Square Mile too secretive, says report

Even tax havens such as Bermuda, Jersey and the British Virgin Islands are more open than the City
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The Independent Online

The Treasury has hit back at claims that London is one of the most secretive and underhand financial centres in the world, defending its "transparent" tax system.

The Square Mile is the fifth least- willing banking centre to co-operate with foreign regulators, according to the Financial Secrecy Index, a report commissioned by Christian Aid and the lobbyist Tax Justice Network. Bermuda, Jersey and the British Virgin Islands are more open. The Treasury dismissed the findings that only the likes of Switzerland and Delaware in the US are more secretive.

A spokesman said: "The UK has been at the forefront of international efforts to increase tax transparency throughout the G20. We will continue to work to ensure that other jurisdictions sign tax information exchange agreements and meet international standards of tax transparency."

However, one of the report's authors, Alex Cobham, defended the findings. "London features so high on our secrecy index because of how open it is to funds from the most secretive jurisdictions," he said.

London's poor standing will come as a blow to the Government, which has been attempting to reverse the City's reputation for light-touch regulation in the wake of the financial crash. A recent campaign targeted those with offshore accounts, although those in violation of tax rules were offered a brief amnesty.

"To be fair, the Government realised recently that this is a genuine problem," Said Mr Cobham. "The UK, however, bears responsibility for pushing its overseas territories and dependencies down the route of offshore banking and finance, and should be considering a long-term subsidy to help them expand into other sectors."

Christian Aid singled out London for criticism, claiming that the secrecy it provides has the potential to do far more damage than that in a smaller island tax haven such as Bermuda. With half of the world's most secret jurisdictions "located in Commonwealth countries, Crown dependencies or British overseas territories, the UK's support for financial secrecy globally has been substantial".

Christian Aid is also critical of the amount of money illicitly flowing out of developing countries. Global Financial Integrity, a Washington-based policy centre, estimates this to be as much as $1trn (£608m) annually, compared to the value of foreign aid to the same countries at $100bn.

The Government published its long-awaited report last week looking at offshore financial centres linked to the UK. It warned that British overseas territories and Crown dependencies need to improve financial regulation and find new methods of raising tax or face possible sanctions.

The report was prepared by Michael Foot, a former managing director at the Financial Services Authority. Stephen Timms, the Chief Secretary to the Treasury, said the report sent a strong message to overseas financial centres of the need for "correct regulation and supervision".