The banker, his socialite wife and the billion pound tax question
Revelations in The Sunday Times last week have thrown a spotlight on a top Barclays banker and the secretive world of tax avoidance
Richard Woods
As recession scythed through Britain last month, the wife of a senior Barclays banker held a lavish party at the five-star Peninsula hotel in Los Angeles. Diana Jenkins was launching a book of celebrity photographs with a little help from Lindsay Lohan, Cindy Crawford, Sir Elton John and other celebs.
The glitterati enjoyed, according to one guest, “upscale comfort food of black truffle . . . and mini cheese-burgers”, with champagne and Jenkins’s own brand of nutritional health drink.
The book featured yet more stars, such as George Clooney, in a variety of poses in a room at the hotel, some straightforward, some rather more sexual. It was all in a good cause, of course: Jenkins is giving proceeds from the book to an organisation she supports that promotes “international justice”.
How did she arrive in such wealthy circles? A beautiful, brainy blonde, she is a former refugee from Bosnia who married Roger Jenkins, one of Britain’s most richly rewarded bankers. He is believed to have been paid £40m in 2007 by Barclays, and the couple like to do their bit for charity. In December they held a party at their London home, attended by Clooney, Matt Damon and Scarlett Johansson, that is said to have raised £10m for the victims of Darfur.
Related Links
Lord Myners ran tax haven firm King Fred’s taste for the high life Allegations of tax avoidance at Barclays Despite such glitzy philanthropy, there is one organisation to which Jenkins dislikes giving money - Her Majesty’s Revenue & Customs. The banker has made his fortune partly, perhaps largely, from his expertise in structuring financial deals that avoid tax.
He is the architect of a unit at Barclays that, as The Sunday Times revealed last week, concocts international transactions that deprive Britain’s coffers of hundreds of millions of pounds a year, according to a whistleblower.
In ordinary circumstances, tax avoidance is perfectly legal and par for the course among big companies. However, it has become deeply contentious for banks, and government ministers.
The financial system has survived thanks only to massive government intervention – and Barclays is considering applying for help from the taxpayer. Not surprisingly, taxpayers are asking why they should give money to banks that are at the same time avoiding tax on a vast scale. Barclays says it acts legally and maintains “an open and transparent relationship” with the taxman, but until now the extent of its tax avoidance has been far from clear.
This weekend a new study reveals that Barclays appears to be the UK’s largest user of tax havens. Where on Earth Are You?, a study by the Tax Justice Network, investigated 33 of the biggest companies in Britain to find out how many subsidiaries they have based in tax havens. Barclays topped the list with 315.
Richard Murphy, primary author of the study, said: “I thought the biggest user of tax havens would be someone like BP or Shell, which have operations all over the place. But it isn’t: Barclays has more tax haven subsidiaries than anyone else. This is the first time we have had this information. The Barclays story is going to travel further. I think it is much more explosive than anyone has said.”
Gordon Brown has pledged to crack down on tax avoidance and hopes to foster international action at the G20 meeting in London next week. Politicians of all parties, aware of taxpayers’ anger, are savaging banks for double standards.
Nick Clegg, the Liberal Democrat leader, summed up the mood: “It is intolerable that taxpayers are being asked to pour money into our banks through the front door while those same banks squirrel away money through the back door.”
JENKINS has always been fiercely competitive. As a young man he was an accomplished 400m runner, though outpaced by his brother, David, who won a silver medal at the 1972 Olympics. He joined Barclays as a trainee in 1978, left to join another bank, and returned in 1994, soon deploying his skill in structuring deals to make them tax efficient.
Jenkins assembled a group of experts in a unit named Structured Capital Markets (SCM) which exploited loopholes in different countries’ tax systems. In 2003, for example, Jenkins and his team set up a company with “no employees, no products and no customers – just a mailing address in Delaware”, according to an investigation reported in The Wall Street Journal. Somehow the company, co-owned by Barclays and a US bank, made a profit of $317m the next year.
The structure of the deal enabled both Barclays and its US partner to profit from the way tax systems worked in different countries. As SCM engaged in numerous such schemes involving billions of pounds, the rewards were potentially huge.
To some experts, however, such schemes are little more than financial sleights of hand.
Prem Sikka, professor of accounting at Essex University, said: “It’s not just Barclays. Companies have been saying they are making profits, but actually it is not strictly speaking profit. All they have done is appropriated the wealth that might have gone to the taxman. The directors’ bonuses aren’t really based on the creation of any additional wealth, any additional economic activity . . . all they manage to do is put their hand in the taxpayers’ pocket.”
Jenkins profited handsomely. As well as homes in Mayfair and Malibu, he and his wife enjoyed the finer things in life. Diana is reputed to have said of private air travel: “It’s very addictive. Once you’ve done it, you want to do it again.”
Known as the “king of the double dip” for finding ways to claim tax relief twice, Jenkins drove his staff hard, according to a whistleblower reported in The Guardian last week. He allegedly called in senior executives and said he was about to fire one of them depending on what deals they came up with next.
At one staff “away day”, Iain Abrahams, a key lieutenant of Jenkins, allegedly appeared on a stage dressed in the costume of a Las Vegas showman. He proceeded to strap a director into an electric chair while a rock song played with the lyrics “I hate you and I hope you die”.
Billion-pound deals were so commonplace that a £16 billion transaction was referred to as being for “16 bucks” or “16 quid”. Asked last week if this account was true, a Barclays spokesman laughed uncomfortably and said: “I’ve no idea. I’m really not that interested.”
However, the enormous sums deployed by SCM seem beyond dispute. Leaked Barclays documents included one scheme involving £11 billion; one for £3 billion rising to £7 billion; one for up to £3.2 billion, and one for £1.5 billion. The whistleblower claimed that the deals could make Barclays a profit of up to £1 billion a year. The bank declined to comment, though an insider played down the affair, claiming SCM had revenue of only £500m a year.
When The Guardian blundered into publishing the documents on its website, however, Barclays’ reaction spoke volumes about the sensitive nature of the schemes. The banks’ lawyers woke a judge at 2am and demanded an injunction to ban publication. The judge granted the order – but not before the documents had been copied by other websites where they are still available.
To the ordinary reader, the material may seem impenetrable.
Even one former tax inspector said schemes can be so opaque that the authorities are unable to assess what tax should be paid. “Some of the schemes Barclays are involved with are so complicated . . . that nobody can understand them,” the source said.
The question of how banks manipulate their figures is now coming to the fore, and it is not just a matter for accountants and shareholders. One of the reasons the credit crunch has taken so long to unwind is that it is difficult to get a handle on what losses banks are sitting on, so complicated are the investments they have on their books. Even City experts disagree widely over interpreting them.
Barclays, for example, posted a profit of £6 billion in 2008. But Sandy Chen, an analyst at Panmure Gordon, a City broker, said: “There are major discrepancies in the way different banks account for various things . . . if [Barclays] hadn’t chosen the specific way of accounting that they did, they might not have had profits in 2008.” Chen predicts the bank will “record major losses in 2009 and 2010”.
BARCLAYS has so far been desperate to avoid taking money from the government so that it can remain independent, thus guarding its privacy. Instead it struck a deal with investors from the Middle East – even though it was more expensive than a rescue offered by the government.
Among Diana Jenkins’s friends is the wife of Sheikh Hamad Al-Thani of Qatar, who has invested large sums in the bank in two separate deals. The sheikh now owns about 15% of Barclays. Many suspect the bank will need more help and Barclays is considering whether to participate in a government scheme to insure the banks’ mountains of “toxic assets”. It must make a decision by the end of the month.
If it does avail itself of the guarantees, taxpayers may have to pick up the bill for tens of billions of pounds of Barclays’ toxic deals – intensify ing the question of tax avoidance. Royal Bank of Scotland, which is now owned 70% by the state, has disbanded the unit it had for devising tax avoidance schemes. “The idea that we could take support from the Treasury with one hand and somehow pick their pocket with the other would be wrong on every level,” an RBS official said.
If Barclays accepts government help, it might be forced to do the same. Alternatively, perhaps Jenkins and his wife could hold a fundraising event, this time with the proceeds going to taxpayers who are facing years of bills for bailing out a failed financial system.
How the deals work
The precise methods by which banks boost their profits by avoiding tax are fiendishly complicated, but broadly speaking they involve transferring money around different countries to maximise the amount of tax relief they get. Banks also collaborate to take advantage of the rules in different jurisdictions.
For example, Bank A in the UK might offer to strike a deal with Bank B in the US in which a large sum of money is transferred into a “special purpose vehicle”. The money might travel, via the special purpose vehicle, through various tax jurisdictions before eventually ending up back with Bank A.
In the course of such transactions, numerous factors might come into play, including the payment of interest on the money and dividends to investors. By careful structuring of the deal, both banks may be able to claim tax advantages at multiple points as the money travels around the world. They then split the gains, with the bank that provides the funds getting the lion’s share.
Governments have tried to crack down on this process. Schemes purely for tax avoidance must be reported to the authorities. However, the suspicion is that banks disguise tax avoidance operations by incorporating into them transactions with a genuine commercial purpose.
Expert lawyers ensure that the schemes comply with the letter, if not the spirit, of the law – and the banks are free to save billions in tax.
business.timesonline.co.uk |
