financial Secrecy

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Blowing the Whistle - Times for Financial Secrecy

  1. 1. BLOWINGTHEWHISTLETIME’S UP FOR FINANCIAL SECRECYA Christian Aid reportMay 2010
  2. 2. d Blowing the whistleFront-cover photo: amateur footballersin an African tournamentChristian Aid/Tom Pilston
  3. 3. Blowing the whistle 1CONTENTSIntroduction 2Open letter from Supporters Directand The Football Supporters’ Federation 6Financing the beautiful game 7The Fit and Proper Person Test 10Case histories 13Who really owns our clubs? 16Christian Aid Football Secrecy League 18Financial secrecy and development 19Tax dodging in the developing world 21How tax-haven secrecy affectsdeveloping countries 22Financial secrecy, South Africaand the World Cup 24The Financial Secrecy World Cup 29Recommendations 32Appendices 35Appendix A: Who really owns our clubs? 35Appendix B: Details of ranking forChristian Aid Football Secrecy League 36Appendix C: Who’s who in the Secrecy League 36Endnotes to Appendix C 41Endnotes 43Acknowledgements 46
  4. 4. 2 Blowing the whistleINTRODUCTIONThere seems little to link millions of patterns, save the lives of some 350,000impassioned football fans in the United children under the age of five a year.2Kingdom and Republic of Ireland with the To establish the scale of secrecy in football,poor and powerless in the developing world Christian Aid tried to find the true owners– on the face of it at least. of every club in the English, Welsh andBut there is a connection – and it’s one that Scottish leagues, as well as the Irish Leagueis growing ever stronger, disadvantaging in Northern Ireland and League of Ireland infootball fans and further blighting the lives of the Republic of Ireland.those enduring extreme poverty. We discovered that a total of 14 EnglishThe difference between their lives is vast, Premier League members and a further fivebut football fans and those in need in in the Championship, together with one inpoor countries are victims of the same League One and two in the Scottish League,phenomenon: the use of financial secrecy by are now based offshore. Until recently, thatbusiness entities in a way that minimises was also the case for one of the clubs in thetheir tax liabilities and accountability. League of Ireland.This secrecy – core to which is the The locations of ownership of a furtheranonymity offered by tax havens – has English Premier League club, ahidden the financial meltdown of a number Championship club and a League One clubof football clubs from view until too late. were impossible to verify.Stakeholders, club supporters in particular, The research resulted in a new ranking:have been betrayed and the football the Christian Aid Football Secrecy League.authorities caught napping. Positions in the ranking reflect the extentIn the developing world, the same web of of secrecy surrounding the controllingsecrecy is used by unscrupulous companies ownership of each club, multiplied by ato dodge tax. There, its impact is deadly. measure to reflect the number of fans being denied information.Companies operating in the developingworld that cook the books cost poor The clubs with the worst scores are thereforecountries about US$160bn every year in those whose use of offshore secrecyunpaid taxes, Christian Aid has estimated.1 obscures both the clubs’ ultimate ownership and financial position. As a result theThat sum, around one-and-a-half times the financial secrecy involved has the potentialsize of the international aid budget, could, to facilitate the greatest social harm inif used according to existing spending football.
  5. 5. Introduction Blowing the whistle 3The changes needed to tackle financialsecrecy in football are the same that areneeded to lift the secrecy that affects thedeveloping world.To establish the secrecy component, we and the Republic of Ireland and people livingused the ‘Opacity Score’ of the tax haven or in grinding poverty in poor countries.other jurisdiction to which we were able to The changes needed to tackle financialtrace the ownership of each club. secrecy in football are the same that areThese Opacity Scores are taken from the needed to lift the secrecy that affectsFinancial Secrecy Index that was drawn the developing world. Those who careup recently by campaign group the Tax about football, and those who care aboutJustice Network and Christian Aid, after eradicating poverty, should together demandanalysing the secrecy each haven (or secrecy three major reforms.jurisdiction) offers, and the extent of their Tax dodging in poor countries could bereluctance to share information about those greatly reduced if companies tradingusing their services.3 internationally were required to declareAs a measure of the size of clubs’ fan bases, the profits made and the tax paid in everywe used the average home attendance. This country where they operate. That way,rough figure, although including visiting tax anomalies could be quickly spottedfans, provides the most consistent proxy for a and investigated (see ‘Tax dodging in theclub’s supporter numbers – the stakeholders developing world’, page 21).who are routinely denied information about A similar rule, if applied to the owners oftheir club’s financial fortunes. football clubs and their companies, wouldManchester United is used to winning most enable supporters and football’s rulingtrophies that are available; it also heads this bodies alike to see where club owners’new ranking. Although the identities of its assets and liabilities are held, and to knowapparent owners are seemingly known – the the size of both.Glazer family from the US – full details of Armed with that information, fans would betheir business empire remain a tax-haven far better placed to judge whether those withmystery. This makes the club, thanks to the the resources of the club at their disposalsize of the gate at Old Trafford, the single amount to fit and proper owners (see ‘The Fitbiggest contributor to football’s financial and Proper Person Test’, page 10).secrecy in the UK and Ireland (see theChristian Aid Football Secrecy League, Measures are also needed that would triggerpage 18). far greater transparency in the business world. The ownership or control of eachIt isn’t just the curse of financial secrecy, company, corporation, trust, partnership,however, that links football fans in the UK
  6. 6. 4 Blowing the whistle Introductionlimited liability partnership, charity and Our research suggests that the Footballother entity created under law should be a Association could make a much largermatter of public record. contribution in this area, however, by supporting our demands for greater financialSuch information would help key transparency.stakeholders – whether football fans in theUK and the Republic of Ireland, or civil- The FA’s international relations programmesociety organisations in the developing world was set up in 2000 when England’s £11m– hold companies to account. People have a bid to host the 2006 World Cup ended inright to know who they are dealing with. failure. An extensive report from the Football Association following their post-mortemIn addition, there should be automatic into what went wrong said that during theexchange of information between tax bidding, ‘English football... had adopted anjurisdictions. This would give revenue insular attitude.’authorities in poor countries a better chanceof discovering the true extent of the taxable It was seen by some members of UEFAprofits a company is making, and of spotting (Union of European Football Associations)the transfer abroad of any monies corruptly and the organisation within whose giftacquired. the World Cup lies, FIFA (Fédération Internationale de Football Association),Such information exchanges could also help ‘as stand-offish and even arrogant’.5the UK tax authorities recover some of themillions in tax that English league clubs Today England is again bidding to host aalone owe. World Cup, that of 2018. What better way for the FA to prove to UEFA and FIFA that itIn recent years the Football Association has learnt the error of its ways than for it to(FA) in England has placed much emphasis take a stand against financial secrecy, noton its work in the developing world, as can just on behalf of football fans here, but of thebe seen in the International relations section millions in developing countries living inon its website.4 appalling poverty?An international assistance and development A clear, public statement that financialprogramme is said to be active in all six transparency must be supported and thatcontinents and it’s not just concerned with clubs should not utilise opaque structures,teaching football skills. Raising awareness of would be a first step. Making details ofhealth and social issues in poorer countries is ownership a matter of public record as aalso part of its mission.
  7. 7. Blowing the whistle Introduction 5prerequisite for membership of the leagues With the World Cup in mind, we also presentthe FA sanctions would be a further step in the host country South Africa as a casethe right direction. history, looking at what financial secrecy means to the most powerful economy on theCampaign groups that champion football African continent.supporters such as the Football Supporters’Federation and Supporters Direct, an In a recent theological study, The Gospelumbrella body set up by the UK government and the Rich, Christian Aid said paying taxto make football clubs and the game’s was part of showing love for one’s neighbour.governing bodies more democratic and The document argued that tax avoidance,accountable, would welcome such a move, just as much as the illegal evasion ofas would Christian Aid. Such a stand would tax, is symptomatic of unjust or brokenbe an important move in the battle against relationships.global financial secrecy. The framework of relational theology derivedThis report looks at the finances of league from St John’s Gospel, and informed by thefootball in the UK and the Republic of work of modern theologians, emphasises theIreland – throwing into sharp relief the importance of good relationships betweenboardroom shenanigans that have brought human beings – our response to Jesus’sa number of clubs to their knees – and it command to love our neighbour.analyses the impact of financial secrecy on Christian Aid works with partners infootball and the developing world. countries across the world to help themWe are not suggesting that anything illicit hold their governments accountable foror untoward is taking place in the clubs that their spending, at the local and nationalwe identify. We also recognise that some level, while at the same time working at thepeople will use tax havens to reduce tax, national and international levels to bringrather than conceal information, and that tax about an end to financial secrecy.reduction will sometimes reflect a genuine Put simply, financial secrecy comes at ashift of economic activity, rather than hidden price. For football fans, it can jeopardise thetax abuse. Our concern, however, is that very existence of their much-loved clubs.the opaque nature of tax havens masks thetruth, whether or not there is anything to In developing countries, that impact ishide. much more marked. There, financial secrecy costs lives.
  8. 8. 6 Blowing the whistle RS DIRECT AND OPEN LETTER FROM SUPPORTE DERATION THE FOOTBALL SUPPORTERS’ FE ctures. What or the use of opaque ownership stru Supporters of fo otball clubs in the world’s richest more fundamental nt corner of the is being broken is something far football nation in a relatively afflue for football: the bond of trust betwee n those in common with globe might not seem to have much communities and the people who own the clubs. lanet. As this some of the poorest people on our p might have report demonstrates, however, bo th are ill -served by It makes one wonder what someone tax havens that are to hide and prompt s the realisation that thanks to the use of financial bolt-holes – the rts that have been re the damage secrecy, we can’t find out. As spo dotted around the world. We also sha ion for integrity have caused by corruption and lack of tr ansparency. lax about defending their reputat ost important at clubs are shown, public trust is perhaps the m The argument in football has been th asset any sport h as, and secrecy corrodes it. ed to register businesses, and businesses are allow bs should care wherever they see fit; after all, there is no thing But there is another reason why clu ent, however, about these issu es: because they say they do. illegal about doing that. This argum not businesses fails to acknowledge that clubs are Football’s power to change lives and minds is well as they are common ly understood to be. They otball Foundation, he understood, and the work of the Fo have a respo nsibility to act in a way that serves t s-roots football, is set up to provide investment in gras com munities they represent. acknowledged, as are the co mmunity programmes at Many clu bs would have expired though clubs across the UK. mismanagement years ago we re they normal ake a difference, – fittingly for a report Clubs know they have the power to m businesses. Many clubs one of our most and as the Premier League becomes authored by Chri stian Aid – began life as teams ponsibility is now existence successful cultural exports, that res organise d by churches. Nearly all are only in global too. The FA’s internationa l relations work over y’s desire to play because they represent a communit the past decade has shown the way in this. enterprises that and watch sport. They are sporting n interest in at is good for But once you declare that you have a must be businesslike for sure, but wh ily g ood for the improving the lives of c ommunities in the developing the corporate goose is not necessar alf-hearted. foot ball gander. world, that commitment cannot be h ens, football is By tolerating the use of secrecy hav Nowhere is this clearer than in the issue of lined alongside those who ca use problems for the ople don’t care transparency of ownership. Most pe developing world, instead of being a n important part who ultimately owns t he companies that make the the TVs on which of the solution. cars they drive, the food they eat or eing customers of are passionately If English football clubs stopped b they watch football (although they c ts, the loss of lubs, however, are tax havens, and legal secrecy hide-ou about safety and probity). Football c ly power of such else cultural trade would not be noticed. But the public institutions that matter like little y. voted fans in and socially to t he towns and cities in which they pla a statement of solidarity with their de bs is the story of Africa would be incredib le. Their fans back home That is because the story of these clu ngland could of the generations would be very happy too: two wins E those communities, and the stories k this summer. of families who have supported them through thic achieve before a single ball is kicked eir and thin: as som eone once said, ‘No one ever had th ashes scattered at Tesco’s.’ Dave Boyle s The privilege of owning one of these institution Chief Executive carries with it responsibilities to t he community that Supporters Direct the responsibility www.supporters-direct.org has sustained it. The first of these is to reveal your identity . In short, you can remain an an own a football anonymous private citizen, or you c Malcolm Clarke o do both. club, but you should not be allowed t Chair say that no laws The Football Supporters’ Federation That is why it is not good enough to www.fsf.org.uk b owners are being broken by the anonymity of clu
  9. 9. Blowing the whistle Blowing the whistle 7 7 FINANCING THE BEAUTIFUL GAME Photo credit whiteMorton Photographic/iStock Nevada – the tax haven where ultimate ownership of Manchester United lies
  10. 10. 8 Blowing the whistle Financing the beautiful gameFootball is Britain’s national game, with the Premier League Those other giants of the Premier League, Arsenal, fare in England one of the nation’s most successful exports. little better. Most of the shares in the club are owned by You would therefore be forgiven for thinking the company companies registered in Delaware and the Channel Islands owning your favourite English Premier League (EPL) team is (Jersey) while its third largest shareholder has his legal also officially registered in England. But for most of the top- residence in Switzerland. flight teams, you would be wrong. Offshore English football is not just a Premiership story. It When elite English football comes home, it travels a great extends to the next tier down from the Premiership and deal further than Wembley, Old Trafford, the Emirates beyond. In the Championship, five clubs are based in tax Stadium or Hackney Marshes. havens. And there is material uncertainty over the precise location of ownership of one other Championship club. This report reveals that of the 20 clubs playing in the Premier League in the 2009/10 season, 14 are based in The corporate structure which owned Crystal Palace ‘secrecy jurisdictions’. Although more commonly known as before it disastrously fell into administration in March 2010 tax havens because they tend to offer a low or zero rate of was based in Jersey. Some 87.5 per cent of the shares in tax, the key attraction is in fact the secrecy they provide to Ipswich Town Football Club Limited – apparently owned by those using their services. publicity-shy businessman Marcus Evans, who it has been reported is a tax exile7 – are reportedly held in Bermuda. This is what an offshore league looks like: In League One, one club is based in the British Virgin Islands • Birmingham City fans may be surprised that their club’s and there is material uncertainty about the location of ultimate owner is found in the Cayman Islands. ownership of one other club.• the shares of the ultimate owner of Blackburn Rovers, In the Scottish Premier League, Glasgow giants Rangers a founding member of the Football League in 1888, are have as their ultimate parent Murray International Holdings held in Jersey by a trust. Limited. According to its annual returns, some 67 per • Bolton Wanderers’ ultimate owner is Fildraw Private Trust cent of Murray International’s shares are owned by IFG Company, reported to be based in the Isle of Man. Nominees C I Ltd. This company is registered in Jersey, which makes it almost impossible for fans to be certain who And that’s just EPL clubs beginning with the letter ‘B’. the real owner is. A further three top clubs are located in the United States So British football clubs ‘play away’ in tax havens or secrecy which, due to the extreme opacity of some states, was jurisdictions, where the financial disclosure rules required awarded the top ranking in the Financial Secrecy Index.6 by British and European Union law (themselves far from One of those clubs is Manchester United. The Premiership perfect) do not necessarily apply, and where it can be giants are registered in Nevada. virtually impossible to trace the human identity of the real The ‘Silver State’ offers business owners watertight beneficial owner.protection from disclosure rules, with companies registered But how exactly is that a problem, you might ask, especially there exempt from taxes on income, assets, franchises and when there is a worldwide love of the Premier League? It’s stock transfer. now a powerful global brand: 4.77bn people over a season Like some other US states such as Delaware and Wyoming, in more than 200 countries watch matches featuring its Nevada offers secrecy to corporations intent on reducing teams.8 or avoiding tax and keeping the details of who profits most Why should we care if football adopts the same ownership from their activities (their beneficial owners) under wraps. structures as blue-chip banks, private equity houses and Manchester United’s opaque corporate structure, combined international hedge funds, especially as English Premier with the number of stakeholders who have an interest in League football’s global reach generates huge wealth?establishing its ownership – for which the average number The cut-and-thrust passion of the league saw its television of fans who attend each home game is used as a proxy rights fetch a record-breaking £2.7bn in the three years to – makes the Premiership’s most famous club top of the 2010.9 Christian Aid Football Secrecy League.
  11. 11. Blowing the whistle Financing the beautiful game 9This huge windfall underpins the stratospheric wages that secrecy jurisdictions to avoid scrutiny, an increasing number attract the world’s top players. The likes of Didier Drogba, of clubs based in tax havens are failing, at all professional Fernando Torres and Cesc Fabregas now ply their trade in levels of the English leagues in particular.the Premier League at the peak of their careers. In April the Since the English Premier League was formed in 1992, league even won a Queen’s Award for Enterprise. as a breakaway from the Football League so top clubs would Is this not a virtuous circle harnessing the power of business not have to share satellite TV money with the other three and sport, creating a global phenomenon and bringing professional divisions, Football League clubs have collapsed prestige to the nation’s elite clubs? insolvent, usually into administration, on more than 50 occasions. This represents close to 60 per cent Some may see it that way. But they are increasingly isolated of league clubs.10 voices, like the many powerful advocates of light-touch financial regulation who in boom years talked up the City of Although relegation and the collapse of ITV Digital, which London’s magic, thereby boosting the reputation of UK plc. screened non-Premier League matches, were contributory It was, we were told, self-evidently a positive phenomenon factors, in at least 10 cases financial irregularities by and anyone who doubted this was dubbed hopelessly naive. directors or owners were also identified as playing a role.We now know very differently. Football is not dissimilar ‘It was a feature of Britain’s suicidal recklessness in banking, to the unfettered banking world which in recent years has the housing market and Premier League football that unleashed upon us the largest global financial crisis for problem gambling was recast as entrepreneurship,’ wrote nearly a century. The Observer’s chief sports writer, Paul Hayward, following the collapse of Portsmouth this year. Today the cash-rich world of football is in danger of falling into a financial crisis that threatens to destroy clubs that ‘Clubs lived the dream all over again, passing ownership have for generations been at the heart of communities along a shrouded line as if it were a Tom and Jerry throughout the UK. time-bomb, spending next year’s money and conning fans with messiah smiles.’11 The truth is that there are clear parallels between the banking crisis and a financial malaise that until recently has It also sounds very similar to the strategy deployed by been quietly stalking football. For fans of the beautiful game, private equity barons who in 15 years bought up huge some ugly and uncomfortable truths are dawning. swathes of British business on a tide of cheap bank debt that is now turning sour, using opaque offshore structures to As times have changed, most supporters now know that minimise tax and disclosure.the game was – and to a large extent still is – living in a fool’s paradise. Fans are wising up to the fact that they have Lord Triesman, the former Labour foreign minister who no idea who really owns their club. is now chairman of the Football Association, is similarly concerned at the secrecy surrounding the ownership of The banking crisis revealed how toxic debt was stashed some clubs. ’Transparency lies in an unmarked grave,’ he away from companies’ balance sheets in tax havens such told football power brokers at a football industry conference as the Cayman Islands and British Virgin Islands – hidden in October 2008 just as Lehman Brothers and HBOS time-bombs that have now exploded. collapsed.As the money-go-round comes to a juddering halt across all ‘Nobody has real confidence in what they cannot see. The sections of society, serious fault-lines in the people’s game Fit and Proper Person Test does not do the job sufficiently are now being exposed on a weekly basis. robustly. A review is now inevitable because football clubs Supporters of Manchester United, Liverpool, West Ham are not mere commodities. They are the abiding passion of United and Portsmouth, to name but a few, are only too their supporters. We forget that at our peril.’12well aware how the football ownership model favoured by Triesman could just as easily have been talking about the British football elite in many respects mirrors the same failed banks and the British public, not just football clubs misguided structures used by the major players of global and their fans. And like the collapse of banks, failing clubs finance. leave behind a trail of devastation. This may not be in the And just like the various fallen finance giants who relied on hundreds of billions of pounds, but they leave behind tens an array of complex accountancy instruments in multiple of millions of pounds in unpaid taxes and thousands of
  12. 12. 10 Blowing the whistle Financing the beautiful gamebusinesses and individuals out of pocket, not to mention the A great deal of lip service is paid by the footballing broken dreams of their supporters. authorities to the role the sport can play in combating social problems. Depriving the tax authorities, and therefore UEFA’s 2010 report The European Club Footballing society, of such a sum is, of course, rather at variance with Landscape13, which analysed the 2007-08 accounts of more such sentiments. than 700 European clubs, found that 18 English Premier League clubs had debts of £3.5bn between them. The The £25m owed compares to the Premiership’s annual complex financial dealings of which that debt is part can contribution to the Football Foundation – the UK’s largest now be seen to be rooted systematically in tax havens. sports charity, set up to provide investment in grass-roots football – which stands at around £15m.17Although the figure was almost four times higher than the next most indebted top division, Spain’s La Liga, it did not For the year 2008-09 the English Premier League also gave tell the full story. The debts of two of the most troubled £8.4m to a domestic and international programme called clubs during that season, Portsmouth and West Ham, were Creating Chances, which encourages young people to take not included as they were not granted UEFA licences that up sport. A further £6.8m went to the Football League year due to their financial problems. This year alone, Cardiff Trust, which oversees community and youth development City, Crystal Palace, Southend United, Notts County and activities at home and abroad.18 Portsmouth have been petitioned by HM Revenue It is not just the fact that tax havens can hide the truth & Customs (HMRC) for unpaid tax. The total unpaid tax about a club owner’s finances. High-level international bill for all English league clubs is estimated at £25m.14 And investigation agencies argue that clubs whose ownership because football creditors are relatively protected when is based in tax havens run a higher risk of being a conduit clubs go bust, HMRC is often the biggest loser.15 for money laundering and the illicit spoils of corruption.The Fit and Proper Person TestThe only sanction the UK Thus Ken Bates, chairman of prohibited by law from Last year Chester City’sfootball authorities have Leeds, was able in March to being a director, or being Stephen Vaughan becameagainst unreliable refuse to divulge the names director of a club that twice the first football club ownerindividuals taking over of the new owners of the goes into administration. in England to fail the testfootball clubs is the Fit and club saying: ‘They are fit when he was banned fromProper Person Test. This and proper people as The list of those who have being a company director forwas introduced in 2004 to established by the Football fallen foul of the rules in the 11 years after admitting inallay concerns that even League, and that is the end past six years consists of court to involvement in aconvicted fraudsters precisely two people, Dennis of the matter.’16 £500,000 VAT fraud.21could move into club Coleman and Stephenmanagement. The Premier League also Vaughan, although The case involved non- wants to know where millionaire former Thai payment of VAT on clothesUnder rules established by money for a club purchase is Prime Minister Thaksin bought in the name of athe Premier League and the coming from, and must pass Shinawatra, ex-owner of separate sporting businessFootball League, anyone it as legitimate. They will Manchester City, would linked to Vaughan, a formerwho takes over as director of investigate before a presumably have failed the Merseyside boxer.a football club, or owner of takeover. The Football test had he not already soldmore than 30 per cent of a League only gets involved his stake in the club when On 8 March 2010, Chesterclub’s shares, must pass the after the deal has gone Thailand’s supreme court City was dissolved in thetest. through. convicted him of corruption.19 High Court following a winding-up order by HMRC,The Premier League now There are a number of Dennis Coleman became the which said it was owedasks its clubs to make public conditions which can lead to first club director ever to be £26,000 in unpaid tax – athe name of anyone who an owner or potential owner disqualified under the test. tragic end for a much-lovedowns 10 per cent or more of being disqualified. These He was chairman of club with 125 years ofa club. The Football League include convictions for a Rotherham United when history.22asks the same question, but variety of fraud offences, they went intodoes not make the becoming bankrupt, being administration twice.20information public.
  13. 13. Blowing the whistle Financing the beautiful game 11Christian Aid/Judy Rogers A tax-haven idyll in the CaribbeanIn 2009 the world’s most powerful anti-money laundering misuse, such as tax evasion, insider fraud and also money and counter-terror finance agency, the intergovernmental laundering.’ Furthermore, the FATF noted the recent trend of Financial Action Task Force (FATF), set up by G7 countries, footballers (or rights in players) being bought by individuals published a 42-page report: Money Laundering Through the or entities that are not football clubs and are based offshore.Football Sector.23 ‘The basis of the acquisition of these rights and the trading, The task force found a game hugely vulnerable to the influx funding and ownership position of the entities through of dirty cash, saying it had detected more than 20 cases of which such transactions are managed is opaque and often football-related money-laundering activities in 25 countries. impossible for the football organisations to establish,‘ it said. Tax havens were highlighted as the vital washing station With many clubs facing huge borrowings exacerbated by a through which illicit flows were routed. serious economic downturn, FATF warned: ‘There is a risk ‘Difficulties in international exchange of information and that clubs that are in debt will not ask many questions when the use of tax havens are a major stumbling block in the a new investor appears. detection and prosecution of money laundering through the ‘Moreover, a very high proportion of the sector’s cost football sector,’ it said. base is composed of tax, meaning in some cases a culture The report crucially drew parallels between ‘the over- of seeking to circumvent tax and closer proximity to evaluation of a player’ and ‘money-laundering techniques underground activities.’similar to the over-invoicing of goods and services seen in The FATF also noted a cover-up culture within clubs and trade-based money laundering’ (see ‘Tax Dodging in the the game’s authorities. ‘People are reluctant to shatter Developing World’, page 21). sports’ illusion of innocence. Therefore illegal activity Despite the publicity surrounding transfer fees, the report may not often be reported especially as the mere hint of added that many such deals lacked transparency. As a financial corruption could jeopardise lucrative sponsorship result, ‘the transfer market is vulnerable to various forms of deals,’ it said.
  14. 14. 12 Blowing the whistle Financing the beautiful game‘As with Parliament and many other areasof public life, transparency is going to be anincreasing requirement and expectation.’Shadow Minister for Sport Hugh RobertsonTransparency International, the Berlin-based anti-corruption Shadow Minister for Sport at the time Hugh Robertson campaign group, in a report on sport that highlighted football appeared to agree with Sutcliffe: ‘As with Parliament and as an area of concern, suggested: ‘Vulnerabilities in the many other areas of public life, transparency is going to be sector’s financing and due diligence practices, culture and an increasing requirement and expectation. That includes structure are seen… as creating an environment conducive publicly identifying the owners of football clubs. Football to money laundering by organised crime.’24 should reform its governance to include greater supporter representation on the board of clubs.’26Tax havens are today pivotal in the global money machine. Given the extensive use of them by those involved in the Liberal Democrat MP Phil Willis, who has long criticised beautiful game, it is ironic that some football executives the anonymity of Leeds’ ownership, said: ‘At the very least, who are keen to promote the benefits to the community of supporters of a club have a right to know who owns it.’27football make every effort to hide their identities from tax These are powerful voices calling for openness and authorities and fans. transparency in football. It is doubly ironic that at some clubs football fans have to As fans increasingly organise themselves to take over debt-prove their identity when applying for season tickets, yet stricken clubs, the pressure is now on politicians to follow many of those running clubs feel no such compulsion in through on their demands for increased transparency. their business dealings.When Wimbledon’s Norwegian owners decided to tear the club away from its south-west London roots and start afresh in Milton Keynes, supporters vociferously objected and fought the proposal. Tracking down the true owners of the club, however, proved difficult, until the brother of a fan who was visiting the British Virgin Islands discovered the club was registered there.At Leeds, even when the company owning the club can be identified – the controlling interest is the Forward Sports Fund (FSF), administered from Switzerland – it is impossible to establish where that company is registered, or who is behind it. In March club chairman Ken Bates refused to identify who owned FSF. Minister for Sport at the time Gerry Sutcliffe, commenting on the mysteries surrounding the ownership of Leeds United, said in March: ‘Fans of any football club have a right to know who the owners are. We want to see greater supporter representation in the running of football clubs and far greater accountability.25 ‘While I welcome the Football League’s moves in securing detailed financial information from clubs and their work with HMRC to help keep clubs on a secure financial footing, more can still be done. We have offered to help the League, where we can, on the issue of transparency but it should insist on clubs making public to their supporters who owns them.’
  15. 15. CASE HISTORIES Blowing the whistle Case histories 13Manchester United Leeds UnitedThe most successful English club on and off the pitch, As Leeds languishes in the third tier of English football,Manchester United is also the Premier League’s the fact that its ultimate parent company is basedmost secretive club. Managed by Sir Alex Ferguson, through a series of tax havens could be held to be thethe club’s ultimate owners are two entities, Red only way that the fallen giant can get a taste of Europe.Football Limited Partnership and Red Football GeneralPartner Inc. The Yorkshire team takes the prize as the most secretive club in League One. Indeed the club takes secrecy to aThe Glazer family have said they own the shares but new level.there is no way of verifying this. The companies arebased in Nevada, which boasts of ‘a compelling array The club’s chairman is Ken Bates; the ownership of hisof benefits available to Nevada business owners such previous club, Chelsea, was similarly opaque andas privacy, tax savings, convenience and flexibility’, offshore.according to one of the state’s company formation Companies House documents name three offshoreagents. entities and a lawyer based in Monaco as holding sharesFor the Glazers this flexibility means shareholder in Leeds. But crucially, the individuals who ultimatelyinformation does not need to be disclosed and virtually own the shares are not identified.no taxes are required to be paid. Details about the When Leeds United was acquired following its ruinousidentities of those associated with the parent football and financial slide, it was bought by Forwardcompanies are not available for public scrutiny. Sports Fund (FSF), once registered in the CaymanThis fuels suspicion and distrust between supporters Islands and administered from Switzerland.of the club and its owners, made worse because the FSF, which owns more than 70 per cent of Leeds, isGlazers bought the club in a classic private-equity-style based in Geneva at the office of Chateau Fiduciare,leveraged deal. In other words, only a small amount which administers the fund. But the location of itsof cash was involved. Instead, the new owners registration is unclear. Other Leeds shareholders areborrowed large sums to finance the deals, and that based in Switzerland and the British Virgin Islands.money will have to be repaid, in all likelihood withcash flow from the club. Leeds has paid back a significant amount of its debt burden since Bates became involved with the club andIt means that what was once the richest club in the has enjoyed some success this season, knockingworld with no debt is now struggling under £716m Manchester United out of the FA Cup.of borrowings, some of which have punitive interestcharges attached. Furthermore the club has sold one But it still does not publish its owners and underof its best players, not reinvested money back into its Football League rules – different from the Premiershipplaying squad, and may well be forced to sell its – it does not have to.training ground to finance the borrowings. To be fair, even Ken Bates himself seems a bit uncertainThe situation parallels that faced by its bitter rivals about ownership. While the English football authoritiesLiverpool – also the subject of a leveraged buy-out by may be content to leave Leeds fans in the dark, a courtAmerican financiers. in Jersey can be commended for having attempted to bring matters out into the open.At Manchester United, the Glazers recently launcheda £500m bond to help reduce the debt. According to the In January 2009, Bates’ solicitors told Jersey’s Royalbond prospectus, under the terms of the refinancing, Court that he owned one of the ‘management shares’ inthe new bonds include terms that allow the Glazers to the FSF, and a lawyer for Bates subsequently confirmedtransfer £70m to the holding company, Red Football that there were only two such shares in existence,Joint Venture Ltd.28 making him joint owner.The release of the information in the prospectus has Then in May 2009, Bates changed his mind and told thesparked a wave of protest against the Glazers. Serious court in a sworn statement that there had been ‘an error’,discussions are now underway with wealthy supporters that there were in fact 10,000 shares in FSF not two, andlooking to organise a buy-out. that in any case none of them at all belonged to him.29Fans are further angered by information in the Leeds fans have expressed grave concern that they haveprospectus about financial dealings over the past five no idea where money is going.years which was not otherwise available because of theclub’s opaque offshore ownership arrangements.
  16. 16. 14 Blowing the whistle Case historiesNotts CountyNotts County fans were over the moon last year when a Initially, Munto said the Qadbak investors were ‘notedconsortium called Qadbak Investments, said to wealthy families’, but financial secrecy meant no onerepresent Middle Eastern interests, showed an interest had any way of checking. Later the families named byin taking over the club, which was then struggling in the club denied their involvement.the lowest reaches of the English professional league. The Football League asked who the people behindQadbak initially suggested it was a Swiss-based Qadbak were, as the rules required them to pass the Fitorganisation, though it later emerged the entity is a and Proper Person Test (see page 10). After resisting forBritish Virgin Islands-registered company that weeks, the club relented and the League announcedconducted its business through a subsidiary called that they now knew who was behind the club – butMunto Finance Ltd. could not divulge that information to anyone else.The supporters’ trust at the club voted by a substantial With a policy of not sharing information revealed by themajority to gift the consortium their 60 per cent interest Fit and Proper Person Test with the wider public, thein the club’s affairs, and with other shareholders doing League was trapped between its own rules on the onelikewise, Munto Finance quickly had 90 per cent of the hand, and the secrecy that comes from registeringclub for no direct outlay, just an array of undertakings companies in tax havens on the other.that were quickly broken. Notts County is the world’s oldest professional club butClub chairman John Armstrong-Holmes waxed lyrical: came perilously close to being wiped out by people‘We are all excited about where Munto could take us,’ representing unidentified interests.he said. ‘This deal has made us the envy of clubs up anddown the country.’30 When questioned about the lack of transparency of his new bosses after joining the club, Eriksson said: ‘WhereHe and his fellow directors were not the only people exactly [the money] is coming from, who could care lesstaken in. Two former Jersey-based financiers as long as it’s legal?’33 But as Sven found out to his cost,representing the consortium also made contact with without transparency, you can’t be sure that the moneyformer England international manager Sven-Goran is legal or indeed ever existed at all.Eriksson, who had just been sacked as manager of theMexican national team. Eventually the day was saved by new backers, but the story of how Notts County teetered on the verge ofLast June, at the Dorchester Hotel in London’s Park bankruptcy goes to the heart of how it is possible forLane, the representatives gave him a ‘very clever, very secret entities to inveigle themselves into well-knownconvincing’ pitch about why he should move to Notts institutions. It also shows the damage offshore footballCounty. ownership can do.‘They had already bought the club and they wanted to Just two months later the club was sold. Ownership hastake it to the Premier League,’ he said in a recent changed hands one more time since then. County isinterview. ‘There were a lot of promises about players, now on a more solid footing but no thanks to the rulesabout the training ground, the academy; they said they that govern international finance which place footballwould fix the stadium, that they would buy feeder and the developing world in such vulnerable positions.clubs.’31Eriksson described the vision as ‘like a dream to me’. Itdidn’t take long for that dream to become a nightmare.Promised investment failed to materialise, bills wentunpaid and in November the tax authorities issued awinding-up order.The businessmen who had enticed Eriksson to the club,and insisted that the logo of an entity called SwissCommodity Holding be incorporated into the clubcrest32, disappeared from view once the promisedfinance failed to materialise.‘What’s disappointing about these people is that theyjust disappeared – without saying anything,’ saidEriksson. ‘Without any message to the players, to thefans, to the staff. Just gone.’
  17. 17. Blowing the whistle Case histories 15Portsmouth Cork CityThe first Premier League club ever to fall into Cork City was brought to its knees in February this year.administration, Portsmouth exemplifies the lax In the club’s 26 years, it won two League of Ireland titlesregulation and casual, footloose rules that thrive in and numerous other honours, but having missed aBritish football. number of court deadlines to pay a €160,000 tax liability38, the club was put into liquidation.The club’s financial situation threatens the existence ofan institution, the jobs of ordinary club employees, and Cork City’s finances had sunk so low its team’s bus-the financial well-being of creditors owed debts of an driver refused to transport players to a game until hisestimated £85m.34 company was repaid all its outstanding debts. Players and staff were unable to pay their bills.In the 2009-10 season alone, Pompey, as the club isknown in the football world, has had four owners and The club’s ultimate parent entity, Buchanan Holding,might have another by the season’s close. gave no details of ownership although it appears to have been incorporated in Jersey.The last-known jurisdiction of incorporation of the club– though not its ultimate owner – was the British Virgin A consortium that was interested in rescuing Cork CityIslands (BVI). backed away when the club was wound up with debts said to be around €1.2m and the Football Association ofThat information from the company accounts has been Ireland denied it a Premier Division licence to play.39superceded by the administrator’s report to creditors,which states that the club is 90 per cent owned by a The club has now been resurrected by its fans as acompany press reports say is registered in the BVI. cooperative – a case of supporters picking up the pieces from the purveyors of offshore football.Portsmouth’s financial demise began in 2006 when abusinessman, Alexandre ‘Sacha’ Gaydamak, bought a 50per cent stake in the club; this was later converted intofull ownership.Gaydamak’s involvement raised questions over whetherhe was acting as a front for his father35, former owner ofIsraeli team Beitar Jerusalem, who had been convictedin absentia in France of illegal arms trading during theAngolan civil war.36The Premier League was convinced otherwise, however,accepting that Gaydamak junior was the ultimatebeneficial owner.The club went on a player-acquisition binge, recruitingmajor names including England internationals DavidJames, Peter Crouch and Jermaine Defoe. The inflatedwage bill then became unsustainable and by lastsummer, indebted to the banks to the tune of £50m,Gaydamak needed to find new investment.This was the catalyst that produced a parade of a furtherthree foreign businessmen who became owners ofPortsmouth in an unseemly version of Pass the ToxicParcel. None of them managed to ward off financialmeltdown and in February the club went intoadministration.The result is that £11.6m is owed to HMRC and the club’sadministrator has made more than a quarter of its staffredundant.37Of the 85 losing their jobs, most are lowly paid officestaff, employees in the ticket office, assistants in theclub shop, coaches and press officers.
  18. 18. 16 Blowing the whistle WHO REALLY OWNS OUR CLUBS? Photo credit whiteGlyn Kirk/AFP/Getty Images Angry Portsmouth fans demanding to know whether the club is in the hands of ‘Fit and Proper’ owners
  19. 19. Who really owns our clubs? Blowing the whistle 17Finding out who owns a football club should be Overleaf can be found a league table of the 25 most straightforward. The pre-eminence of the game in the secretive clubs in English and Scottish football. Details of national consciousness, combined with the many millions of ownership reflect information obtained from all available supporters who care passionately about its fortunes, should sources. In a number of cases, that information can only be enough to throw light into the darkest corners. at best be taken as hearsay as ownership details were not legally documented. (Ranking and ownership are detailed in In the Republic of Ireland, determining club ownership is Appendices B and C, page 36.)easy. They have a law called the Registration of Business Names Act 1963. To obtain the ranking for the league table, we assessed all 92 English league clubs, together with a further 34 clubs in This stipulates that if you’re going to trade as the Blue the top leagues of Scotland, Wales, Northern Ireland and Football Club for example, then you must register that fact the Republic of Ireland, in order to establish the country or and say who is the legal owner of the business of that name jurisdiction where the club is owned according to registered – whether it be a limited company, partnership or individual. company accounts.In the UK, however, football ownership is far from We then took the Opacity Score for each of those transparent. A law requiring exactly the same kind of jurisdictions, which in the case of the top 25, as far as information as pertains in the Republic of Ireland was we could establish, are all outside the UK or Republic of dispensed with in 1985. Ireland. The Opacity Score reflects the financial secrecy Despite the best efforts of two Fellows of the Institute of each jurisdiction, and is based on the Financial Secrecy of Chartered Accountants in England and Wales, who Index drawn up recently by Christian Aid and campaign researched this report, we were unsuccessful on a number group the Tax Justice Network. 42of occasions in determining the precise ownership of some Where shares are held in more than one jurisdiction a of the UK’s major football clubs. combined score was achieved by weighting the Opacity Although there is a legal requirement that a company place Score of each jurisdiction according to the size of the its company number and the location of its registered shareholding held there. The average home attendances for office on everything it publishes, including its website, this each club were then used as a proxy measure of the size of information was missing from many club websites – the their fan base, and therefore of the size of the community first place we checked. with a stake in the club being well-managed.Full marks, though, to those that did include the details, After squaring the Opacity Score and taking the square and to the English Football League, which seems to have root of the attendance figure (in order to make the scale of encouraged publication of this information (not always numbers comparable, with the Opacity Score dominating), successfully) in its web-design template for members. we then multiplied the two together to reach a final secrecy score. The higher the score, the greater the potential for A full explanation of the measures we took to try to elicit each club’s secrecy to facilitate social harm.legally verifiable information about ownership can be found in Appendix A (see page 35). The starting point in many We are not implying that anything illicit or untoward is cases was to match a company name at Companies House taking place in connection with any of the clubs identified. with the name of a club. Other methods used to try to Nor do we wish to imply that the only people who use establish ownership, albeit with information that could not tax havens are those who wish to avoid transparency, be legally verified, included: rather than, for example, to limit their exposure to tax or regulation, although clearly some people do both. 1. emailing and telephoning clubs What we are highlighting is the way that financial opacity 2. using information supplied by Supporters Direct, and the obscures the truth, whatever its nature. An unknown or Football Supporters’ Federation unknowable owner can still have the best interests of the 3. consulting academic research on the subject, notably by club at heart – but anonymity can also be used to hide Stephen Hope, School of Business and Social Sciences, unpalatable financial truths. Roehampton University40, and Dr Geoff Walters, School Our survey highlights the fact that in a number of cases fans of Management, Birkbeck, University of London41 may think they know who owns their clubs, but they can 4. media reports and other secondary sources such as have absolutely no way of being sure – a state of affairs that PLUS, the international stockmarket. exploits their loyalty and besmirches the beautiful game.
  20. 20. 18 Blowing the whistleCHRISTIAN AID FOOTBALL SECRECY LEAGUERanking Company Company Name Country Opacity Average Secrecy Number of Control Score Attendance Score1 Manchester 95489 Manchester United USA 92 74,728 231.4 United Football Club Ltd2 Tottenham 57186 Tottenham Hotspur Football Bahamas 100 35,788 189.2 Hotspur & Athletic Co Ltd3 Manchester City 40946 Manchester City Abu Dhabi 92 45,292 180.1 Football Club Ltd4 Liverpool 35668 The Liverpool Football Club USA 92 43,326 176.2 & Athletics Grounds Ltd5 Aston Villa 3375789 Aston Villa Football USA 92 38,181 165.4 Club Ltd6 Rangers SC004276 The Rangers Football Club plc Channel 87 47,372 164.7 Islands7 Leeds United 6233875 Leeds United Not known 100 24,134 155.4 Football Club Ltd8 Sunderland 49116 Sunderland Association Jersey 87 39,933 151.3 Football Club Ltd9 Derby County 49139 Derby County USA 92 29,170 144.6 Football Club Ltd10 Birmingham City 27318/ Birmingham City Football Cayman 92 24,921 133.6 3304408 Club plc Islands11 Leicester City 4593477 Leicester City USA 92 23,979 131.1 Football Club Ltd12 Fulham 2114486 Fulham Football Bermuda 92 23,968 131.0 Club (1987) Ltd13 Arsenal 109244/ Arsenal Football Club plc Multiple 71.9 59,878 126.5 4250459 offshore14 Ipswich Town 315421 Ipswich Town Football Club Bermuda 92 20,983 122.6 Company Ltd15 Blackburn Rovers 53482 Blackburn Rovers Football Jersey 87 25,046 119.8 and Athletic plc16 Hull City 4032392 The Hull City Association Jersey 87 24,289 118.0 Football Club (Tigers) Ltd17 Portsmouth 3747237 Portsmouth City British 92 18,543 115.3 Football Club Ltd Virgin Islands (BVI)18 Queens Park 60094/ Queens Park Rangers Football Not known 100 13,075 114.3 Rangers 3197756 and Athletic Club Ltd19 West Ham United 66516 West Ham United Football New club 76 33,452 105.6 Club plc owners20 Wolverhampton 1989823 Wolverhampton Wanderers Guernsey 79 28,191 104.8 Wanderers Football Club (1986) Ltd21 Bolton 43026 Bolton Wanderers Football & Isle of Man 83 21,843 101.8 Wanderers Athletic Company Ltd22 Crystal Palace 3951645 Crystal Palace FC Jersey 87 14,523 91.2 (2000) Ltd23 Hearts SC5863 Heart of Midlothian plc Lithuania 72.1 14,389 62.424 Hartlepool 98191 Hartlepool United Football BVI 92 3,466 49.8 United Club Ltd25 Watford 104194 The Watford Association Multiple 61.5 14,167 45.0 Football Club Ltd offshore
  21. 21. Blowing the whistle 19 FINANCIAL SECRECY AND DEVELOPMENT Photo credit whiteChristian Aid/Sarah Filbey Financial secrecy helps consign families and communities in the developing world to a lifetime of poverty
  22. 22. 20 Blowing the whistleThe impact of financial secrecy on the world of football • encouraging rent-seeking (see below) and reducing can be gauged by clubs going broke, staff being made private incomes in developing countries redundant, creditors left out of pocket and fans feeling betrayed. • damaging institutional quality and growth in developing countries. The impact of financial secrecy globally, however, causes suffering so immense that the system which facilitates One of the commission’s members, Professor Ragnar clandestine money movements has been called ‘the ugliest Torvik, in a paper submitted with the commission’s report46, chapter in economic affairs since slavery’. argued that havens distort developing countries, above all, by changing incentives. That stark description was coined by Raymond Baker, a senior fellow at the US Center for International Policy, and a Instead of politicians, for instance, promoting productive global authority on illicit finance, to describe the manner in activity, they will instead turn to ‘rent-seeking activity’ from which rich nations receive billions of dollars every year that which the returns are higher such as selling mineral rights have been systematically and illicitly removed from poorer off at below market value in exchange for a secret payment countries. into an offshore account.He estimates that between US$1trn and US$1.6trn of illicit The availability of haven ‘services’ can also help politicians cash flows annually from countries where 80 per cent of the who want to close down or otherwise undermine agencies world’s population live into countries where 20 per cent of tasked with tackling corruption. the global population lives.43 The secrecy that havens offer, Torvik argued, also helps Bribery and theft by government officials, he estimates, undermine democracy by favouring narrow self-interest account for three per cent of that total, while other purely over broader-based progress. As a consequence, they may criminal activities account for a further 30-35 per cent. increase the chances of conflict. The bulk, however, 60-65 per cent, consists of profits that Meanwhile, the establishment of fair and equitable systems businesses, particularly multinational corporations, shift of taxation in poor countries has to be a development between tax jurisdictions to reduce, or even completely priority. Put simply, the political landscape changes in dodge, their tax bills. The victims are the poorer countries countries where government revenues are largely derived where they operate, which lack the resources and expertise from the taxing of citizens in such a manner. to counter tax dodging on such a massive scale.44 Rulers dependent on taxes have a direct stake in the This movement of illicit funds is facilitated in large part by prosperity of some or most of their citizens, and ‘therefore the existence of tax havens, or secrecy jurisdictions. The have incentives to promote that prosperity’, says Mick damage caused by the secrecy they offer goes far beyond Moore, professorial fellow at UK-based independent the loss of revenue and the impact of that on a country’s research charity the Institute of Development Studies.47 ability to provide public services for its citizens. He adds: ‘Broad taxation, to a far greater extent than either A Norwegian Government Commission on Capital Flight aid or natural-resource revenues, obliges the state to invest and Poor Countries, which reported last year45, accused tax in the creation of a relatively reliable, uncorrupt, professional havens of: career public service to assess and collect dues and then hand them over to the state treasury.’• increasing the risk premium in international financial markets Citizens being taxed, meanwhile, will engage politically, either by organising to resist taxation or to ensure their tax • undermining the working of the tax system and public money is well-used. Unless the sole response of the state finances is to crush resistance, ‘these reactions tend to increase the accountability of governments,’ says Moore. • increasing the inequitable distribution of tax revenues Recent research pooling data from 113 countries between • reducing the efficiency of resource allocation in 1971 and 1997 found evidence that it was the need developing countries for greater tax revenue that forced governments (even • making economic crime more profitable authoritarian ones) to democratise.48
  23. 23. Blowing the whistle 21TAX DODGING INTHE DEVELOPING WORLDThe most pervasive form of tax dodging in developing Professor Pak, who has advised US Congress on thiscountries is a practice known to the accountancy world issue, analysed bilateral trade in commodities betweenas ‘abusive transfer pricing’. 2005 and 2007, calculated the parameters of the normal price range for products traded between countries, andBy itself, the name reveals little. It is a key component estimated the amount of capital shifted by trades thathowever, in the movement of illicit funds from the were outside that normal price range.developing world. The totals he arrived at included prices that had eitherIt refers to the way subsidiaries of the same multinational been artificially depressed or artificially inflated for taxtrade with each other, or with the parent company. purposes. Some of the prices, he warned, wouldToday, some 60 per cent of world trade takes place primarily have been doctored for money laundering orwithin multinationals rather than between them, or other illicit purposes, but even in those cases, therebetween trading entities which are independent of would have been a tax consequence.each other.49 In spite of the enormous sums Professor Pak’s researchWith so much in-house business on the go between exposed, they are just the tip of the iceberg. For heparts of the same multinational, regulators stipulate that could only analyse publicly available trade data.a fair market price – an ‘arm’s length price’ – must be Information on trade involving the most secretive havenscharged for what is bought and sold. would, if known, reveal a far more serious picture.If above board, such deals are called ‘transfer pricing’. According to his findings, between 2005 and 2007, theA full 50 per cent50 of world trade, however, is now total amount of illicit capital flow from trade mispricingreported to take place through secrecy jurisdictions, into the EU and the US alone from non-EU countries wasotherwise known as tax havens, where the costs that estimated conservatively at more than £581.4bna multinational charges itself are impossible to verify. (€850.1bn, US$1.1trn at the time the report was written).Difficulties in policing the trade in material goods, or It broke down specifically to £229.7bn (€335.8bn,commodities, combined with fees charged for such US$441.2bn) into the EU countries and £351.7bnintangibles as ‘management services’ or intellectual (€514.3bn, US$673.6bn) into the US.property rights, where no open market rate exists, makeit impossible to determine whether an ‘arm’s length’ Powerful economies in the developing world – Argentina,price has been charged. Brazil, China, India, Indonesia, Mexico and South Africa – lost a total of £119.5bn in illicit capital flows to the EUA company in one country can charge a vastly reduced and US between 2005 and 2007. Meanwhile, the world’srate for goods and services to another based elsewhere poorest countries lost £5.78bn in the same period.purely to minimise its tax liability. Christian Aid estimated that if tax was raised on thisWhen such deals are between parts of the same capital, China would have had an additional £20.2bn,multinational, they are called ‘abusive transfer pricing’. Mexico would have had an additional £10.5bn and IndiaWhen conducted between independent entities in would have had an additional £3.6bn in their publiccollusion with each other, it has a rather more prosaic coffers. Meanwhile, the world’s 49 poorest countriesname – ‘false invoicing’. Together, the phenomenon is could have raised an additional £1.8bn in tax.known as ‘trade mispricing’.51 The implied tax loss extrapolated to all developingMuch, but by no means all, of the illicit capital made country trades is consistent with Christian Aid’s estimatefrom trade mispricing flows into the European Union in Death and Taxes: the True Toll of Tax Dodging,and the United States. published in May 2008, that US$160bn (£80bn at theIn 2009 Christian Aid commissioned international trade exchange rate then) of revenue is lost by developingpricing expert Simon Pak, president of the Trade countries globally every year.Research Institute and associate professor at Penn This is more than the annual global development aidState University in the US, to analyse EU and US trade budget and much greater than the £28bn to £42bn thedata and estimate the amount of capital shifted from World Bank estimated would be required annually tonon-EU countries into the EU, the US, the UK and the meet the millennium development goals (MDGs) aimedRepublic of Ireland.52 at halving extreme poverty by 2015.
  24. 24. 22 Blowing the whistleHOW TAX-HAVEN SECRECYAFFECTS DEVELOPINGCOUNTRIES‘Many citizens of developing (and developed) countriesnow have easy access to tax havens and the resultis that these countries are losing to tax havensalmost three times what they get from developedcountries in aid. If taxes on this income were collected,billions of dollars would become available to financedevelopment.’Jeffrey Owens, Director, OECD Centre for Tax Policy Administration, January 2009 Christian Aid/Jodi Bieber/NB Pictures‘We will set down new measures to crack down onthose tax havens that siphon money from developingcountries, money that could otherwise be spent on bednets, vaccinations, economic development and jobs.’Gordon Brown, UK Prime Minister, March 2009‘We stand ready to take agreed action againstthose jurisdictions which do not meet internationalstandards in relation to tax transparency… We arecommitted to developing proposals, by end 2009, to Collecting water in rural South Africamake it easier for developing countries to secure thebenefits of a new cooperative tax environment.’G20 Declaration, April 2009 demand that developing countries be included in any new There is a growing consensus that international action is international plan to prise more information from tax havens.needed to fight the damage caused by tax-haven secrecy Some regions and countries are clearly more affected by tax – and that developing countries’ interests, in particular, must havens than others and this warrants further research. These be better protected. differences are likely to require different policy priorities. Christian Aid has analysed international data on trade and The following table shows, for different groups of countries, finance to identify just how much developing countries are the share of their exports, imports, inward portfolio affected by tax havens, with a particular focus on Africa. investment and foreign bank deposits by their citizens which We did this research to help policymakers in developing go via secrecy jurisdictions. Those jurisdictions are ranked countries demand appropriate corrective action from in the Financial Secrecy Index developed by the Tax Justice the G20 group of countries, the UN Tax Committee and Network with Christian Aid. the Organisation for Economic Co-operation and The International Monetary Fund’s Coordinated Portfolio Development (OECD). Investment Survey provides information on the holdings Christian Aid is disappointed that policy researchers at such of equity securities and debt securities (mainly shares and multilateral institutions as the World Bank and International bonds) of each country’s residents in foreign jurisdictions.Monetary Fund have almost completely neglected these The information related to foreign bank deposits must be issues until now. The research that has been done is largely treated with caution because the Bank for International the work of academics and civil-society researchers. Settlements does not provide a full locational breakdown Christian Aid’s research53 shows clearly that existing of data – only consolidated statistics. For example, an information on bilateral trade and financial flows, while Ethiopian making a deposit into a branch of a Swiss bank frustratingly limited in some areas, does allow us to draw in Addis Ababa will be recorded as an Ethiopian claim on a quite clear conclusions about just how much developing Swiss bank, even if the money does not leave Ethiopia. At countries are exposed to tax havens or secrecy jurisdictions. present, however, this is the best data available. In general, they are no less affected by secrecy jurisdictions than high-income OECD countries – and some of them are much more exposed. So the G20 and others are right to

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