DON'T DO AS I DO, DO AS I SAY!

BLOG 137

Don’t do as I do, do as I say!

Someone has sent me a news release telling me that “David Cameron has written an open letter to leaders of the Crown Dependencies and British Overseas Territories urging them to work in partnership with the UK on stringent measures to establish beneficial ownership of companies”.  I have not read it.  I did Google “Open Letter from David Cameron” but after ploughing through three pages of open letters “to” him I gave up.  I suspect that No 10 is not computer literate enough to know how to get his letters onto the first page of Google.  I did however see that the Isle of Man’s Chief Minister has welcomed the letter, although, as a (presumed) recipient of it, he seems to think that it is urging the IOM’s competitors to get their houses in order and sign up to international treaties on tax.  In fact all of such territories have entered into a number of Tax Information Exchange Agreements, although not enough – probably because these take a time to negotiate.

But I digress.  I doubt that I am alone in deploring hypocracy.  There is something in the bible about removing the mote (not a common word nowadays, but I believe it means a great big plank) from your own eye before worrying about splinters in other people’s.  So surely if Mr Cameron thinks that tiny countries ought to have in place stringent measures to establish beneficial ownership of companies, the obvious thing for them to do is to mimic the UK’s own stringent measures.

Well No!  We don’t have any!  Indeed, not only don’t we have any but the Companies Act 2006, s 126 actually makes it illegal for a UK company to disclose (or even know) its beneficial ownership; “No notice of any trust, expressed or implied or constructive, shall be entered on the register of members … or be receivable by the Registrar”.  This means that if the company knows that shares are held by a nominee, it must hide that fact.  If shares are held by trustees, it must pretend that they are also the beneficial owners.

We also have no public register of trusts.  So if shares are held by trustees not only must the fact that they are trustees be hidden, but no one knows whether the trust is the beneficial owner or it is a bare trust, i.e. the trustee is a nominee for a specific person.

Is this all somehow wicked?  Of course not.  We all quite like a bit of privacy.  Indeed it is a basic human right.  And there are often good commercial reasons for the beneficial owner of an asset wanting to keep his identity secret.  For example, he might be afraid that if he buys something in his own name, the seller will demand a premium price because he knows that the purchaser has a unique reason for wanting the asset.

I recently bought some shares.  I bought them online.  It was quick, simple and cheap.  But the reason it was cheap is because the stockbroker insists on the shares being registered in its name not mine, which cuts out a lot of work as I imagine that their computer deals direct with the company Registrar’s computer, so very little paperwork needs to be created.  But the result is that the company does not know that I am a shareholder, and I am disenfranchised.  I doubt the company cares who owns my few shares and, as I have no desire to attend AGMs and the company’s accounts will be on its website, I am happy to be unknown to it.  A number of foreign companies are listed or quoted on the London Stock Exchange.  I would not be surprised if some are based in Crown Dependencies.  So is David Cameron going to ban my UK stockbroker from registering my shares in such a company in its own name?  If not, how can the overseas country introduce stringent measures to establish the company’s beneficial ownership?  De-listing its shares from London in order to do this would help no-one.

Actually if you want to hide your beneficial ownership you are better off to set up your company in one of the tax havens of Delaware, Texas or Nevada.  The Crown Dependencies have all entered into Information Exchange Agreements with the UK under which HMRC can ask them to obtain whatever information they can about shares that I hold in companies incorporated there.  Delaware, Nevada and Texas have not done so.  Their secrecy is much stronger.  But perhaps not for much longer. And they seem to welcome criminals such as tax evaders.  The Texas Bankers Association is currently suing the US tax authority, the IRS, for billions of dollars.  Why?  Because it has entered into agreements with HMRC and with the tax authorities of a number of other countries to exchange information about bank interest paid.  The Texan bankers say that this will deter English people from keeping Texan bank accounts.  Why should it do so?  I do not have a bank account in Texas but I do have one in Chicago, Illinois.  I have no problem with my bank telling HMRC about it if they need to.  If I receive interest, I am going to tell HMRC, so why should I be concerned if the bank tells them too?  Of course if I were a fraudster and intended to hide my interest from HMRC I would be concerned, and can see that the bank might then be concerned that I would move my money if I thought that keeping it in Texas would expose my fraud.  But if that is the concern of the Texan bankers, HMRC should be worried about Texas, not about Bermuda!

Perhaps they are.  David Cameron undoubtedly learnt from his time at Eton not to pick fights with the bigger boys.  It is only the small ones that you should try to bully.  So it would be crazy to pick a fight with the USA, where the real problem is.  It is far easier to go for tiny countries like the Crown Dependencies even though, if the problem is to expose tax evasion, HMRC have already negotiated with such countries the powers that they need.

ROBERT MAAS