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Panorama exposes dodgy company agents

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27th Nov 2012
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John Stokdyk reviews the latest episode in a concerted drive by the BBC to focus on tax evasion techniques. This time, "sham" company directors and look-the-other-way providers of complex shelter structures were given the hidden camera treatment.

Over the past 10 years, Richard Murphy at Tax Research UK, Richard Brook at Private Eye, The Guardian/Observer and The BBC’s Panorama have pushed detailed analysis of tax avoidance into the media mainstream.

This campaign’s impact on the political and professional landscape has not always been comfortable for tax practitioners of all types, but the output has always been of interest for specialists to see how well the media grasp the topics in hand, and what new things they can show us.

Many AccountingWEB members will have tuned in like me to Monday’s latest Panorama expose, Undercover: How to dodge tax to see what it could add to current knowledge.

Because tax is such a visually dull topic, the temptation for TV directors is to ladle on spurious graphics to sex up the subject, which is a pity. If you’re covering a big tax story, just following the money can be quite a compelling approach. The focus of the documentary this time was on the companies that sell tax structures designed to help people conceal assets offshore in jurisdictions where their anonymity will be preserved. The “undercover” tag meant we would be treated to some grainy footage of dodgy characters, operating from top secret lairs in places like Dubai, Mauritius and York. There were lots of jerky jump cuts and a bit of satellite tracking imagery that thanks to recent usage called Eddie Stobart to mind more than Jason Bourne. But the visual magic dust was used sparingly so that the two on-screen investigative reporters could carry the story forward with few frills and little fuss.

It was not a pretty picture. The “Sark Lark” that was supposedly closed down in the late 1990s merely picked up its laptop and relocated to all manner of alternative destinations. Like everything else, the internet has given tax evaders a degree of in-built redundancy and self-correction.

York was the first port of call for a reporter posing as a man with £6m in an untaxed Swiss account who wants to escape the effect of the Swiss tax agreement to remit payments to HMRC. He visited Turner Little. For £26,000 they were willing to offer him an arrangement based on a foundation operating in Belize. The nominees won’t know the name of his company, where it was formed, or anything else. “they’ve never heard of you. They don’t know which co you bank in. They just get paid,” director James Turner told the reporter. Their signatures were stored as stamps in his safe.

Next up was Dubai, where Atlas Corporate Services was willing to set up an offshore structure for another reporter, posing as the representative for a members of the Indian government who wanted somewhere to keep their bribes - with the source of the funds made very clear to the service provider. No problems for Atlas: it would be £10,000 to get things rolling, there would be no need for anyone to travel: “We can do it all remotely on emails.” Again the nominees will not know anything about the companies of which they are directors, and any connections to the reporters’ clients will be invisible to the tax authorities.

Final destination was Mauritius, where the reporter travelled to meet Atlas founder Jesse Hester, a long-time company nominee specialist. A smooth, self-satisfied operator, he was initially suspicious of the reporter, but still opened to offer some eyebrow-raising nuggets. He suggested a Panamanian foundation to the Swiss bank account holder, because the rules there were particularly difficult for interntional tax authorities to penetrate. “Tax authorities don’t have the resources to chase everybody down. They reckon it’s the same rough odds as winning the lottery,” said Hester. From a list provided by his company, Panorama found 19 directors who had held a total of directorships in more than 10,000 companies around the world.

They also visited a freelance nominee operating in Guernsey, Ready Made Companies Worldwide, based in Bushey Heath, and the somewhat better known Stanley Davis Group.

All of the organisations rumbled by these stings issued statements indicating that they would not facilitate money laundering or tax evasion. HMRC, meanwhile, which is responsible for supervising corporate service providers under the Money Laundering Regulations, confirmed that it has not prosecuted any such company for non-compliance.

It’s not a surprise that such operations are still thriving, but Panorama did a good job at documenting some prime examples and even elicited an official response from business minister Vince Cable. “He will carefully consider evidence and will review the trade in and abuse of nominee directors.” he told the BBC. Paul Scholes opened up the critical opinion booth on AccountingWEB earlier today and noted “an industry still fit and well providing nominee directors and offshore companies to help people hide dirty money”. Few other members were startled by the revelations and sad to say

The Panorama show contained few surprises, but for once was factually solid and illustrated the way that tax evasion is getting more complex, which raises the risks for participants in any such venture. One of the most effective bits of anti-evasion TV I ever saw was a documentary about INXS singer Michael Hutchence, which went into some detail about the ways Hutchence was advised to protect his income, but by the time he and Paula Yates died, no one connected to them had any idea where the money had gone and how to get their hands on it.

When even Sark Lark veteran Jesse Hester advises, “If you want to sleep at night without any issues whatsoever, pay the 40%”, maybe the curtain is beginning to fall on the offshore ethos.

The campaigners have been extremely successful at making evasion and those, like accountants, who make it possible socially unacceptable. If this puts practitioners in a difficult position where they have to defend their tax planning strategies on a moral basis, tough luck. You’re just going to have to get used to it.

Replies (27)

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By Mike Bassy
28th Nov 2012 10:39

The impression I get is that tax avoidance is now widespread in the UK. The Guardian recently even named a builder in Rotherham as having set up a British Virgin Isles account, allegedly to  to avoid tax on a barn conversion. 

We've become used to - and, indeed, almost expect - big corporations to take steps to avoid tax, rightly prompting calls for draconian action. However, when even small businesses now think it is well worth their while to incur the trouble and expense to set up off shore accounts, isn't it time that we asked ourselves a more fundamental question: Is UK tax much too high ?

All laws depend upon the consent of the people to be effective. The fact that anyone who can avoid paying tax now thinks that it is right and proper to do so, does seem to suggest that past Governments have killed the goose which laid the golden egg. The way that Government has spent taxation hasn't helped either. Seeing asylum seekers housed in £2,000 a week homes and knowing that many benefit claimants are better off than those in work will have further eroded the public's confidence in the tax system.   

However, there is a more fundamental issue looming large on the horizon. If the Government has indeed lost the consent of the people over taxation, how on earth does it re-establish a tax paying culture in the future, without locking up ten of thousands of people in the process ? And if it fails to re-establish this culture, how does it pay for welfare, education and the military as well as all of the other state structures ?

Another interesting facet is also emerging which may shed light on the government's thinking on this issue. Government has known for years about these loop holes, but has never really taken serious action against them. In addition, the Government's recent attempt to abolish planning permission for home extensions, thus removing all record of who did the work,   would have been a boom in cash-in-hand builders.  All of which prompts me to ask: has a Government economist come to the conclusion that turning a blind eye to tax evasion is a wonderful way to unofficially inject cash into a recession hit economy, while side stepping the need for, and political cost of, yet more fiscal easing ?     

          

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Replying to ocooper:
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By ThornyIssues
28th Nov 2012 12:37

Shakes head in despair

Mike Bassy wrote:

The impression I get is that tax avoidance is now widespread in the UK. The Guardian recently even named a builder in Rotherham as having set up a British Virgin Isles account, allegedly to  to avoid tax on a barn conversion. 

We've become used to - and, indeed, almost expect - big corporations to take steps to avoid tax, rightly prompting calls for draconian action. However, when even small businesses now think it is well worth their while to incur the trouble and expense to set up off shore accounts, isn't it time that we asked ourselves a more fundamental question: Is UK tax much too high ?

All laws depend upon the consent of the people to be effective. The fact that anyone who can avoid paying tax now thinks that it is right and proper to do so, does seem to suggest that past Governments have killed the goose which laid the golden egg. The way that Government has spent taxation hasn't helped either. Seeing asylum seekers housed in £2,000 a week homes and knowing that many benefit claimants are better off than those in work will have further eroded the public's confidence in the tax system.   

However, there is a more fundamental issue looming large on the horizon. If the Government has indeed lost the consent of the people over taxation, how on earth does it re-establish a tax paying culture in the future, without locking up ten of thousands of people in the process ? And if it fails to re-establish this culture, how does it pay for welfare, education and the military as well as all of the other state structures ?

Another interesting facet is also emerging which may shed light on the government's thinking on this issue. Government has known for years about these loop holes, but has never really taken serious action against them. In addition, the Government's recent attempt to abolish planning permission for home extensions, thus removing all record of who did the work,   would have been a boom in cash-in-hand builders.  All of which prompts me to ask: has a Government economist come to the conclusion that turning a blind eye to tax evasion is a wonderful way to unofficially inject cash into a recession hit economy, while side stepping the need for, and political cost of, yet more fiscal easing ?     

          

Surely you mean illegal EVASION and not legal AVOIDANCE?

 

 

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By andrew.hyde
28th Nov 2012 11:59

Is UK tax much too high?

The question is political, of course, so if you answer 'yes' then the answer is to vote for the party that promises to slash (as opposed to 'tinker with') tax rates.

Now, you're about to tell me, quite correctly, that none of the major parties has this on their agenda.  So does that answer the question?

Another way to look at it is to compare UK tax rates with other comparable economies. Basically that means Western Europe.  Does that answer the question?

Moving to the USA, BVI, Mauritius, Russia or wherever could make you better off.  But in my very humble personal opinion tax exiles usually lose more than they gain. Living in the UK has many, many benefits, but it costs. I don't think the cost is too high - but on the other hand I'm not a millionaire (and not too bothered about it).

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By The Black Knight
28th Nov 2012 12:24

It does make you wonder?

Behind a smoke screen of media outbursts about being serious about tax evasion the action on the ground has been pathetic.

HMRC appear not to know what they are looking for, even when it is as plain as their noses, and unable or unwilling to do anything.

The laws are there but no one is in?

the conclusions one can draw are:

1, We don't have a problem....and it has all been a good story.

2, There is a monumental [***] up in civil service thinking and this is all a cover up.

3, Those in charge have a vested interest in sinking the ship.

I really do not understand why there are not more prosecutions for tax evasion 100 a month could be easily achievable and once these criminals have lost their houses in the following proceeds of crime confiscation many more would suddenly increase their currently voluntary contribution.

This has to be the most profitable action the government could take.

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By alancow.harveysmith.co.uk
28th Nov 2012 12:27

Just to add

I don't think that the MP's expenses fiasco has helped.

Hard working people are tired of seeing their tax money wasted and have lost their belief in government, some members being caught with their noses in the trough.

I spoke to a client shortly after the news broke regarding MP's expenses, a man who had worked hard all his life and even through the lean times hadn't claimed off the state, even though he was entitled. He was a proud man. He told me that he was out of work again only from now on he was going to claim every penny he was entitled to. I think this illustrates the change in attitude many taxpayers feel about not only how much is taken off us but how the money is actually spent.

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By Charles Kwan
28th Nov 2012 12:59

Easy pick

Good to have the awareness of what is going on in real life.   BBC should film another Documentary about Tax.... HMRC treatment of the Rich large companies vs Poor small businesses.....

 

Rich individuals, at least, have money to use dodgy scheme and stop the HMRC at the door but the poor small business owners struggling to have their end meet and always being targeted by the HMRC and yet have no funding to hire tax adviser to defend themselves.  That is how the tax office allocate their resources as they are the easy pick and would gain more revenue form the Poor than the Rich.

 

You tell me this Society is fair ....   I don't.   Unfortunately whichever parties you vote for,  they follow the same policies and never try to change the tax law.  

 

 

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By Trevor Scott
28th Nov 2012 13:19

I haven't seen the programmme, but...

... looking at the quotes fees there seems to be a lot of people getting ripped off. Foundation with shell companies, self owning trusts, bank accounts etc shouldn't cost more than an intial $5,000.....from decent companies who advertise openly on the internet.

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By The Black Knight
28th Nov 2012 13:22

@Easy pick

There are also a lot of small businesses that evade considerable amounts of tax.

HMRC do however pick the wrong cases time and time again and it cannot be effective for them.

They are also useless, I have seen them identify missing takings but only half of them, then not charge the vat as well....and completely ignored the illegal cash in hand workforce.

Whilst quite prepared to bully the innocent they take a much more lenient view of a serious offender.

The secondary effect is that the tax evaders are successful as they are more profitable after tax have more resources to expand, knocking out genuine taxpayers and so the deficit increases.

It's about time the honest were supported otherwise more will turn to the dark side as a matter of survival.

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By HUGH W DUNLOP
28th Nov 2012 15:42

Panorama

I have often been amazed at the speed with which some accounting firms are able to promote schemers to counter new tax laws. It is almost as if they have 'insider knowledge'  Are there any figures as to the number of tax officials who either sit on the board of, or are retained as advisers by, accountancy firms/ financial advisers.

However, I, and some of my colleagues are under the impression that the much publicised crackdowns on smaller firms evading tax may be counter productive. There seems to be a lack of direct action by HMRC to implement their 'threats' (promises).

This has apparently led to many small unregistered tradesmen saying ' I have got away with it so far, if I own up I will probably be fined, so I may as well carry on as I am''

Do any others share this feeling?

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Teignmouth
By Paul Scholes
28th Nov 2012 16:20

Awareness & publicity is important

I agree with much of what has been said above but opening the above, dodgy expenses, international trasfer price fixing, K2 and let's not forget McLaren's tax relief on fines, to public opinion has far more impact than government's or HMRC's pronouncements over what needs doing.

I've heard for example that many large firms, who would have been in the thick of tax mitigation schemes only a few years ago, are now out of the market, they may be legal but it's not worth the grief.

Dig deep enough on any of this and you will hit ethical values, people either treat tax as an avoidable overhead (whether it's 10% or 50%) or a responsibility that comes with living in a secure and looked-after country.

I listened to a programme yesterday about the 1942 Beveridge report on the founding of the Welfare State and it was interesting to hear that the middle class who, on the whole, would see little benefit, where overwhelmingly in favour in order to help the less well off.  It was war time and the country lived and pulled in concert.  I don't have any doubt that this would not be the case today.

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Replying to DJKL:
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By ThornyIssues
29th Nov 2012 08:45

£0.02

Paul Scholes wrote:

I listened to a programme yesterday about the 1942 Beveridge report on the founding of the Welfare State and it was interesting to hear that the middle class who, on the whole, would see little benefit, where overwhelmingly in favour in order to help the less well off.  It was war time and the country lived and pulled in concert.  I don't have any doubt that this would not be the case today.

Indeed, but I fear the damage is probably irrepairable. What we have is institutionalised greed across society. This starts with politicians themselves who in turn, pratice politics of greed and envy. This leaves a bad taste in the electorate's mouth leading to a "well if they can ....." attitude. Secondly, we see an increase in the black economy because of the law of deminishing returns in the tax system that sees those who try to be compliant rendered frustrated and demoralised. Nothing short of a complete overhaul of the tax system to simplify, reduce the cost of collection, create a more level playingfield and take sight of the global effects on corporation tax will do. 

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By johnjenkins
29th Nov 2012 10:57

I try to watch

the customs & excise programs. One particular sums it all up. Customs raided a butcher who was employing illegals. All admitted being here illegally. Those without passports were told to report to an immigration office. Of course they didn't. The point here is that Customs had the illegals and let them go. We can't deport someone who is a National security threat.The police watched the riots last year and did nothing. We moan about HMRC etc. and do nothing etc. etc.

Yet we have a compliance and penalty culture that is a money generating machine for the Government.

We have tax evasion and tax avoidance yet still Government won't legislate. The EU can't agree a budget because of wishy washy politicians.

The Hippy culture really has taken over.

So I'm off in my motorhome this weekend, singing songs round a campfire, chillaxing, ready for Monday's start of the silly season.

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Teignmouth
By Paul Scholes
29th Nov 2012 10:59

Or maybe we need another war?

Under our current 4-5 year governments and certainly with a coalition(ish) government in place, we are not going to see the radical overhaul of the tax system, besides which tax has always been a bit of a blunt instrument in changing peoples' ethical practices, ie they do or don't do something because of the tax money not because they necessarily see it as right or wrong.

Rather, I fear, what we need is a wake up call, something to shake us out of our "all for me" "must have more" to make us realise that we live with, and must ultimately rely on, others.

Reference my comment above about how things were more that way in wartime, war is a great leveller, in more ways than one.

I share the view of those in the know, that we are currently in a phony war with the planet and its resources. The scientists (and even the World Bank & PwC) tell us that potential disaster is now only a few years away but all we see are a few freak weather events, birds, fish & insects where they shouldn't be and a few scare stories about Europe not being able to feed itself and (god forbid) how we may have to keep our mobiles for more than a year.

So, one suggestion might be to consume, pollute & waste as much as we can, we need Gaia to "bring it on", "let's see what she's got".  We won't win the war but at least we'll care more about each other whilst we're losing it.

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By North East Accountant
29th Nov 2012 11:54

Plan to Stop It

1. cut out all government waste (if policiticans not got bottle to do it bring in outsiders)

2. leave EU

3. Abolish all silly EU rules and red tape

4. cut tax rates

5. Imprison tax cheats who break the law. Publish names locally and nationally.

6. Penalty for deliberate tax cheats. 100% of worldwide assets.

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By johnjenkins
29th Nov 2012 13:31

@NEA

5 and 6 is all very well for us poor buggers. What about the mega rich who always find a way round.

We will never leave the EU, in fact the longer this pulling apart goes on, the more that the EU politicians will want a United States of Europe. As Paul says, in war time people pull together, perhaps if Europe were to be totally united we might be able to solve some of the problems. A choice will have to be made, and soon, cos we can't keep messing about like this.

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By Peter Tucker
29th Nov 2012 14:06

A Solution?
The fact that an individual is appointed as a Director of a Limited Company means that the individual is an Office Holder. It is therefore interesting to note that according to official HMRC instructions an
Office Holder is an Employee -
http://www.hmrc.gov.uk/manuals/pommanual/paye82002.htm

The fact that an Individual is an employee means that their employment is required to be notified to HMRC. The fact that the Employee may be in receipt of little or no wages or salary from this particular
employment is not a bar to the reporting of this information.

Were HMRC to be aware of the directorships of all Limited Companies, it would be possible, through the use of properly designed software, to identify situations where Directorships could pose a risk to tax loss or problems with money laundering.

It is odd that HMRC has no imperative to ensure that every appointed Director is notified as an employee in order to update its PAYE Database. Indeed, HMRC will formally advise that there is no need for an Employer PAYE reference to be created for a Limited Company if there is no wages or salary being paid to Employees – Directors being employees.

We are therefore in the strange situation where HMRC will impose penalties on Employers where they fail to notify the commencement of an ordinary waged / salaried Employee, BUT take no action, indeed one could say encourage, the failure to notify the commencement of an employment, if that employment is a Directorship. The fact that Directors may have no salary but may be in receipt of taxable Benefits in Kind would also appear to be overlooked.

If one were to assume that there are some 400,000 Limited Companies each with 2 Directors not in receipt of a salary and therefore not on HMRC’s PAYE Database and that 25% of these Directors were in receipt of Benefits in Kind amounting to, say, £1000, the potential tax loss could amount to approximately £40 million, assuming a basic rate of 20%. Of course these are only suggested statistics, but the real issue is that because of the way HMRC currently approaches Directorships and Limited Companies, no one knows if these figures are over or understated.

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Teignmouth
By Paul Scholes
30th Nov 2012 09:00

These are offshore companies

Peter - these are offshore companies, ie in other countries not UK conmpanies who have to report directors to HMRC.

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Replying to SteveHa:
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By Peter Tucker
30th Nov 2012 11:35

Off Shore ?

Regrettably these are not ALL Offshore companies otherwise we would be attempting to be like the US and police the entire world?

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By M Shapland
30th Nov 2012 12:15

Tax Dogers

My father always said that if the Government wants to raise £100 M it was more likely to raise it by charging £10 each from 10 M not rich people than by trying to get £1M from 100 very rich people.

This is told me over 40 years ago and this has not changed...

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By johnjenkins
30th Nov 2012 12:29

@MS

By and large that was stuck to. Then we had the last recession and Mr Major and co decided "not a good thing for re-election prospects". Now everything is done with the electorate in mind. Normally in a 5 year term Governments had 3 and a half years to do all the bad stuff then redeem themselves in the last 18 months to get a chance of re-election. These days they are frightened to sneeze, unless of course they can claim the tissues on their expense account.

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By M Shapland
30th Nov 2012 13:04

tax dodgers

If hte Mayans are right, after the 21 December 2012 it won't matter anyway!!!!

 

There has always and there will always be persons who will break the rules or push them to the limit whithout any regards for the morality of their actions. The difference is that now with interent and fast transmission of information it appears that there is more of it..

 

All one can do is do their best in theri own life and if enough of us do this then maybe one done the "bad apples in the barrels of the world" will disappear.

 

Somehow I don't think it will happen in my lifetime..

 

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By ThornyIssues
30th Nov 2012 13:21

HMRC and avoidance

I found this an interesting read this morning!

http://www.contractoruk.com/news/0010817revenues_it_contractors_accused_tax_avoidance.html

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By johnjenkins
30th Nov 2012 15:53

Love it

Have you also heard that HMRC have applied to be on the register of entities that are allowed to break the speed limit. Presumably the thinking is that you can collect more penalties if you go faster.

HMRSweeney starring Osbourn and Gauke with a cameo performance by Hodge.

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Replying to johngroganjga:
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By chatman
02nd Dec 2012 22:42

Telegraph Article

Trevor Scott wrote:

HMRC up to their usual ....

http://www.telegraph.co.uk/finance/financial-crime/9716421/How-one-family-were-brought-to-their-knees-by-the-taxman.html 

Would the directors have had any remedy if HMRC had not sued them personally?

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By andrew.hyde
03rd Dec 2012 09:02

Whoa!

Try as I might, I'm struggling to see the relevance of the last 4 posts to the central topic.

Panorama perhaps wisely did not attempt to suggest any remedies within its half hour slot.  Perhaps the answer is that our national newspapers should be allowed to hack into the phones and computers of the people selling these nominee companies, then publish the results.

OK I'm only kidding, but there's a serious principle behind this.  We rightly try to protect the privacy of people who deserve it - the McCann and Dowler families, Ms Rowling, Mr Grant (maybe) - but in doing so we provide a cloak for the people featured by Panorama.  Even if the UK opted for more transparency in business, that would make no difference to countries like Panama. 

I suppose we could invade them, but we and the Americans have tried that a few times and it didn't work out that well.

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Replying to lionofludesch:
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By chatman
03rd Dec 2012 09:12

US Invasions

andrew.hyde wrote:
I suppose we could invade them, but we and the Americans have tried that a few times and it didn't work out that well.

It has worked out quite well for those with power in the US; their foreign invasions have brought in loads of money for them.

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