Blowing the Whistle - Times for Financial Secrecy

1. BLOWING
THE
WHISTLE
TIME’S UP FOR FINANCIAL SECRECY
A Christian Aid report
May 2010

2. d Blowing the whistle
Front-cover photo: amateur footballers
in an African tournament
Christian Aid/Tom Pilston

3. Blowing the whistle 1
CONTENTS
Introduction 2
Open letter from Supporters Direct
and The Football Supporters’ Federation 6
Financing the beautiful game 7
The Fit and Proper Person Test 10
Case histories 13
Who really owns our clubs? 16
Christian Aid Football Secrecy League 18
Financial secrecy and development 19
Tax dodging in the developing world 21
How tax-haven secrecy affects
developing countries 22
Financial secrecy, South Africa
and the World Cup 24
The Financial Secrecy World Cup 29
Recommendations 32
Appendices 35
Appendix A: Who really owns our clubs? 35
Appendix B: Details of ranking for
Christian Aid Football Secrecy League 36
Appendix C: Who’s who in the Secrecy League 36
Endnotes to Appendix C 41
Endnotes 43
Acknowledgements 46

4. 2 Blowing the whistle
INTRODUCTION
There seems little to link millions of patterns, save the lives of some 350,000
impassioned football fans in the United children under the age of five a year.2
Kingdom and Republic of Ireland with the
To establish the scale of secrecy in football,
poor and powerless in the developing world
Christian Aid tried to find the true owners
– on the face of it at least.
of every club in the English, Welsh and
But there is a connection – and it’s one that Scottish leagues, as well as the Irish League
is growing ever stronger, disadvantaging in Northern Ireland and League of Ireland in
football fans and further blighting the lives of the Republic of Ireland.
those enduring extreme poverty.
We discovered that a total of 14 English
The difference between their lives is vast, Premier League members and a further five
but football fans and those in need in in the Championship, together with one in
poor countries are victims of the same League One and two in the Scottish League,
phenomenon: the use of financial secrecy by are now based offshore. Until recently, that
business entities in a way that minimises was also the case for one of the clubs in the
their tax liabilities and accountability. League of Ireland.
This secrecy – core to which is the The locations of ownership of a further
anonymity offered by tax havens – has English Premier League club, a
hidden the financial meltdown of a number Championship club and a League One club
of football clubs from view until too late. were impossible to verify.
Stakeholders, club supporters in particular,
The research resulted in a new ranking:
have been betrayed and the football
the Christian Aid Football Secrecy League.
authorities caught napping.
Positions in the ranking reflect the extent
In the developing world, the same web of of secrecy surrounding the controlling
secrecy is used by unscrupulous companies ownership of each club, multiplied by a
to dodge tax. There, its impact is deadly. measure to reflect the number of fans being
denied information.
Companies operating in the developing
world that cook the books cost poor The clubs with the worst scores are therefore
countries about US$160bn every year in those whose use of offshore secrecy
unpaid taxes, Christian Aid has estimated.1 obscures both the clubs’ ultimate ownership
and financial position. As a result the
That sum, around one-and-a-half times the
financial secrecy involved has the potential
size of the international aid budget, could,
to facilitate the greatest social harm in
if used according to existing spending
football.

5. Introduction Blowing the whistle 3
The changes needed to tackle financial
secrecy in football are the same that are
needed to lift the secrecy that affects the
developing world.
To establish the secrecy component, we and the Republic of Ireland and people living
used the ‘Opacity Score’ of the tax haven or in grinding poverty in poor countries.
other jurisdiction to which we were able to
The changes needed to tackle financial
trace the ownership of each club.
secrecy in football are the same that are
These Opacity Scores are taken from the needed to lift the secrecy that affects
Financial Secrecy Index that was drawn the developing world. Those who care
up recently by campaign group the Tax about football, and those who care about
Justice Network and Christian Aid, after eradicating poverty, should together demand
analysing the secrecy each haven (or secrecy three major reforms.
jurisdiction) offers, and the extent of their
Tax dodging in poor countries could be
reluctance to share information about those
greatly reduced if companies trading
using their services.3
internationally were required to declare
As a measure of the size of clubs’ fan bases, the profits made and the tax paid in every
we used the average home attendance. This country where they operate. That way,
rough figure, although including visiting tax anomalies could be quickly spotted
fans, provides the most consistent proxy for a and investigated (see ‘Tax dodging in the
club’s supporter numbers – the stakeholders developing world’, page 21).
who are routinely denied information about
A similar rule, if applied to the owners of
their club’s financial fortunes.
football clubs and their companies, would
Manchester United is used to winning most enable supporters and football’s ruling
trophies that are available; it also heads this bodies alike to see where club owners’
new ranking. Although the identities of its assets and liabilities are held, and to know
apparent owners are seemingly known – the the size of both.
Glazer family from the US – full details of
Armed with that information, fans would be
their business empire remain a tax-haven
far better placed to judge whether those with
mystery. This makes the club, thanks to the
the resources of the club at their disposal
size of the gate at Old Trafford, the single
amount to fit and proper owners (see ‘The Fit
biggest contributor to football’s financial
and Proper Person Test’, page 10).
secrecy in the UK and Ireland (see the
Christian Aid Football Secrecy League, Measures are also needed that would trigger
page 18). far greater transparency in the business
world. The ownership or control of each
It isn’t just the curse of financial secrecy,
company, corporation, trust, partnership,
however, that links football fans in the UK

6. 4 Blowing the whistle Introduction
limited liability partnership, charity and Our research suggests that the Football
other entity created under law should be a Association could make a much larger
matter of public record. contribution in this area, however, by
supporting our demands for greater financial
Such information would help key
transparency.
stakeholders – whether football fans in the
UK and the Republic of Ireland, or civil- The FA’s international relations programme
society organisations in the developing world was set up in 2000 when England’s £11m
– hold companies to account. People have a bid to host the 2006 World Cup ended in
right to know who they are dealing with. failure. An extensive report from the Football
Association following their post-mortem
In addition, there should be automatic
into what went wrong said that during the
exchange of information between tax
bidding, ‘English football... had adopted an
jurisdictions. This would give revenue
insular attitude.’
authorities in poor countries a better chance
of discovering the true extent of the taxable It was seen by some members of UEFA
profits a company is making, and of spotting (Union of European Football Associations)
the transfer abroad of any monies corruptly and the organisation within whose gift
acquired. the World Cup lies, FIFA (Fédération
Internationale de Football Association),
Such information exchanges could also help
‘as stand-offish and even arrogant’.5
the UK tax authorities recover some of the
millions in tax that English league clubs Today England is again bidding to host a
alone owe. World Cup, that of 2018. What better way for
the FA to prove to UEFA and FIFA that it
In recent years the Football Association
has learnt the error of its ways than for it to
(FA) in England has placed much emphasis
take a stand against financial secrecy, not
on its work in the developing world, as can
just on behalf of football fans here, but of the
be seen in the International relations section
millions in developing countries living in
on its website.4
appalling poverty?
An international assistance and development
A clear, public statement that financial
programme is said to be active in all six
transparency must be supported and that
continents and it’s not just concerned with
clubs should not utilise opaque structures,
teaching football skills. Raising awareness of
would be a first step. Making details of
health and social issues in poorer countries is
ownership a matter of public record as a
also part of its mission.

7. Blowing the whistle Introduction 5
prerequisite for membership of the leagues With the World Cup in mind, we also present
the FA sanctions would be a further step in the host country South Africa as a case
the right direction. history, looking at what financial secrecy
means to the most powerful economy on the
Campaign groups that champion football
African continent.
supporters such as the Football Supporters’
Federation and Supporters Direct, an In a recent theological study, The Gospel
umbrella body set up by the UK government and the Rich, Christian Aid said paying tax
to make football clubs and the game’s was part of showing love for one’s neighbour.
governing bodies more democratic and The document argued that tax avoidance,
accountable, would welcome such a move, just as much as the illegal evasion of
as would Christian Aid. Such a stand would tax, is symptomatic of unjust or broken
be an important move in the battle against relationships.
global financial secrecy.
The framework of relational theology derived
This report looks at the finances of league from St John’s Gospel, and informed by the
football in the UK and the Republic of work of modern theologians, emphasises the
Ireland – throwing into sharp relief the importance of good relationships between
boardroom shenanigans that have brought human beings – our response to Jesus’s
a number of clubs to their knees – and it command to love our neighbour.
analyses the impact of financial secrecy on
Christian Aid works with partners in
football and the developing world.
countries across the world to help them
We are not suggesting that anything illicit hold their governments accountable for
or untoward is taking place in the clubs that their spending, at the local and national
we identify. We also recognise that some level, while at the same time working at the
people will use tax havens to reduce tax, national and international levels to bring
rather than conceal information, and that tax about an end to financial secrecy.
reduction will sometimes reflect a genuine
Put simply, financial secrecy comes at a
shift of economic activity, rather than hidden
price. For football fans, it can jeopardise the
tax abuse. Our concern, however, is that
very existence of their much-loved clubs.
the opaque nature of tax havens masks the
truth, whether or not there is anything to In developing countries, that impact is
hide. much more marked. There, financial secrecy
costs lives.

8. 6 Blowing the whistle
RS DIRECT AND
OPEN LETTER FROM SUPPORTE DERATION
THE FOOTBALL SUPPORTERS’ FE
ctures. What
or the use of opaque ownership stru
Supporters of fo otball clubs in the world’s richest more fundamental
nt corner of the is being broken is something far
football nation in a relatively afflue for football: the bond of trust betwee
n those
in common with
globe might not seem to have much communities and the people who own the clubs.
lanet. As this
some of the poorest people on our p might have
report demonstrates, however, bo
th are ill -served by It makes one wonder what someone
tax havens that are to hide and prompt s the realisation that thanks to
the use of financial bolt-holes – the rts that have been
re the damage secrecy, we can’t find out. As spo
dotted around the world. We also sha ion for integrity have
caused by corruption and lack of tr
ansparency. lax about defending their reputat
ost important
at clubs are shown, public trust is perhaps the m
The argument in football has been th asset any sport h as, and secrecy corrodes it.
ed to register
businesses, and businesses are allow bs should care
wherever they see fit; after all, there
is no thing But there is another reason why clu
ent, however, about these issu es: because they say they do.
illegal about doing that. This argum
not businesses
fails to acknowledge that clubs are Football’s power to change lives and
minds is well
as they are common ly understood to be. They otball Foundation,
he understood, and the work of the Fo
have a respo nsibility to act in a way that serves t s-roots football, is
set up to provide investment in gras
com munities they represent. acknowledged, as are the co mmunity programmes at
Many clu bs would have expired though clubs across the UK.
mismanagement years ago we re they normal ake a difference,
– fittingly for a report Clubs know they have the power to m
businesses. Many clubs one of our most
and as the Premier League becomes
authored by Chri stian Aid – began life as teams ponsibility is now
existence successful cultural exports, that res
organise d by churches. Nearly all are only in global too. The FA’s internationa l relations work over
y’s desire to play
because they represent a communit the past decade has shown the way
in this.
enterprises that
and watch sport. They are sporting n interest in
at is good for But once you declare that you have a
must be businesslike for sure, but wh
ily g ood for the improving the lives of c ommunities in the developing
the corporate goose is not necessar alf-hearted.
foot ball gander. world, that commitment cannot be h
ens, football is
By tolerating the use of secrecy hav
Nowhere is this clearer than in the issue of lined alongside those who ca use problems for the
ople don’t care
transparency of ownership. Most pe developing world, instead of being a
n important part
who ultimately owns t he companies that make the
the TVs on which of the solution.
cars they drive, the food they eat or eing customers of
are passionately If English football clubs stopped b
they watch football (although they c ts, the loss of
lubs, however, are tax havens, and legal secrecy hide-ou
about safety and probity). Football c ly power of such
else cultural trade would not be noticed. But the
public institutions that matter like little y. voted fans in
and socially to t he towns and cities in which they pla a statement of solidarity with their de
bs is the story of Africa would be incredib le. Their fans back home
That is because the story of these clu ngland could
of the generations would be very happy too: two wins E
those communities, and the stories k this summer.
of families who have supported them
through thic achieve before a single ball is kicked
eir
and thin: as som eone once said, ‘No one ever had th
ashes scattered at Tesco’s.’
Dave Boyle
s
The privilege of owning one of these institution Chief Executive
carries with it responsibilities to t he community that Supporters Direct
the responsibility www.supporters-direct.org
has sustained it. The first of these is
to reveal your identity . In short, you can remain an
an own a football
anonymous private citizen, or you c Malcolm Clarke
o do both.
club, but you should not be allowed t Chair
say that no laws The Football Supporters’ Federation
That is why it is not good enough to www.fsf.org.uk
b owners
are being broken by the anonymity of clu

9. Blowing the whistle
Blowing the whistle 7
7
FINANCING THE
BEAUTIFUL GAME
Photo credit white
Morton Photographic/iStock
Nevada – the tax haven where ultimate ownership of Manchester United lies

10. 8 Blowing the whistle Financing the beautiful game
Football is Britain’s national game, with the Premier League Those other giants of the Premier League, Arsenal, fare
in England one of the nation’s most successful exports. little better. Most of the shares in the club are owned by
You would therefore be forgiven for thinking the company companies registered in Delaware and the Channel Islands
owning your favourite English Premier League (EPL) team is (Jersey) while its third largest shareholder has his legal
also officially registered in England. But for most of the top- residence in Switzerland.
flight teams, you would be wrong.
Offshore English football is not just a Premiership story. It
When elite English football comes home, it travels a great extends to the next tier down from the Premiership and
deal further than Wembley, Old Trafford, the Emirates beyond. In the Championship, five clubs are based in tax
Stadium or Hackney Marshes. havens. And there is material uncertainty over the precise
location of ownership of one other Championship club.
This report reveals that of the 20 clubs playing in the
Premier League in the 2009/10 season, 14 are based in The corporate structure which owned Crystal Palace
‘secrecy jurisdictions’. Although more commonly known as before it disastrously fell into administration in March 2010
tax havens because they tend to offer a low or zero rate of was based in Jersey. Some 87.5 per cent of the shares in
tax, the key attraction is in fact the secrecy they provide to Ipswich Town Football Club Limited – apparently owned by
those using their services. publicity-shy businessman Marcus Evans, who it has been
reported is a tax exile7 – are reportedly held in Bermuda.
This is what an offshore league looks like:
In League One, one club is based in the British Virgin Islands
• Birmingham City fans may be surprised that their club’s
and there is material uncertainty about the location of
ultimate owner is found in the Cayman Islands.
ownership of one other club.
• the shares of the ultimate owner of Blackburn Rovers, In the Scottish Premier League, Glasgow giants Rangers
a founding member of the Football League in 1888, are have as their ultimate parent Murray International Holdings
held in Jersey by a trust. Limited. According to its annual returns, some 67 per
• Bolton Wanderers’ ultimate owner is Fildraw Private Trust cent of Murray International’s shares are owned by IFG
Company, reported to be based in the Isle of Man. Nominees C I Ltd. This company is registered in Jersey,
which makes it almost impossible for fans to be certain who
And that’s just EPL clubs beginning with the letter ‘B’. the real owner is.
A further three top clubs are located in the United States So British football clubs ‘play away’ in tax havens or secrecy
which, due to the extreme opacity of some states, was jurisdictions, where the financial disclosure rules required
awarded the top ranking in the Financial Secrecy Index.6 by British and European Union law (themselves far from
One of those clubs is Manchester United. The Premiership perfect) do not necessarily apply, and where it can be
giants are registered in Nevada. virtually impossible to trace the human identity of the real
The ‘Silver State’ offers business owners watertight beneficial owner.
protection from disclosure rules, with companies registered But how exactly is that a problem, you might ask, especially
there exempt from taxes on income, assets, franchises and when there is a worldwide love of the Premier League? It’s
stock transfer. now a powerful global brand: 4.77bn people over a season
Like some other US states such as Delaware and Wyoming, in more than 200 countries watch matches featuring its
Nevada offers secrecy to corporations intent on reducing teams.8
or avoiding tax and keeping the details of who profits most Why should we care if football adopts the same ownership
from their activities (their beneficial owners) under wraps. structures as blue-chip banks, private equity houses and
Manchester United’s opaque corporate structure, combined international hedge funds, especially as English Premier
with the number of stakeholders who have an interest in League football’s global reach generates huge wealth?
establishing its ownership – for which the average number The cut-and-thrust passion of the league saw its television
of fans who attend each home game is used as a proxy rights fetch a record-breaking £2.7bn in the three years to
– makes the Premiership’s most famous club top of the 2010.9
Christian Aid Football Secrecy League.

11. Blowing the whistle Financing the beautiful game 9
This huge windfall underpins the stratospheric wages that secrecy jurisdictions to avoid scrutiny, an increasing number
attract the world’s top players. The likes of Didier Drogba, of clubs based in tax havens are failing, at all professional
Fernando Torres and Cesc Fabregas now ply their trade in levels of the English leagues in particular.
the Premier League at the peak of their careers. In April the
Since the English Premier League was formed in 1992,
league even won a Queen’s Award for Enterprise.
as a breakaway from the Football League so top clubs would
Is this not a virtuous circle harnessing the power of business not have to share satellite TV money with the other three
and sport, creating a global phenomenon and bringing professional divisions, Football League clubs have collapsed
prestige to the nation’s elite clubs? insolvent, usually into administration, on more than 50
occasions. This represents close to 60 per cent
Some may see it that way. But they are increasingly isolated
of league clubs.10
voices, like the many powerful advocates of light-touch
financial regulation who in boom years talked up the City of Although relegation and the collapse of ITV Digital, which
London’s magic, thereby boosting the reputation of UK plc. screened non-Premier League matches, were contributory
It was, we were told, self-evidently a positive phenomenon factors, in at least 10 cases financial irregularities by
and anyone who doubted this was dubbed hopelessly naive. directors or owners were also identified as playing a role.
We now know very differently. Football is not dissimilar ‘It was a feature of Britain’s suicidal recklessness in banking,
to the unfettered banking world which in recent years has the housing market and Premier League football that
unleashed upon us the largest global financial crisis for problem gambling was recast as entrepreneurship,’ wrote
nearly a century. The Observer’s chief sports writer, Paul Hayward, following
the collapse of Portsmouth this year.
Today the cash-rich world of football is in danger of falling
into a financial crisis that threatens to destroy clubs that ‘Clubs lived the dream all over again, passing ownership
have for generations been at the heart of communities along a shrouded line as if it were a Tom and Jerry
throughout the UK. time-bomb, spending next year’s money and conning fans
with messiah smiles.’11
The truth is that there are clear parallels between the
banking crisis and a financial malaise that until recently has It also sounds very similar to the strategy deployed by
been quietly stalking football. For fans of the beautiful game, private equity barons who in 15 years bought up huge
some ugly and uncomfortable truths are dawning. swathes of British business on a tide of cheap bank debt
that is now turning sour, using opaque offshore structures to
As times have changed, most supporters now know that
minimise tax and disclosure.
the game was – and to a large extent still is – living in a
fool’s paradise. Fans are wising up to the fact that they have Lord Triesman, the former Labour foreign minister who
no idea who really owns their club. is now chairman of the Football Association, is similarly
concerned at the secrecy surrounding the ownership of
The banking crisis revealed how toxic debt was stashed
some clubs. ’Transparency lies in an unmarked grave,’ he
away from companies’ balance sheets in tax havens such
told football power brokers at a football industry conference
as the Cayman Islands and British Virgin Islands – hidden
in October 2008 just as Lehman Brothers and HBOS
time-bombs that have now exploded.
collapsed.
As the money-go-round comes to a juddering halt across all
‘Nobody has real confidence in what they cannot see. The
sections of society, serious fault-lines in the people’s game
Fit and Proper Person Test does not do the job sufficiently
are now being exposed on a weekly basis.
robustly. A review is now inevitable because football clubs
Supporters of Manchester United, Liverpool, West Ham are not mere commodities. They are the abiding passion of
United and Portsmouth, to name but a few, are only too their supporters. We forget that at our peril.’12
well aware how the football ownership model favoured by
Triesman could just as easily have been talking about
the British football elite in many respects mirrors the same
failed banks and the British public, not just football clubs
misguided structures used by the major players of global
and their fans. And like the collapse of banks, failing clubs
finance.
leave behind a trail of devastation. This may not be in the
And just like the various fallen finance giants who relied on hundreds of billions of pounds, but they leave behind tens
an array of complex accountancy instruments in multiple of millions of pounds in unpaid taxes and thousands of

12. 10 Blowing the whistle Financing the beautiful game
businesses and individuals out of pocket, not to mention the A great deal of lip service is paid by the footballing
broken dreams of their supporters. authorities to the role the sport can play in combating social
problems. Depriving the tax authorities, and therefore
UEFA’s 2010 report The European Club Footballing
society, of such a sum is, of course, rather at variance with
Landscape13, which analysed the 2007-08 accounts of more
such sentiments.
than 700 European clubs, found that 18 English Premier
League clubs had debts of £3.5bn between them. The The £25m owed compares to the Premiership’s annual
complex financial dealings of which that debt is part can contribution to the Football Foundation – the UK’s largest
now be seen to be rooted systematically in tax havens. sports charity, set up to provide investment in grass-roots
football – which stands at around £15m.17
Although the figure was almost four times higher than the
next most indebted top division, Spain’s La Liga, it did not For the year 2008-09 the English Premier League also gave
tell the full story. The debts of two of the most troubled £8.4m to a domestic and international programme called
clubs during that season, Portsmouth and West Ham, were Creating Chances, which encourages young people to take
not included as they were not granted UEFA licences that up sport. A further £6.8m went to the Football League
year due to their financial problems. This year alone, Cardiff Trust, which oversees community and youth development
City, Crystal Palace, Southend United, Notts County and activities at home and abroad.18
Portsmouth have been petitioned by HM Revenue
It is not just the fact that tax havens can hide the truth
& Customs (HMRC) for unpaid tax. The total unpaid tax
about a club owner’s finances. High-level international
bill for all English league clubs is estimated at £25m.14 And
investigation agencies argue that clubs whose ownership
because football creditors are relatively protected when
is based in tax havens run a higher risk of being a conduit
clubs go bust, HMRC is often the biggest loser.15
for money laundering and the illicit spoils of corruption.
The Fit and Proper Person Test
The only sanction the UK Thus Ken Bates, chairman of prohibited by law from Last year Chester City’s
football authorities have Leeds, was able in March to being a director, or being Stephen Vaughan became
against unreliable refuse to divulge the names director of a club that twice the first football club owner
individuals taking over of the new owners of the goes into administration. in England to fail the test
football clubs is the Fit and club saying: ‘They are fit when he was banned from
Proper Person Test. This and proper people as The list of those who have being a company director for
was introduced in 2004 to established by the Football fallen foul of the rules in the 11 years after admitting in
allay concerns that even League, and that is the end past six years consists of court to involvement in a
convicted fraudsters precisely two people, Dennis
of the matter.’16 £500,000 VAT fraud.21
could move into club Coleman and Stephen
management. The Premier League also Vaughan, although The case involved non-
wants to know where millionaire former Thai payment of VAT on clothes
Under rules established by money for a club purchase is Prime Minister Thaksin bought in the name of a
the Premier League and the coming from, and must pass Shinawatra, ex-owner of separate sporting business
Football League, anyone it as legitimate. They will Manchester City, would linked to Vaughan, a former
who takes over as director of investigate before a presumably have failed the Merseyside boxer.
a football club, or owner of takeover. The Football test had he not already sold
more than 30 per cent of a League only gets involved his stake in the club when On 8 March 2010, Chester
club’s shares, must pass the after the deal has gone Thailand’s supreme court City was dissolved in the
test. through. convicted him of corruption.19 High Court following a
winding-up order by HMRC,
The Premier League now There are a number of Dennis Coleman became the which said it was owed
asks its clubs to make public conditions which can lead to first club director ever to be £26,000 in unpaid tax – a
the name of anyone who an owner or potential owner disqualified under the test. tragic end for a much-loved
owns 10 per cent or more of being disqualified. These He was chairman of club with 125 years of
a club. The Football League include convictions for a Rotherham United when history.22
asks the same question, but variety of fraud offences, they went into
does not make the becoming bankrupt, being administration twice.20
information public.

13. Blowing the whistle Financing the beautiful game 11
Christian Aid/Judy Rogers
A tax-haven idyll in the Caribbean
In 2009 the world’s most powerful anti-money laundering misuse, such as tax evasion, insider fraud and also money
and counter-terror finance agency, the intergovernmental laundering.’ Furthermore, the FATF noted the recent trend of
Financial Action Task Force (FATF), set up by G7 countries, footballers (or rights in players) being bought by individuals
published a 42-page report: Money Laundering Through the or entities that are not football clubs and are based offshore.
Football Sector.23
‘The basis of the acquisition of these rights and the trading,
The task force found a game hugely vulnerable to the influx funding and ownership position of the entities through
of dirty cash, saying it had detected more than 20 cases of which such transactions are managed is opaque and often
football-related money-laundering activities in 25 countries. impossible for the football organisations to establish,‘ it said.
Tax havens were highlighted as the vital washing station
With many clubs facing huge borrowings exacerbated by a
through which illicit flows were routed.
serious economic downturn, FATF warned: ‘There is a risk
‘Difficulties in international exchange of information and that clubs that are in debt will not ask many questions when
the use of tax havens are a major stumbling block in the a new investor appears.
detection and prosecution of money laundering through the
‘Moreover, a very high proportion of the sector’s cost
football sector,’ it said.
base is composed of tax, meaning in some cases a culture
The report crucially drew parallels between ‘the over- of seeking to circumvent tax and closer proximity to
evaluation of a player’ and ‘money-laundering techniques underground activities.’
similar to the over-invoicing of goods and services seen in
The FATF also noted a cover-up culture within clubs and
trade-based money laundering’ (see ‘Tax Dodging in the
the game’s authorities. ‘People are reluctant to shatter
Developing World’, page 21).
sports’ illusion of innocence. Therefore illegal activity
Despite the publicity surrounding transfer fees, the report may not often be reported especially as the mere hint of
added that many such deals lacked transparency. As a financial corruption could jeopardise lucrative sponsorship
result, ‘the transfer market is vulnerable to various forms of deals,’ it said.

14. 12 Blowing the whistle Financing the beautiful game
‘As with Parliament and many other areas
of public life, transparency is going to be an
increasing requirement and expectation.’
Shadow Minister for Sport Hugh Robertson
Transparency International, the Berlin-based anti-corruption Shadow Minister for Sport at the time Hugh Robertson
campaign group, in a report on sport that highlighted football appeared to agree with Sutcliffe: ‘As with Parliament and
as an area of concern, suggested: ‘Vulnerabilities in the many other areas of public life, transparency is going to be
sector’s financing and due diligence practices, culture and an increasing requirement and expectation. That includes
structure are seen… as creating an environment conducive publicly identifying the owners of football clubs. Football
to money laundering by organised crime.’24 should reform its governance to include greater supporter
representation on the board of clubs.’26
Tax havens are today pivotal in the global money machine.
Given the extensive use of them by those involved in the Liberal Democrat MP Phil Willis, who has long criticised
beautiful game, it is ironic that some football executives the anonymity of Leeds’ ownership, said: ‘At the very least,
who are keen to promote the benefits to the community of supporters of a club have a right to know who owns it.’27
football make every effort to hide their identities from tax
These are powerful voices calling for openness and
authorities and fans.
transparency in football.
It is doubly ironic that at some clubs football fans have to
As fans increasingly organise themselves to take over debt-
prove their identity when applying for season tickets, yet
stricken clubs, the pressure is now on politicians to follow
many of those running clubs feel no such compulsion in
through on their demands for increased transparency.
their business dealings.
When Wimbledon’s Norwegian owners decided to tear the
club away from its south-west London roots and start afresh
in Milton Keynes, supporters vociferously objected and
fought the proposal.
Tracking down the true owners of the club, however,
proved difficult, until the brother of a fan who was
visiting the British Virgin Islands discovered the club was
registered there.
At Leeds, even when the company owning the club can be
identified – the controlling interest is the Forward Sports
Fund (FSF), administered from Switzerland – it is impossible
to establish where that company is registered, or who is
behind it.
In March club chairman Ken Bates refused to identify who
owned FSF. Minister for Sport at the time Gerry Sutcliffe,
commenting on the mysteries surrounding the ownership of
Leeds United, said in March: ‘Fans of any football club have
a right to know who the owners are. We want to see greater
supporter representation in the running of football clubs and
far greater accountability.25
‘While I welcome the Football League’s moves in securing
detailed financial information from clubs and their work
with HMRC to help keep clubs on a secure financial
footing, more can still be done. We have offered to help
the League, where we can, on the issue of transparency
but it should insist on clubs making public to their
supporters who owns them.’

15. CASE HISTORIES
Blowing the whistle Case histories 13
Manchester United Leeds United
The most successful English club on and off the pitch, As Leeds languishes in the third tier of English football,
Manchester United is also the Premier League’s the fact that its ultimate parent company is based
most secretive club. Managed by Sir Alex Ferguson, through a series of tax havens could be held to be the
the club’s ultimate owners are two entities, Red only way that the fallen giant can get a taste of Europe.
Football Limited Partnership and Red Football General
Partner Inc. The Yorkshire team takes the prize as the most secretive
club in League One. Indeed the club takes secrecy to a
The Glazer family have said they own the shares but new level.
there is no way of verifying this. The companies are
based in Nevada, which boasts of ‘a compelling array The club’s chairman is Ken Bates; the ownership of his
of benefits available to Nevada business owners such previous club, Chelsea, was similarly opaque and
as privacy, tax savings, convenience and flexibility’, offshore.
according to one of the state’s company formation Companies House documents name three offshore
agents. entities and a lawyer based in Monaco as holding shares
For the Glazers this flexibility means shareholder in Leeds. But crucially, the individuals who ultimately
information does not need to be disclosed and virtually own the shares are not identified.
no taxes are required to be paid. Details about the When Leeds United was acquired following its ruinous
identities of those associated with the parent football and financial slide, it was bought by Forward
companies are not available for public scrutiny. Sports Fund (FSF), once registered in the Cayman
This fuels suspicion and distrust between supporters Islands and administered from Switzerland.
of the club and its owners, made worse because the FSF, which owns more than 70 per cent of Leeds, is
Glazers bought the club in a classic private-equity-style based in Geneva at the office of Chateau Fiduciare,
leveraged deal. In other words, only a small amount which administers the fund. But the location of its
of cash was involved. Instead, the new owners registration is unclear. Other Leeds shareholders are
borrowed large sums to finance the deals, and that based in Switzerland and the British Virgin Islands.
money will have to be repaid, in all likelihood with
cash flow from the club. Leeds has paid back a significant amount of its debt
burden since Bates became involved with the club and
It means that what was once the richest club in the has enjoyed some success this season, knocking
world with no debt is now struggling under £716m Manchester United out of the FA Cup.
of borrowings, some of which have punitive interest
charges attached. Furthermore the club has sold one But it still does not publish its owners and under
of its best players, not reinvested money back into its Football League rules – different from the Premiership
playing squad, and may well be forced to sell its – it does not have to.
training ground to finance the borrowings. To be fair, even Ken Bates himself seems a bit uncertain
The situation parallels that faced by its bitter rivals about ownership. While the English football authorities
Liverpool – also the subject of a leveraged buy-out by may be content to leave Leeds fans in the dark, a court
American financiers. in Jersey can be commended for having attempted to
bring matters out into the open.
At Manchester United, the Glazers recently launched
a £500m bond to help reduce the debt. According to the In January 2009, Bates’ solicitors told Jersey’s Royal
bond prospectus, under the terms of the refinancing, Court that he owned one of the ‘management shares’ in
the new bonds include terms that allow the Glazers to the FSF, and a lawyer for Bates subsequently confirmed
transfer £70m to the holding company, Red Football that there were only two such shares in existence,
Joint Venture Ltd.28 making him joint owner.
The release of the information in the prospectus has Then in May 2009, Bates changed his mind and told the
sparked a wave of protest against the Glazers. Serious court in a sworn statement that there had been ‘an error’,
discussions are now underway with wealthy supporters that there were in fact 10,000 shares in FSF not two, and
looking to organise a buy-out. that in any case none of them at all belonged to him.29
Fans are further angered by information in the Leeds fans have expressed grave concern that they have
prospectus about financial dealings over the past five no idea where money is going.
years which was not otherwise available because of the
club’s opaque offshore ownership arrangements.

16. 14 Blowing the whistle Case histories
Notts County
Notts County fans were over the moon last year when a Initially, Munto said the Qadbak investors were ‘noted
consortium called Qadbak Investments, said to wealthy families’, but financial secrecy meant no one
represent Middle Eastern interests, showed an interest had any way of checking. Later the families named by
in taking over the club, which was then struggling in the club denied their involvement.
the lowest reaches of the English professional league.
The Football League asked who the people behind
Qadbak initially suggested it was a Swiss-based Qadbak were, as the rules required them to pass the Fit
organisation, though it later emerged the entity is a and Proper Person Test (see page 10). After resisting for
British Virgin Islands-registered company that weeks, the club relented and the League announced
conducted its business through a subsidiary called that they now knew who was behind the club – but
Munto Finance Ltd. could not divulge that information to anyone else.
The supporters’ trust at the club voted by a substantial With a policy of not sharing information revealed by the
majority to gift the consortium their 60 per cent interest Fit and Proper Person Test with the wider public, the
in the club’s affairs, and with other shareholders doing League was trapped between its own rules on the one
likewise, Munto Finance quickly had 90 per cent of the hand, and the secrecy that comes from registering
club for no direct outlay, just an array of undertakings companies in tax havens on the other.
that were quickly broken.
Notts County is the world’s oldest professional club but
Club chairman John Armstrong-Holmes waxed lyrical: came perilously close to being wiped out by people
‘We are all excited about where Munto could take us,’ representing unidentified interests.
he said. ‘This deal has made us the envy of clubs up and
down the country.’30 When questioned about the lack of transparency of his
new bosses after joining the club, Eriksson said: ‘Where
He and his fellow directors were not the only people exactly [the money] is coming from, who could care less
taken in. Two former Jersey-based financiers as long as it’s legal?’33 But as Sven found out to his cost,
representing the consortium also made contact with without transparency, you can’t be sure that the money
former England international manager Sven-Goran is legal or indeed ever existed at all.
Eriksson, who had just been sacked as manager of the
Mexican national team. Eventually the day was saved by new backers, but the
story of how Notts County teetered on the verge of
Last June, at the Dorchester Hotel in London’s Park bankruptcy goes to the heart of how it is possible for
Lane, the representatives gave him a ‘very clever, very secret entities to inveigle themselves into well-known
convincing’ pitch about why he should move to Notts institutions. It also shows the damage offshore football
County. ownership can do.
‘They had already bought the club and they wanted to Just two months later the club was sold. Ownership has
take it to the Premier League,’ he said in a recent changed hands one more time since then. County is
interview. ‘There were a lot of promises about players, now on a more solid footing but no thanks to the rules
about the training ground, the academy; they said they that govern international finance which place football
would fix the stadium, that they would buy feeder and the developing world in such vulnerable positions.
clubs.’31
Eriksson described the vision as ‘like a dream to me’. It
didn’t take long for that dream to become a nightmare.
Promised investment failed to materialise, bills went
unpaid and in November the tax authorities issued a
winding-up order.
The businessmen who had enticed Eriksson to the club,
and insisted that the logo of an entity called Swiss
Commodity Holding be incorporated into the club
crest32, disappeared from view once the promised
finance failed to materialise.
‘What’s disappointing about these people is that they
just disappeared – without saying anything,’ said
Eriksson. ‘Without any message to the players, to the
fans, to the staff. Just gone.’

17. Blowing the whistle Case histories 15
Portsmouth Cork City
The first Premier League club ever to fall into Cork City was brought to its knees in February this year.
administration, Portsmouth exemplifies the lax In the club’s 26 years, it won two League of Ireland titles
regulation and casual, footloose rules that thrive in and numerous other honours, but having missed a
British football. number of court deadlines to pay a €160,000 tax
liability38, the club was put into liquidation.
The club’s financial situation threatens the existence of
an institution, the jobs of ordinary club employees, and Cork City’s finances had sunk so low its team’s bus-
the financial well-being of creditors owed debts of an driver refused to transport players to a game until his
estimated £85m.34 company was repaid all its outstanding debts. Players
and staff were unable to pay their bills.
In the 2009-10 season alone, Pompey, as the club is
known in the football world, has had four owners and The club’s ultimate parent entity, Buchanan Holding,
might have another by the season’s close. gave no details of ownership although it appears to have
been incorporated in Jersey.
The last-known jurisdiction of incorporation of the club
– though not its ultimate owner – was the British Virgin A consortium that was interested in rescuing Cork City
Islands (BVI). backed away when the club was wound up with debts
said to be around €1.2m and the Football Association of
That information from the company accounts has been Ireland denied it a Premier Division licence to play.39
superceded by the administrator’s report to creditors,
which states that the club is 90 per cent owned by a The club has now been resurrected by its fans as a
company press reports say is registered in the BVI. cooperative – a case of supporters picking up the pieces
from the purveyors of offshore football.
Portsmouth’s financial demise began in 2006 when a
businessman, Alexandre ‘Sacha’ Gaydamak, bought a 50
per cent stake in the club; this was later converted into
full ownership.
Gaydamak’s involvement raised questions over whether
he was acting as a front for his father35, former owner of
Israeli team Beitar Jerusalem, who had been convicted
in absentia in France of illegal arms trading during the
Angolan civil war.36
The Premier League was convinced otherwise, however,
accepting that Gaydamak junior was the ultimate
beneficial owner.
The club went on a player-acquisition binge, recruiting
major names including England internationals David
James, Peter Crouch and Jermaine Defoe. The inflated
wage bill then became unsustainable and by last
summer, indebted to the banks to the tune of £50m,
Gaydamak needed to find new investment.
This was the catalyst that produced a parade of a further
three foreign businessmen who became owners of
Portsmouth in an unseemly version of Pass the Toxic
Parcel. None of them managed to ward off financial
meltdown and in February the club went into
administration.
The result is that £11.6m is owed to HMRC and the club’s
administrator has made more than a quarter of its staff
redundant.37
Of the 85 losing their jobs, most are lowly paid office
staff, employees in the ticket office, assistants in the
club shop, coaches and press officers.

18. 16 Blowing the whistle
WHO REALLY
OWNS OUR CLUBS?
Photo credit white
Glyn Kirk/AFP/Getty Images
Angry Portsmouth fans demanding to know whether the club is in
the hands of ‘Fit and Proper’ owners

19. Who really owns our clubs? Blowing the whistle 17
Finding out who owns a football club should be Overleaf can be found a league table of the 25 most
straightforward. The pre-eminence of the game in the secretive clubs in English and Scottish football. Details of
national consciousness, combined with the many millions of ownership reflect information obtained from all available
supporters who care passionately about its fortunes, should sources. In a number of cases, that information can only
be enough to throw light into the darkest corners. at best be taken as hearsay as ownership details were not
legally documented. (Ranking and ownership are detailed in
In the Republic of Ireland, determining club ownership is
Appendices B and C, page 36.)
easy. They have a law called the Registration of Business
Names Act 1963. To obtain the ranking for the league table, we assessed all
92 English league clubs, together with a further 34 clubs in
This stipulates that if you’re going to trade as the Blue
the top leagues of Scotland, Wales, Northern Ireland and
Football Club for example, then you must register that fact
the Republic of Ireland, in order to establish the country or
and say who is the legal owner of the business of that name
jurisdiction where the club is owned according to registered
– whether it be a limited company, partnership or individual.
company accounts.
In the UK, however, football ownership is far from
We then took the Opacity Score for each of those
transparent. A law requiring exactly the same kind of
jurisdictions, which in the case of the top 25, as far as
information as pertains in the Republic of Ireland was
we could establish, are all outside the UK or Republic of
dispensed with in 1985.
Ireland. The Opacity Score reflects the financial secrecy
Despite the best efforts of two Fellows of the Institute of each jurisdiction, and is based on the Financial Secrecy
of Chartered Accountants in England and Wales, who Index drawn up recently by Christian Aid and campaign
researched this report, we were unsuccessful on a number group the Tax Justice Network. 42
of occasions in determining the precise ownership of some
Where shares are held in more than one jurisdiction a
of the UK’s major football clubs.
combined score was achieved by weighting the Opacity
Although there is a legal requirement that a company place Score of each jurisdiction according to the size of the
its company number and the location of its registered shareholding held there. The average home attendances for
office on everything it publishes, including its website, this each club were then used as a proxy measure of the size of
information was missing from many club websites – the their fan base, and therefore of the size of the community
first place we checked. with a stake in the club being well-managed.
Full marks, though, to those that did include the details, After squaring the Opacity Score and taking the square
and to the English Football League, which seems to have root of the attendance figure (in order to make the scale of
encouraged publication of this information (not always numbers comparable, with the Opacity Score dominating),
successfully) in its web-design template for members. we then multiplied the two together to reach a final secrecy
score. The higher the score, the greater the potential for
A full explanation of the measures we took to try to elicit each club’s secrecy to facilitate social harm.
legally verifiable information about ownership can be found
in Appendix A (see page 35). The starting point in many We are not implying that anything illicit or untoward is
cases was to match a company name at Companies House taking place in connection with any of the clubs identified.
with the name of a club. Other methods used to try to Nor do we wish to imply that the only people who use
establish ownership, albeit with information that could not tax havens are those who wish to avoid transparency,
be legally verified, included: rather than, for example, to limit their exposure to tax or
regulation, although clearly some people do both.
1. emailing and telephoning clubs
What we are highlighting is the way that financial opacity
2. using information supplied by Supporters Direct, and the
obscures the truth, whatever its nature. An unknown or
Football Supporters’ Federation
unknowable owner can still have the best interests of the
3. consulting academic research on the subject, notably by club at heart – but anonymity can also be used to hide
Stephen Hope, School of Business and Social Sciences, unpalatable financial truths.
Roehampton University40, and Dr Geoff Walters, School
Our survey highlights the fact that in a number of cases fans
of Management, Birkbeck, University of London41
may think they know who owns their clubs, but they can
4. media reports and other secondary sources such as have absolutely no way of being sure – a state of affairs that
PLUS, the international stockmarket. exploits their loyalty and besmirches the beautiful game.

20. 18 Blowing the whistle
CHRISTIAN AID FOOTBALL SECRECY LEAGUE
Ranking Company Company Name Country Opacity Average Secrecy
Number of Control Score Attendance Score
1 Manchester 95489 Manchester United USA 92 74,728 231.4
United Football Club Ltd
2 Tottenham 57186 Tottenham Hotspur Football Bahamas 100 35,788 189.2
Hotspur & Athletic Co Ltd
3 Manchester City 40946 Manchester City Abu Dhabi 92 45,292 180.1
Football Club Ltd
4 Liverpool 35668 The Liverpool Football Club USA 92 43,326 176.2
& Athletics Grounds Ltd
5 Aston Villa 3375789 Aston Villa Football USA 92 38,181 165.4
Club Ltd
6 Rangers SC004276 The Rangers Football Club plc Channel 87 47,372 164.7
Islands
7 Leeds United 6233875 Leeds United Not known 100 24,134 155.4
Football Club Ltd
8 Sunderland 49116 Sunderland Association Jersey 87 39,933 151.3
Football Club Ltd
9 Derby County 49139 Derby County USA 92 29,170 144.6
Football Club Ltd
10 Birmingham City 27318/ Birmingham City Football Cayman 92 24,921 133.6
3304408 Club plc Islands
11 Leicester City 4593477 Leicester City USA 92 23,979 131.1
Football Club Ltd
12 Fulham 2114486 Fulham Football Bermuda 92 23,968 131.0
Club (1987) Ltd
13 Arsenal 109244/ Arsenal Football Club plc Multiple 71.9 59,878 126.5
4250459 offshore
14 Ipswich Town 315421 Ipswich Town Football Club Bermuda 92 20,983 122.6
Company Ltd
15 Blackburn Rovers 53482 Blackburn Rovers Football Jersey 87 25,046 119.8
and Athletic plc
16 Hull City 4032392 The Hull City Association Jersey 87 24,289 118.0
Football Club (Tigers) Ltd
17 Portsmouth 3747237 Portsmouth City British 92 18,543 115.3
Football Club Ltd Virgin
Islands (BVI)
18 Queens Park 60094/ Queens Park Rangers Football Not known 100 13,075 114.3
Rangers 3197756 and Athletic Club Ltd
19 West Ham United 66516 West Ham United Football New club 76 33,452 105.6
Club plc owners
20 Wolverhampton 1989823 Wolverhampton Wanderers Guernsey 79 28,191 104.8
Wanderers Football Club (1986) Ltd
21 Bolton 43026 Bolton Wanderers Football & Isle of Man 83 21,843 101.8
Wanderers Athletic Company Ltd
22 Crystal Palace 3951645 Crystal Palace FC Jersey 87 14,523 91.2
(2000) Ltd
23 Hearts SC5863 Heart of Midlothian plc Lithuania 72.1 14,389 62.4
24 Hartlepool 98191 Hartlepool United Football BVI 92 3,466 49.8
United Club Ltd
25 Watford 104194 The Watford Association Multiple 61.5 14,167 45.0
Football Club Ltd offshore

21. Blowing the whistle 19
FINANCIAL
SECRECY AND
DEVELOPMENT
Photo credit white
Christian Aid/Sarah Filbey
Financial secrecy helps consign families and
communities in the developing world to a lifetime
of poverty

22. 20 Blowing the whistle
The impact of financial secrecy on the world of football • encouraging rent-seeking (see below) and reducing
can be gauged by clubs going broke, staff being made private incomes in developing countries
redundant, creditors left out of pocket and fans feeling
betrayed. • damaging institutional quality and growth in developing
countries.
The impact of financial secrecy globally, however, causes
suffering so immense that the system which facilitates One of the commission’s members, Professor Ragnar
clandestine money movements has been called ‘the ugliest Torvik, in a paper submitted with the commission’s report46,
chapter in economic affairs since slavery’. argued that havens distort developing countries, above all,
by changing incentives.
That stark description was coined by Raymond Baker, a
senior fellow at the US Center for International Policy, and a Instead of politicians, for instance, promoting productive
global authority on illicit finance, to describe the manner in activity, they will instead turn to ‘rent-seeking activity’ from
which rich nations receive billions of dollars every year that which the returns are higher such as selling mineral rights
have been systematically and illicitly removed from poorer off at below market value in exchange for a secret payment
countries. into an offshore account.
He estimates that between US$1trn and US$1.6trn of illicit The availability of haven ‘services’ can also help politicians
cash flows annually from countries where 80 per cent of the who want to close down or otherwise undermine agencies
world’s population live into countries where 20 per cent of tasked with tackling corruption.
the global population lives.43 The secrecy that havens offer, Torvik argued, also helps
Bribery and theft by government officials, he estimates, undermine democracy by favouring narrow self-interest
account for three per cent of that total, while other purely over broader-based progress. As a consequence, they may
criminal activities account for a further 30-35 per cent. increase the chances of conflict.
The bulk, however, 60-65 per cent, consists of profits that Meanwhile, the establishment of fair and equitable systems
businesses, particularly multinational corporations, shift of taxation in poor countries has to be a development
between tax jurisdictions to reduce, or even completely priority. Put simply, the political landscape changes in
dodge, their tax bills. The victims are the poorer countries countries where government revenues are largely derived
where they operate, which lack the resources and expertise from the taxing of citizens in such a manner.
to counter tax dodging on such a massive scale.44 Rulers dependent on taxes have a direct stake in the
This movement of illicit funds is facilitated in large part by prosperity of some or most of their citizens, and ‘therefore
the existence of tax havens, or secrecy jurisdictions. The have incentives to promote that prosperity’, says Mick
damage caused by the secrecy they offer goes far beyond Moore, professorial fellow at UK-based independent
the loss of revenue and the impact of that on a country’s research charity the Institute of Development Studies.47
ability to provide public services for its citizens. He adds: ‘Broad taxation, to a far greater extent than either
A Norwegian Government Commission on Capital Flight aid or natural-resource revenues, obliges the state to invest
and Poor Countries, which reported last year45, accused tax in the creation of a relatively reliable, uncorrupt, professional
havens of: career public service to assess and collect dues and then
hand them over to the state treasury.’
• increasing the risk premium in international financial
markets Citizens being taxed, meanwhile, will engage politically,
either by organising to resist taxation or to ensure their tax
• undermining the working of the tax system and public money is well-used. Unless the sole response of the state
finances is to crush resistance, ‘these reactions tend to increase the
accountability of governments,’ says Moore.
• increasing the inequitable distribution of tax revenues
Recent research pooling data from 113 countries between
• reducing the efficiency of resource allocation in 1971 and 1997 found evidence that it was the need
developing countries for greater tax revenue that forced governments (even
• making economic crime more profitable authoritarian ones) to democratise.48

23. Blowing the whistle 21
TAX DODGING IN
THE DEVELOPING WORLD
The most pervasive form of tax dodging in developing Professor Pak, who has advised US Congress on this
countries is a practice known to the accountancy world issue, analysed bilateral trade in commodities between
as ‘abusive transfer pricing’. 2005 and 2007, calculated the parameters of the normal
price range for products traded between countries, and
By itself, the name reveals little. It is a key component estimated the amount of capital shifted by trades that
however, in the movement of illicit funds from the were outside that normal price range.
developing world.
The totals he arrived at included prices that had either
It refers to the way subsidiaries of the same multinational been artificially depressed or artificially inflated for tax
trade with each other, or with the parent company. purposes. Some of the prices, he warned, would
Today, some 60 per cent of world trade takes place primarily have been doctored for money laundering or
within multinationals rather than between them, or other illicit purposes, but even in those cases, there
between trading entities which are independent of would have been a tax consequence.
each other.49
In spite of the enormous sums Professor Pak’s research
With so much in-house business on the go between exposed, they are just the tip of the iceberg. For he
parts of the same multinational, regulators stipulate that could only analyse publicly available trade data.
a fair market price – an ‘arm’s length price’ – must be Information on trade involving the most secretive havens
charged for what is bought and sold. would, if known, reveal a far more serious picture.
If above board, such deals are called ‘transfer pricing’. According to his findings, between 2005 and 2007, the
A full 50 per cent50 of world trade, however, is now total amount of illicit capital flow from trade mispricing
reported to take place through secrecy jurisdictions, into the EU and the US alone from non-EU countries was
otherwise known as tax havens, where the costs that estimated conservatively at more than £581.4bn
a multinational charges itself are impossible to verify. (€850.1bn, US$1.1trn at the time the report was written).
Difficulties in policing the trade in material goods, or It broke down specifically to £229.7bn (€335.8bn,
commodities, combined with fees charged for such US$441.2bn) into the EU countries and £351.7bn
intangibles as ‘management services’ or intellectual (€514.3bn, US$673.6bn) into the US.
property rights, where no open market rate exists, make
it impossible to determine whether an ‘arm’s length’ Powerful economies in the developing world – Argentina,
price has been charged. Brazil, China, India, Indonesia, Mexico and South Africa
– lost a total of £119.5bn in illicit capital flows to the EU
A company in one country can charge a vastly reduced and US between 2005 and 2007. Meanwhile, the world’s
rate for goods and services to another based elsewhere poorest countries lost £5.78bn in the same period.
purely to minimise its tax liability.
Christian Aid estimated that if tax was raised on this
When such deals are between parts of the same capital, China would have had an additional £20.2bn,
multinational, they are called ‘abusive transfer pricing’. Mexico would have had an additional £10.5bn and India
When conducted between independent entities in would have had an additional £3.6bn in their public
collusion with each other, it has a rather more prosaic coffers. Meanwhile, the world’s 49 poorest countries
name – ‘false invoicing’. Together, the phenomenon is could have raised an additional £1.8bn in tax.
known as ‘trade mispricing’.51
The implied tax loss extrapolated to all developing
Much, but by no means all, of the illicit capital made country trades is consistent with Christian Aid’s estimate
from trade mispricing flows into the European Union in Death and Taxes: the True Toll of Tax Dodging,
and the United States. published in May 2008, that US$160bn (£80bn at the
In 2009 Christian Aid commissioned international trade exchange rate then) of revenue is lost by developing
pricing expert Simon Pak, president of the Trade countries globally every year.
Research Institute and associate professor at Penn This is more than the annual global development aid
State University in the US, to analyse EU and US trade budget and much greater than the £28bn to £42bn the
data and estimate the amount of capital shifted from World Bank estimated would be required annually to
non-EU countries into the EU, the US, the UK and the meet the millennium development goals (MDGs) aimed
Republic of Ireland.52 at halving extreme poverty by 2015.

24. 22 Blowing the whistle
HOW TAX-HAVEN SECRECY
AFFECTS DEVELOPING
COUNTRIES
‘Many citizens of developing (and developed) countries
now have easy access to tax havens and the result
is that these countries are losing to tax havens
almost three times what they get from developed
countries in aid. If taxes on this income were collected,
billions of dollars would become available to finance
development.’
Jeffrey Owens, Director, OECD Centre for Tax Policy
Administration, January 2009
Christian Aid/Jodi Bieber/NB Pictures
‘We will set down new measures to crack down on
those tax havens that siphon money from developing
countries, money that could otherwise be spent on bed
nets, vaccinations, economic development and jobs.’
Gordon Brown, UK Prime Minister, March 2009
‘We stand ready to take agreed action against
those jurisdictions which do not meet international
standards in relation to tax transparency… We are
committed to developing proposals, by end 2009, to Collecting water in rural South Africa
make it easier for developing countries to secure the
benefits of a new cooperative tax environment.’
G20 Declaration, April 2009 demand that developing countries be included in any new
There is a growing consensus that international action is international plan to prise more information from tax havens.
needed to fight the damage caused by tax-haven secrecy Some regions and countries are clearly more affected by tax
– and that developing countries’ interests, in particular, must havens than others and this warrants further research. These
be better protected. differences are likely to require different policy priorities.
Christian Aid has analysed international data on trade and The following table shows, for different groups of countries,
finance to identify just how much developing countries are the share of their exports, imports, inward portfolio
affected by tax havens, with a particular focus on Africa. investment and foreign bank deposits by their citizens which
We did this research to help policymakers in developing go via secrecy jurisdictions. Those jurisdictions are ranked
countries demand appropriate corrective action from in the Financial Secrecy Index developed by the Tax Justice
the G20 group of countries, the UN Tax Committee and Network with Christian Aid.
the Organisation for Economic Co-operation and The International Monetary Fund’s Coordinated Portfolio
Development (OECD). Investment Survey provides information on the holdings
Christian Aid is disappointed that policy researchers at such of equity securities and debt securities (mainly shares and
multilateral institutions as the World Bank and International bonds) of each country’s residents in foreign jurisdictions.
Monetary Fund have almost completely neglected these The information related to foreign bank deposits must be
issues until now. The research that has been done is largely treated with caution because the Bank for International
the work of academics and civil-society researchers. Settlements does not provide a full locational breakdown
Christian Aid’s research53 shows clearly that existing of data – only consolidated statistics. For example, an
information on bilateral trade and financial flows, while Ethiopian making a deposit into a branch of a Swiss bank
frustratingly limited in some areas, does allow us to draw in Addis Ababa will be recorded as an Ethiopian claim on a
quite clear conclusions about just how much developing Swiss bank, even if the money does not leave Ethiopia. At
countries are exposed to tax havens or secrecy jurisdictions. present, however, this is the best data available.
In general, they are no less affected by secrecy jurisdictions
than high-income OECD countries – and some of them are
much more exposed. So the G20 and others are right to