In October, Transparency International EU published a report titled "Murky Havens and Phantom Profits: Tax Affairs of EU and UK Banks."
Most of Europe’s large banks have structured their firms to claim billions of profits in tax havens where they have offices with no employees. This is a finding of research just published in a new report by the European Union Chapter of Transparency International (TI EU).
Two of these banks have subsidiary companies in New Zealand – HSCB Holdings PLC and Rabobank.
Of the 39 biggest banks in Europe, 31 declared profits in low or zero-tax jurisdictions. Of these, 29 banks had no people working in the country where large portions of their profits were declared.
An important EU requirement since 2015 is that banks publish country-by-country reports as part of their annual financial statements. This provides the EU’s monitors with the opportunity to scrutinise key financial data for each country where the banks operate.
This data allows TI-EU to scrutinise the tax behaviour of banks. While banks using tax havens could be identified, transparency is still lacking about the nature of banks' transactions hidden away in tax havens.
Over the 5 years that the data have been published, TI EU identified 210 cases of “ghost operations”. This is where banks disclosed having some economic activity in jurisdictions where they have no staff.
Interestingly, of those 15 banks who took up the right of reply to the allegation of “ghost operations”, several took the opportunity to say they had strong principles behind their tax (avoidance) planning.
One bank emphasised its principle of “doing the right thing.”
HSCB, Barclays, Deutsche Bank and Standard Chartered were recently implicated by FinCEN for money-laundering. This poor conduct is made easier in tax havens because of the lack of transparency around financial transactions and other performance measures.
One of the six key recommendations from TI EU’s report is to require banks to publish their reports in open, machine-readable data format.
Another recommendation is that the EU require banks to be fully transparent about their organisational structure by publishing details of all fully consolidated subsidiaries, branches and joint ventures as well as their shares in these entities.
New Zealand initiative
Transparency International New Zealand (TINZ)'s Financial Integrity System Assessment (FISA) project team will monitor this bank data when assessing the New Zealand banking sector. There are useful insights for comparing the financial transactions of our own banks with the 39 EU banks researched by TI EU.
The team will also look out for the response of the EU to the report’s findings.