Banks use charities in off-shore chicanery

IT HAS always been a scandal that banks connived with wealthy clients to use offshore tax havens to avoid paying income tax. But the use of offshore vehicles by banks such as Northern Rock and Royal Bank of Scotland has had far more profound consequences than loss of tax revenue.
In the past decade or so, the big banks have all used their offshore tax havens to set up all manner of off-balance sheet vehicles under a plethora of confusing names to avoid regulation and create almost unlimited credit. In a real sense, this use of tax havens is what turned the sub-prime mess into the great banking crash of 2008, Here's how it works. Take Northern Rock. When the government nationalised the delinquent mortgage bank last year it discovered, to its horror, that the Rock didn't actually own most of its mortgages - it had sold £50 billion of them to a structured investment vehicle (SIV) called Granite, based in Jersey. Granite was registered as benefiting a charity for children with Down's Syndrome in the northeast of England. What generosity! Except that the children never saw a penny - it was all an exercise in financial engineering.
The Rock had "sold" its mortgages to itself in the form of this new company-cum-charitable trust. Through legal chicanery it was able to use this SIV to conduct all sorts of financial activities without these appearing on the formal balance sheet of Northern Rock.
Basing these special-purpose vehicles off shore not only means they are able to avoid UK tax, they can also ignore UK banking regulations and capital requirements. This allows them to trade in all manner of derivatives financed by cheap credit on the wholesale money markets - activities which would be illegal under UK jurisdiction.
Only when Northern Rock went bust did any of this emerge, and the government quickly buried the information again for fear of what might happen if voters knew that public money was (and still is) being used to finance systematic tax avoidance and irresponsible lending.