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SPAIN-UK: Gibraltar, Tax Haven or Money Laundering Paradise?

Tito Drago

MADRID, Apr 13 1999 (IPS) - Serious doubts have been raised in Spain as to whether the British colony of Gibraltar is simply a tax haven, or a paradise for money launderers.

The colony, over which Spain has long been demanding sovereignty in the United Nations, controls the Strait of Gibraltar, the passage between Spain and Africa connecting the Atlantic and Mediterranean.

In Gibraltar, “dirty” money is laundered by front companies, according to the Bank of Spain (central bank) and this week’s edition of the influential Madrid weekly ‘Cambio 16’.

The magazine reported that the number of corporations in the colony had mushroomed to 60,000 by late 1998, two times the total number of inhabitants of the Rock of Gibraltar, which is home to around 30,000.

The Bank of Spain submitted a report to parliament last month, in which it stated that front companies were used in Gibraltar “to recycle the money proceeding from crime, and served as the perfect channel for collection and payments derived from illicit activities.”

Thus, “the laundering of dirty money proceeding from drugs or other illicit activities is easily carried out, and the money is easily invested in Spain as respectable foreign investment.”

Setting up a company in Gibraltar is a simple matter. In fact, one can do so without even being present in the colony. A power of attorney signed over to a local lawyer, around 1,000 dollars in fees, and voila! It is not even necessary to set up an office, as the lawyer’s practice serves as the company’s legal address.

Cambio 16 reported that 120 lawyers lived and worked in Gibraltar, making their living almost exclusively from their association with foreign investors.

Last year, two billion dollars in investments carried out from Gibraltar were registered with Spain’s General Office on Foreign Transactions – nine times the 1995 figure.

The latest census by the Office, meanwhile, counted 7,958 companies operating as legal entities along Spain’s Mediterranean ‘Costa del Sol’.

The Costa del Sol, which extends east from Gibraltar along Spain’s southern coast, is a posh tourist resort area, with large, modern yachting harbours, exclusive hotels and sumptuous vacation homes, many of them owned by foreign magnates.

One of the methods used for laundering money is through purchasing real estate on the Costa del Sol, through front companies set up in Gibraltar. Thus, not only is ill-gotten money laundered, but taxes on property transfers – mandatory in Spain – are evaded.

Other tactics are taking out mortgages, buying money orders, or simply transferring funds – which requires, however, collusion by the banks involved.

There is also the method known locally as “financial engineering,” consisting of false import-export operations, the altering of invoices, or double-billing, using real and false invoices.

The highest authority in Gibraltar, chief minister Peter Caruana, has flatly denied that money is laundered in Gibraltar. It is quite a different thing, he argued, to say that Gibraltar is “a financial centre, or tax haven.”

Caruana underlined that in Gibraltar, all European Union monetary rules were complied with except one: the requirement that companies register their balance sheets in the business register.

And although that provision will be met in the future, transparency will not exist then either, “because it does not require the company’s shareholders to be declared,” he added.

“The freedom enjoyed by companies in Gibraltar to publicly declare or not the real money of a company is the same as the freedom that exists in other places, like the Isle of Man, Luxembourg or the Virgin Islands,” also known as tax havens, Caruana asserted.

Jose Manuel Triay, Caruana’s father-in-law and one of the most influential lawyers in Gibraltar, described the legal system operating on the headland as more “practical” than Spain’s. “Spanish law is more rigid, which is why it is flouted,” he maintained.

According to Triay, the problem does not lie in Gibraltar, “but in the country of origin of the investor who uses this tax haven to launder money or evade taxes.”

The Spanish government, while continuing to demand sovereignty over Gibraltar in the United Nations, is now studying the possibility of denying companies based in the colony legal status in Spain.

The Bank of Spain also recommends that customs controls be tightened in the marinas along the Costa del Sol, like Puerto Banus in Marbella, or the Puerto de la Duquesa in Estepona.

The report that the bank submitted to parliament charged that the scant surveillance in the yachting harbours favoured all kinds of smuggling activities.

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