Feb 11 2013

How tax havens might undermine that UK banking ring fence

Posted by: Nick Shaxson in: Thoughts

From Professor Prem Sikka, and an article entitled UK banking reform bill won’t curb reckless risk-taking, looking at Britain’s banking reforms which envisage an electrified ring-fence between the useful ‘utility’ banking that banks carry out and the ‘casino’ speculative activities that almost brought the global economy tumbling down about our ears. (The question of course is: why a ring fence? Why not separate these sectors out, like they used to be?) Sikka:

“What if funds flow from a ringfenced entity to non-ringfenced entity via a foreign subsidiary or affiliate in a place where there is no such separation? Would this be a breach of the ringfence? The Bill does not provide any examples of what a breach of ringfencing looks like, though the Treasury will have powers to prohibit unspecified types of transactions.”

It’s a very good question. “A place where there is no such separation” doesn’t have to be a tax haven, but given the ‘tax efficient’ way these things are set up, that is almost certainly what it means. And these jurisdictions, without any democratic accountability to those affected by their legislation, will bend over backwards to be the first to craft their laws so as to facilitate this kind of regulatory rule-bending.

You can be sure that as sure as the regime is in place, this question will be tested to the limit. As will a number of other holes in the rules that Sikka discusses. One powerful solution he advocates: unlimited liability. In other words, owners of the investment bankers can potentially lose their shirts in the event of large losses.

one comment

Demetrius 2th February, 2013 3.18 pm

Very interesting. One point in particular. Has limited liability gone past its “shelf life”?

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