Goldman Cheats and Wins Again: Gets Special Treatment in UK Tax Abuse Settlement

Posted: 02 May 2011 11:25 PM PDT

How does Goldman get away with it again and again? Is it simply bribery? Well, we don’t call it bribes in advanced economies, since big fish typically have more complicated and indirect ways of rewarding people who help them out, but it amounts to the same thing. Or do they have the five by seven glossies on people in key positions of influence?
The latest sighting is in Private Eye, courtesy Michael Thomas. This is comparatively penny-ante stuff compared to other instances of Goldman winning at the expense of the general public. Here, the firm engaged in what is politely called a tax avoidance scheme:

The scheme concerned an offshore “employee benefit trust” used to pay bonuses to Goldman’s London bankers, who for secrecy reasons are employed by a British Virgin Islands company called Goldman Sachs Services Ltd. In London they legally work on secondment to UK-based Goldman Sachs International. The trust, it was planned, would enable the bank and its bankers to avoid national insurance running to £23m through a convoluted share purchase arrangement.

So the Goldman staffers underpaid the taxman by £23 million.
21 other companies tried the same trick. HM Revenue & Customs got settlements from all of them in 2005 in large measure because court decisions on employee benefit trusts came down in favor of the government. But Goldman tried to wriggle out of it:

Goldman, by contrast, hung out on the technicality that HMRC was pursuing its UK company for the NIC when it should have gone for the BVI one. That required Goldman to claim that the BVI company had a UK “presence”, an argument that collapsed embarrassingly at a tribunal hearing in December 2009 when HMRC produced a letter from Goldman’s tax director, Mike Housden, claiming – in order not to incur a corporation tax charge – that the BVI company did no business at all in the UK!

So Goldman clearly owes that £23 million plus interest from 2005, which is roughly an additional £20 million. As important, the HMRC had implemented the policy in 2007 of “litigation and settlement strategy” which translates into: “If our legal advice is strong, do not accept settlements for less than 100 percent of the tax and interest due”. And the advice they had gotten from outside counsel on the Goldman case was that their position was very strong.
So…the new head of HMRC, Dave Hartnett, lets Goldman slip the noose. Per Private Eye:

Papers seen by the Eye reveal that Hartnett personally “shook hands” on a deal over a long-running dispute concerning a tax avoidance scheme going back to 2002, without consulting HMRC lawyers (as he didn’t over Vodafone), and in the process unlawfully letting the US bank off around £20m.

Despite some consternation among the lawyers, the deal went through:

When HMRC’s lawyers, led by general counsel Anthony Inglese, met to discuss the deal in December after Hartnett had presented it as a fait accompli to HMRC’s “high risk corporates” board, there was unanimous disapproval since it breached both the law and HMRC’s own policies. But somehow, rather than point this out to Hartnett or anybody else, Inglese approved the settlement.

Private Eye wonders what winks and nods were involved:

The cushy settlement may or may not be related to a simple entry on Dave Hartnett’s hospitality register for May 2009 which shows that, as the dispute raged, he took “supper” at “Goldman Sachs office”.

UK Uncut is not going to get very far if people like Hartnett and Inglese are permitted to ride roughshod over official policy and allow rich bankers to pay less than they owe. I hope the organization takes note and includes craven and possibly complicit officials in its campaign targets.
Via ; Yves Smith Naked Capitalism