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July 3, 2006

£3.5 billion – the cost of tax avoidance

Filed under: Barclays, Tax avoidance — Richard Murphy @ 9:41 am

The Wall Street Journal article referred to below concerns an obscure Delaware corporation, Augustus Funding LLC. It so happens however that the LLC in question traded in the UK so we know rather more about it than normal.

One thing we know is how much it’s UK parent, Sixtus Funding Limited put into this scheme, presumably on behalf of its ultimate parent company, Barclays Bank plc. The issued capital of Augustus Funding LLC was US$6,354 million (yes, that’s $6.3 billion dollars).

Translated into sterling that’s about £3.5 billion. Which gives it a market worth of about the same sum since this is a solid asset backed company.

So where does that place this obscure LLC in the pantheon of UK companies? Well, at about 87 in the FTSE 100, for starters (data as of 30 June). It’s worth more than Schroders, Capita, Enterprise Inns, Johnson Matthey, Tate & Lyle and Rentokil, for example. It’s worth only very slightly less than Persimmon, the UK’s biggest house builder, and Royal Sun Alliance, one of its bigger life insurers. In fact, it’s worth about 10% of the whole value of Barclays.

This gives some perspective to the resources the banks will throw at tax avoidance. When we say we think it’s a core part of their business, we mean it. And this is the evidence.


June 30, 2006

The WSJ – on Barclays and its tax trick

Filed under: Barclays, Tax avoidance — Richard Murphy @ 3:00 pm

The WSJ – on Barclays and its tax tricks

The Wall Street Journal has published an article on the tricks that a team at Barclays bank have been playing to reduce the tax bills of some of their major multinational clients. A story stub is available on the WSJ site.

The story starts as follows:

The Wall Street Journal via Dow Jones – Glenn Simpson
LONDON — At Barclays PLC, a British bank steeped in 300 years of tradition, the work of a team led by banker Roger Jenkins is far from traditional. For instance, in 2003 his team set up a company with no employees, no products and no customers — just a mailing address in Delaware and a slate of British directors, mostly employees of his office. It was co-owned by Barclays and U.S. bank Wachovia Corp.
The following year, according to documents filed in the United Kingdom, the jointly owned company had $317 million in profits. It paid U.K. taxes on them. Barclays and Wachovia were both able to claim credit for paying all of the tax.
This was one of at least nine such structures Mr. Jenkins and his team have set up involving U.S. banks, which also included Wells Fargo & Co. and Bank of America Corp. The complex transactions involve a strategy called tax arbitrage, which plays off one nation’s tax system against another to reduce the banks’ tax bills.
Barclays is the leader in this esoteric field. It collects hundreds of millions of dollars in revenue generated by Mr. Jenkins’s group. His team of lawyers and bankers has helped turn Barclays from a sleepy Main Street lender into an investment-banking power.
Critics of tax arbitrage are blunt about it. “This is just a complete and utter construct to get around the rules at both ends,” says Richard Murphy, an accountant and professor who works with a London nonprofit called Tax Justice Network and has consulted for the U.K. government on financing.

You will note I am quoted (although I should add, Glenn overstates my academic credentials). I had the privilege of working with Glenn on this story. And by work I mean work. It takes months to get such a story to publication and hours of fathoming out just what is going on when companies structure deals o this sort.

As the story says, to be effective these arrangements are supposed to have economic substance. And the banks involved claim they have, but if I was a judge deciding the issue I’d say otherwise.

What I do know is that extraordinary effort is being expended by Barclays, with extraordinary rewards being paid to undertake an activity whose main purpose appears to be to seek tax subsidy for bank finance. And I have one simple comment to make about that, which is that it makes a mockery of this claim:

Corporate Responsibility for Barclays is embodied by the concept of ‘responsible banking’. Responsible banking is an integral part of the way we do business, and a central element of our overall strategy to make Barclays one of the world’s leading banks. Responsible banking means making informed, reasoned and ethical decisions about how we conduct our business, how we treat our employees and how we behave towards our customers and clients. You can find more about our activities on these pages.

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