Britain 'may be forced to bail out tax havens'

[R.A. Hettinga]

...and Anguilla's beggin' for $40 mil or so...

Cheers,
RAH
--------

<http://www.guardian.co.uk/business/2009/sep/13/british-tax-havens-need-bailo
uts/print
 >


Britain 'may be forced to bail out tax havens'
 Collapse of offshore centres could cost UK many millions
 Liberal Vince Cable says it is wrong to reward mismanagement
Nick Mathiason
guardian.co.uk, Sunday 13 September 2009 21.00 BST


Grand Cayman, where the cash-strapped islands' government has been
forced to ask the UK to allow a #278m loan. Photograph: Panoramic
Images/Getty Images/Panoramic Images

Britain could be forced to bail out one or more of its offshore tax
havens at huge cost, according to early drafts of a Treasury report,
because the economic crisis has wrecked their finances.

Offshore expert Michael Foot will next month set out a number of
options to government ministers in the report as anxiety grows within
Whitehall over the health of Britain's overseas territories and crown
dependencies.

Senior insiders say early drafts of Foot's report suggest that the
government may need to make provisions for the financial failure of
British tax havens. Experts suggest the failure of a major tax haven
could potentially cost the UK tens, if not hundreds, of millions of
pounds.

Government officials say they are aware that some British overseas
territories are facing serious problems which could get worse. In the
event of further economic deterioration, they could become failed
states and be dragged into the illegal drugs trade, Whitehall insiders
warn.

Two weeks ago, the Guardian revealed that the Cayman Islands, the
capital of the world's hedge fund industry and the fifth biggest
banking centre, was so cash-strapped it may not be able to pay its own
civil servants.

The Caribbean tax haven was forced to ask the Foreign Office
permission to borrow #278m to repair huge deficits. The Foreign Office
refused, advising the island's authorities to impose property or
payroll taxes. Talks are ongoing over a #30m emergency loan package.

Jersey, Guernsey and the Isle of Man are all UK crown dependencies.
The 14 overseas territories under British sovereignty include Bermuda,
the Cayman Islands, Gibraltar and the British Virgin Islands  among
the world's most important tax havens.

Any suggestion that Britain will have to rescue offshore financial
centres would be extremely controversial as tax havens drain the UK
economy of an estimated #25bn annually through their role in
aggressive tax avoidance and evasion.

Vince Cable, the Liberal Democrat Treasury spokesman, said: "Britain
obviously has some responsibility towards these small number of
territories and that's clearly right, but we can't get into an open-
ended bailout that would reward financial mismanagement.

"It would be extraordinary to bail out these tax havens, especially as
additional money that went to them would come out of aid budgets to
the detriment of poorer countries that have managed themselves
properly."

The Foot report is likely to suggest that tax havens should boost
their balance sheets with new taxes, though this would have to be
carefully handled as it could drive away businesses that are valuable
to them.

Foot will say that tax havens will require additional cash to abide by
new international protocols, and that some do not have the expertise
or staff to weather the economic crisis.

He is thought to be concerned at the accuracy of some islands'
economic analysis and modelling.

Sources close to Foot suggest he is particularly concerned that
tourism on Caribbean islands is also suffering which is compounding
the downturn.

The Treasury insisted that it was not in "the business of bailing out
tax havens", while Foreign Office officials said overseas territories
were responsible for their own finances.

But the global recession has had a severe effect on tax havens  even
those close to home. Jersey is projecting a budget deficit of #100m.

The Isle of Man is facing problems associated with the collapse of
Icelandic bank, Kaupthing, which had a business on the island. It may
be forced to spend hundreds of millions of pounds to compensate savers
who have been unable to claw cash back from Kaupthing.

Guernsey could also face similar issues after the collapse of a
Channel Island subsidiary of Landsbanki.

Britain has imposed direct rule and suspended the government of the
Caribbean Turks & Caicos islands amid claims of systemic corruption
there.

Meanwhile there are also suggestions that an ongoing government review
of online gambling sites, many of which are based in the Isle of Man
and Gibraltar, may seek to impose more stringent regulation of them,
which could threaten their offshore futures.