MADRID, Jan. 16 (UPI) -- This is the first part of a two-part review of the economics of the Gibraltar, whose future is due to be discussed between the British and Spanish governments at the highest level this spring. In this first part, the island's history and economy are reviewed, and its place and reputation in the shadowy world of money laundering are examined. In the second part, to be published Thursday, we will look at how the EU regards Gibraltar's position, and the part already played by the island in Spanish business, which is to a large extent dependent on it as an offshore tax haven.
Gibraltar's gross domestic product is $500 million, but it has a GDP per capita of $16,960, slightly better than Spain's GDP per capita of $16,939, says the CIA World Factbook. In spite of its Lilliputian size, Gibraltar, a territory of 30,000 people, has 50,000 active corporations and a total of 80,000 corporations registered since 1985, according to Spain's El País newspaper. Around 8,000 of them do not record any income, and approximately 40,000 do not pay taxes.
Most of the 7 million people -- more than 233 times its population -- that travel every year to Gibraltar are considered "business tourists." Deposits in Gibraltarian banks are around $7,200 million (14.4 times its GDP), while the Rock's national budget was in 2000 roughly $201 million. Gibraltar is, along with El Salvador, Egypt or Ukraine, in the list of countries and jurisdictions "of concern" in the U.S. State Department's 2001 report, "Money Laundering and Financial Crimes."
A successful outcome of the currently impending talks between Britain and Spain could have a crucial impact in Gibraltar's position as a questionable money and tax haven.
There is nothing wrong with the numbers, says the Editor of OffshoreOn.com Ahmed ElAmin. Gibraltar has so many corporations "by offering a more competitive tax regime than other jurisdictions. With variations, it's a typical developed offshore jurisdiction economy (except for the 7 million tourist figure bit, which is highly inflated by transit passengers), much like the Channel Islands, the Isle of Man, and Bermuda for example."
But after the talks, things could change.
"There's no doubt that the political uncertainty surrounding the opening of this new round of negotiations and the setting of a deadline for settlement is unsettling for the financial sector," says ElAmin.
Although Gibraltar's financial sector has shown resiliency, "a system of shared sovereignty, or more, would end Gibraltar's tax haven incentives, which have been a thorn in Spain's side."
It may have been a thorn for Spanish government, but not for many Spanish companies and individuals that use the territory to hide from the long arm of the tax collector.
The so-called "Brussels process" of talks between Britain and Spain on the Gibraltar question was revived last November after it came to an acrimonious halt in 1997 because of Spanish demands for the return of sovereignty over the Rock. The goal now is reaching agreements on co-operation and sovereignty by next summer, coinciding with the end of Spain's presidency of the European Council in June. Once an agreed set of proposals has been arranged, it will be made the subject of a referendum in Gibraltar. The talks are aimed at allowing Gibraltar more self-government and at reversing some of the constraints on its residents.
Spain has offered to increase the number of telephones available to Gibraltar -- from 35,000 to 100,000 -- and to improve access to health care, in an effort to soften up Gibraltarians, who are inflexibly opposed to any Spanish participation in sovereignty over the British colony. Other minor pinpricks, such as restrictions on the use of the airport and long delays at border crossing, could disappear, too. Madrid prohibits airline connections from Spanish territory to Gibraltar and forces vehicles to go through a single lane at the border control, causing delays of up to six hours. Britain and Spain are hoping that the improvements will win support for a referendum that will allow the two countries to share sovereignty. As NATO allies and EU partners, both countries would be very happy to eliminate Gibraltar as a nuisance in their relationship, which sometimes has meant delays in important issues such as control of the European air space.
It is unclear, though, how the Gibraltarians would receive a final accord. Over the last three decades, Spain has offered Gibraltar the most ample autonomy in Europe, shared sovereignty during 50 years, and the possibility to keep the VAT (value added tax) exemption and the free port status. Without results.
"We agreed that the Government of Gibraltar had a very important contribution to make our discussions," said a joint communiqué. "Gibraltar's voice should be heard. We reiterated the invitation, which we issued to the Chief Minister of Gibraltar... His role will be fully represented and he will have the opportunity to contribute fully to the discussions."
In spite of all the good words, Gibraltarians are already protesting. They feel they have been allowed just to watch as Britain and Spain munch at the negotiating table. Gibraltar's elected chief minister, Peter Caruana, boycotted the talks after he was invited only as a British delegation member, without a veto over any agreement.
The British took control of Gibraltar in perpetuity under the Treaty of Utrecht in 1713, after the island was seized by British forces as a strategic outpost controlling entry to the Mediterranean. In a referendum in 1968, only 44 residents voted to join to Spain, against 12,148 who opted to remain British. In 1968, Spanish dictator Francisco Franco closed the frontier gates, which did not reopen until 1985, thus ending the last Spanish siege of Gibraltar. That has been the source of a deep-rooted bitterness. Spanish complaints about Britain's presence as a colonial power on the Iberian Peninsula are weakened by its refusal to give up its own colonial outposts on the Moroccan coast at Ceuta and Melilla.
The British military presence has been sharply reduced though, and now contributes about 11 percent to the local economy. The financial sector accounts for 20 percent of GDP; tourism, shipping services fees, and duties on consumer goods also generate revenue.
Where does all this anti-Spanishness come from? wonders El País in a recent article. "One might think that the answer lies in the interests knotted around the tax haven, in the business center, in the 27 million liters of fuel and the 23 million cigarette packets from Spain sold in the colony in 1999. One might think that it lies in the financial elite of lawyers and accountants involved from business."
Each time Spanish authorities complain about Gibraltar being a refuge for narco-traffickers and money-launderers, it is reminded about its own hot spots: Marbella, a favorite spot for the Mafia, and Galicia, a port of entry for drugs coming from Latin America. Some Gibraltarians say that, every time Spain wants to stress a point, it makes life more miserable to them by increasing the level of blockade arguing that the Rock is a nest of smugglers and funny finance.
Others say Britain is in a worse shape. "Our system is a copy of the one that operates in other places" said Gibraltarian attorney Anthony Provasoli in an interview with El País. "It is not designed for money laundering, in spite of allowing it. Years ago we saw that very strange things were going on, so we cleaned them up. Gibraltar complies today with a legislation that permits the identification bank accounts' and corporations' owners. The lawyer that breaks the law risks a term in prison, I wonder why nobody talks about London, where the biggest scandals occur."
Gibraltarian authorities insist that the territory has put in place the most comprehensive legal framework and the most rigorous regulatory system in the EU with regard to money laundering. All requirements of the EU Directives on Money Laundering have been fully complied with in Gibraltar, Financial Action Task Force recommendations have been followed, and the Basle Principles and Vienna Convention have been adopted. In addition, the Gibraltar Financial Intelligence Unit has been established, a joint venture between the Royal Gibraltar Police and the Gibraltar Customs Service. The GFIU maintains a close working relationship with the Financial Services Commission, who also ensures compliance with money-laundering legislation as part of its regulatory procedures.
For ElAmin, that is more than enough. "I don't think that any jurisdiction can say that money laundering does not occur in its financial sector and that it is not of concern. Like other reputable offshore centers, Gibraltar has moved quickly to tighten its regulation and seems willing to comply with opening client records as for example in the search for Yugoslav ex-President Milosevic's millions. The US State Department's report was based on the FATF's assessment in June 2000, which listed Gibraltar as a jurisdiction that needed to make changes to be fully compliant but was still a cooperative jurisdiction. Gibraltar was not on the FATF blacklist. Right now Gibraltar seems compliant with international and UK standards regarding money laundering."
In any case, although Spanish authorities push for a crack down on the Gibraltarian banking system, some of its citizens may have other interests. Gibraltar owes part of its prosperity, in fact, to Spanish "dirty money," many say.