Grey matters ethical dilemma: Marginally evasive

Jonathan consults management after reading a note of a conversation about tax avoidance. He is told it is none of his business and that, in any case, the transaction has been approved. What should he do?

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Listen to Rebecca Aston, CISI manager, ethics and integrity  talking on the BBC World Service about whistleblowingJonathan works for an investment bank which is particularly noted for producing innovative financial solutions for its clients, and adopts a similar approach for its own internal tax planning.

These solutions often employ aggressive tax planning, although the firm is careful to ensure that it obtains appropriate legal and accounting opinions to support its schemes. Because of the amounts of money involved and the fees that it charges, the bank employs leading experts in their fields to issue these opinions.

Jonathan is not directly involved in the structuring of these deals but, as a senior member of the bank’s chief accountant’s department, he is aware of the transactions and frequently sees the papers on which they are based, without being a part of the decision-making chain. Conscious that the worlds of tax avoidance and tax evasion seem to be coming ever closer together, at least in the eyes of the public and, it would appear, the revenue authorities, Jonathan takes a close interest in what his firm is offering its clients and the potential loss of tax revenue to the country where he lives.

While reading the papers connected with a recently completed transaction, which contain an opinion from a leading tax lawyer, his eye is caught by a note stapled to it headed: “Conversation between H_  and R_”. Jonathan knows the name to be a leading tax barrister and the note is signed by one of the firm’s managing directors. Jonathan reads the note and is particularly struck by the words: “Although H_ reiterated that he had concluded that the structure proposed does comply with all existing legislation, he warned that he considered it to be at the very margin of both legal and particularly social acceptability. Additionally, he added that, given the media focus on tax evasion (his words), we might wish to consider whether we really want to be involved in a scheme which has no obvious economic benefit to this country, and which will deprive it of a significant amount of revenue.”
His manager tells him that it is a done deal, and he will simply stir up a hornet’s nest if he tries to take the matter furtherKnowing that the transaction has already taken place, Jonathan wonders whether anyone else in the firm,  and if so who, has been made aware of the telephone conversation, and how they have convinced themselves that it is a good idea in the face of the comments from counsel.

Jonathan considers what, if anything, he should do and who he might discuss his concerns with. He decides to approach his manager in the first instance, but when Jonathan voices his concerns during their next meeting, his manager tells him that it is a done deal, and he will simply stir up a hornet’s nest if he tries to take the matter further. Not satisfied with this response, Jonathan decides that he will try to see R_, who has written the note, and he manages to make an appointment to do so for a few days later.

Although R_ agrees to see Jonathan, when they meet he makes it clear that he considers the matter has nothing to do with Jonathan and he seems not at all pleased that Jonathan has read the note of his conversation with counsel. However, he does say that the matter has been extensively discussed at the bank’s reputation committee, which has “approved” the transaction.

At this point Jonathan feels that he is probably putting his career in jeopardy if he takes the matter any further. But when watching the news on television that evening, the latest figures are announced for government borrowing and they are at an even higher figure than expected, citing inter alia lower than expected tax receipts. Jonathan feels that what he has discovered at work is exactly the type of activity that should be prevented. Although it might now be too late to close that particular stable door, surely he could and should do something to prevent a recurrence? Accordingly, he determines four possible actions.

What would you advise?

This dilemma appears in the Q2 2017 print edition of The Review. The results of the survey and the opinion of the CISI will be published in the Q3 2017 print edition of The Review.
Published: 05 Apr 2017
  • Wealth Management
  • Opinion
  • Integrity & Ethics
  • The Review
  • grey matters ethical dilemma

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