British Prime Minister David Cameron has put tax evasion high up on the agenda at next week’s G8 summit in Northern Ireland. This won’t be an easy issue for him: tax evasion is flourishing in Cameron’s own backyard. Ten of the world’s top tax havens are British.
Take the British Virgin Islands (or BVI) . Located in the Caribbean to the east of Puerto Rico, this tiny archipelago is widely regarded as one of the best places to stash illicit cash.
“Time and time again when I’m trying to track dirty money, embezzled funds, out of Egypt or Algeria, for example, I find that a British Virgin Island company is involved,” says John Christensen, a forensic accountant who runs the Tax Justice Network.
The BVI -- with a population of only 27,000 people -- has 800,000 registered companies on its books. Like other self-governing British financial centers in the Caribbean -- the Caymans, Turks and Caicos, Bermuda, Anguilla and Montserrat -- BVI offers secrecy, very light regulation and low -- or no -- taxation.
Christensen describes these offshore havens as relics of the British Empire that still serve Britain’s purposes: “You have to look at these British tax havens as conduits for capital flowing out of other continents -- North America, Latin America, Africa, Asia -- through these tax havens en route to London. London is the ultimate destination,” he says. London has grown rich processing this incoming capital.
So why is Prime Minister David Cameron now trying to curb the global tax evasion which keeps the havens in business? The answer lies in the financial crisis and the sharp deterioration in the public finances of many countries. The prime minister has come under intense pressure to act from governments around the world that are struggling to cut their budget deficits and desperately need extra revenue.
Emma Seery of the Oxfam aid agency says Cameron is also taking heat from voters and taxpayers at home.
"People are sick and tired of suffering austerity here in this country whilst others prosper by hiding their money offshore,” she says.
Oxfam estimates that British tax havens are harbouring more than $6 trillion, some of it dodging tax in Europe, the U.S. and Asia, and some of it plundered from Africa. The aid agency argues that, in the process, poor countries have been deprived of tens of billions of dollars that could have been invested in teachers, doctors and nurses.
Prime Minister Cameron has urged the British tax havens to drop their cloak of secrecy and be more open about the identities of their customers and how much they are depositing. He has the power to force the havens to become more transparent. But if he uses that power London’s financial center may suffer. And the British havens may face a not-so-sunny future.