Swiss Bank's Crafty Strategy Shows How Difficult It Is to Clamp Down on Tax Havens; Tough Words but Action Won't Be Easy: Gordon Brown and Barack Obama

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GORDON Brown and Barack Obama are both promising to crack down on the use of offshore tax havens. But putting those tough words into practice is another matter.

In the City, firms have long used secretive foreign or offshore centres almost as a matter of course, channelling funds in their direction that would otherwise stay onshore and could attract tax. They maintain the offshore office fulfils a vitally important investment management function when in reality, it's often little more than a brass plate. However, as Brown and Obama's investigators might find, proving the claim is fiction is not easy.

The Evening Standard has examined how one of the world's biggest private wealth management groups circulates funds via offices in the Cayman Islands, claiming they take major investment decisions when the main work is apparently carried out in London. It shows the scale of the task facing tax inspectors here and in the US in an offshore purge.

With offices in London and across the globe, Swiss-based Julius Baer banking group invests over $300 billion ([pounds sterling]208 billion) in assets on behalf of institutions and wealthy individuals. Profits in 2007 were more than $1.1 billion.

In London, one of its units was known as Julius Baer Investors or Julius Baer Investment Management (JBIM) until a management buyout in 2007. It was renamed Augustus Asset Managers, is based in Bevis Marks in the City, and is still 10% owned by Julius Baer. From London, Augustus controls assets of $12 billion but claims its profits are generated elsewhere, offshore at a Cayman Islands Baer subsidiary called Baer Select Management. Why? Simple, really. "If you would generate all the income in London, you would pay much more taxes," acknowledged Max Obrist, a Cayman Islands executive of Julius Baer.

A Swiss national, Obrist is a director of Baer Select. Officially, Augustus pays Obrist's operation to "monitor" its investments. But a whistleblower who worked with Obrist said Baer Select's real job for Augustus is to help it reduce tax.

Rudolf Elmer, 53, a German, was chief operating officer of Julius Baer Bank & Trust Company (JBBT), Caymans, earning $212,000 a year, and a Baer Select board member from 1999 to November 2002. He claims the Julius Baer group adopted a plan in 1996 "to utilise Baer Select Management, JBIM New York and JBIM London to benefit from the offshore system" to escape tax. As part of the plan, Obrists's Baer Select in the Caymans was appointed "investment adviser".

However, Elmer said Baer Select did no investment work. He alleged that Obrist, in the name of Baer Select, simply ratified a few decisions; he really worked for his main employer, JBBT..

Baer Select was in fact a shell Elmer pointed to a Baer Select profit and loss statement for 1999 that showed no expenses for personnel, no rent for office space, and no costs for computers or other infrastructure.

Obrist acknowledged that Augustus in London does the real investment management.

He said: "The investment manager is sitting in London; they do the deals out of London. …


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