Spotlight falls on the dark dealings of the tax havens
As Alistair Darling mingled with the press at the Treasury's summer drinks party last Tuesday, officials expressed alarm at steep falls in UK bank share prices, compounding the ever-deepening financial crisis.
When asked whether any reform of the financial system would feature a fundamental review of tax havens and offshore financial centres - the places where the world's banks parked most of their mortgage-backed securities Mortgage-backed securities (MSBs)
Securities backed by a pool of mortgage loans. and structured investment vehicles - officials and ministers replied that it was not a priority.
The secret world of offshore financing, it seems, is the shadow bank system the UK government wants to ignore. But not everyone agrees.
Last month, the Treasury Select Committee began an inquiry into the role played by tax havens in financial instability. In the US last Thursday, the powerful Senate Investigation Committee published a devastating dev·as·tate
tr.v. dev·as·tat·ed, dev·as·tat·ing, dev·as·tates
1. To lay waste; destroy.
2. To overwhelm; confound; stun: was devastated by the rude remark. 114-page report on how giant Swiss bank UBS UBS Union Bank of Switzerland
UBS United Bible Societies
UBS United Blood Services
UBS United Buying Service
UBS Used Bookstore
UBS University Business Services
UBS Universal Building Society (UK)
UBS Ulaanbaatar Broadcasting System , a secretive Liechtenstein bank and rich individuals allegedly hid billions of dollars from tax authorities. 'We are determined to break through these iron rings Iron rings are heavy metal rings used in martial arts for various training purposes. Metal rings have a long history of being used in Yau Kung Mun, Hung Gar, and other styles for weight training, to harden the muscle, skin, or bone, or strengthen the arms and fists. of deception,' said the Senate subcommittee chairman, Democrat Carl Levin Carl Milton Levin (born June 28, 1934) is a Democratic United States Senator from Michigan and is the Chairman of the Senate Committee on Armed Services. He has been in the Senate since 1979 and Michigan's senior senator since 1995. .
And last month, the Bank for International Settlements, the organisation that watches over the world's central banks This is a list of central banks.
Contents A B C D E F G H I J K L M N O P Q R S T U V W Y Z , asked in its annual report: 'How could a huge shadow banking system emerge without provoking clear statements of official concern?'
Traditionally, the shadow banking system centred on places such as the Cayman Islands Cayman Islands (kā`mən), British dependency (2005 est. pop. 44,300), 100 sq mi (259 sq km), comprising three islands in the West Indies. , Bermuda, the Channel Islands and Panama. But new centres have emerged, such as Ireland. It has over the past 20 years become a favoured location for quoted funds linked to banks' debt vehicles. Among its attractions is its famous light-touch regulation, and the cost of listing a fund in Dublin is far cheaper than London.
It has been said that if relevant documents are provided to the Irish authorities by 3pm, the fund will be authorised to trade the next day. 'Even if the regulator worked late on that day, it would be extremely difficult to assess the fund adequately in order to carry out its duties as a regulator,' argues Jim Stewart, senior lecturer in finance at Trinity College, Dublin For other institutions named Trinity College, see .
Trinity is located in the centre of Dublin, Ireland, on College Green opposite the former Irish Houses of Parliament (now a branch of the Bank of Ireland). .
A year on from the first signs of the credit crunch Credit Crunch
An economic condition whereby investment capital is difficult to obtain. Banks and investors become weary of lending funds to corporations thereby driving up the price of debt products for borrowers. , there are a growing number of funds based in Dublin now facing serious difficulties. At least 19 have been identified. But the true figure could be hundreds. Bear Stearns had two investment funds and six debt securities funds listed on the Irish stock exchange The Irish Stock Exchange (ISE) (Irish: Stocmhalartán na hÉireann) is Ireland's stock exchange, formed through the merger of the Cork and Dublin exchanges, both of which have existed as far back as 1793. . And there has been anger in Germany at how four banks with funds quoted in Dublin required a state bail-out of €16.8bn (£13.3bn) as a result of the losses they incurred. Arguments rage about whether their demise is caused by the structure of German banks or lack of Irish regulation.
There is now a sense that the Irish banking world is on the edge. Its banks have played a massive part in the huge surge of investment in property and housing over the past 15 years. Concern is mounting that Irish Nationwide and Anglo Irish will require emergency funding to withstand plummeting valuations of their loans.
'The encouragement of a lack of restraint may well backfire because banking relies on security and there has to be a responsibility to shareholders,' agreed a senior Irish investor. 'That probably has never been taken on board because of the perceived gain. I'm not convinced Ireland is sophisticated enough to be a credible banking economy.'
Ireland is not alone as a repository for wealth. In 50 years, the number of holding companies in Luxembourg has grown from less than 2,000 to more than 14,000. Last week, a report by the European Fund and Asset Management Association (EFAMA EFAMA European Fund and Asset Management Association (Brussels, Belgium) ) confirmed the disproportionately large share of funds hosted by tiny Luxembourg and Ireland. In fact, nearly a quarter are located in Luxembourg and Ireland has nearly 10 per cent of the total funds.
Concern that new banking centres have acted as recipients of toxic financial instruments will prompt fresh investigation from senior US legislators. Last week, it became clear that the US Senate is serious in cracking down on offshore banking when it revealed Australian Frank Lowy, the biggest individual shareholder in giant quoted property firm Westfield, as a client of the notorious Liechtenstein bank, LGT LGT Light
LGT Lateral Gene Transfer
LGT Lifeguard Training
LGT Locomotiv GT (Hungarian rock band)
LGT Lattice Gauge Theory (physics)
LGT Liechtenstein Global Trust (bank) . It accused him of hiding taxes worth $68m (£34m), a claim Lowy catergorically denies.
The effect of US investigations into UBS has forced the Swiss bank to stop opening Swiss bank accounts for Americans, as it battles to retain its licence.
The Treasury, it seems, is becoming somewhat isolated in its attitude to the shadow banking world.