THE misleading answers that Rona Fairhead, new chair of the BBC Trust, gave at her parliamentary confirmation hearing last week regarding the tax avoidance scheme she orchestrated as finance director of Pearson plc (see last Eye) cast more doubt on her suitability than the scams themselves.
When Labour MP Paul Farrelly, a member of the Commons culture and media select committee, raised the matter of several Luxembourg companies used to avoid tens of millions of pounds every year in tax, Fairhead responded: "I would start with my premise which I think is shared at Pearson that it’s appropriate for corporations and people to pay tax according to both the spirit and the letter of the law... the structure which was criticised at Pearson was very standard at the time…”
An obscure but valuable loophole
The notion that the scheme followed the “spirit of the law” is nonsense. It worked by creating a special Luxembourg partnership controlled by further Luxembourg companies that were controlled by a UK company, Pearson Luxembourg Holdings Ltd, of which Fairhead was a director. Under anti-tax avoidance laws, such tax haven companies would still have been taxed in the UK; but by creating a partnership and exploiting the vagaries of Luxembourgish accounting rules, Pearson, with the help of the accountants selling the scheme, found an obscure but valuable loophole.
Closing it in 2008, the then minister Jane Kennedy told parliament that the rules “are an important part of the UK’s defences against tax avoidance” and some “highly artificial tax avoidance schemes that use partnerships and trusts have been marketed in an attempt to avoid the effect of the rules”. Since executing a “highly artificial” tax scheme is the precise opposite of following the “spirit of the law”, and Fairhead knew full well that that is what she was doing, her evidence to the committee looks false.
As for the claim that the scheme was “standard”, this is also untrue. An insider dealing with these issues at the time tells the Eye that there were two or three dozen British companies using these schemes, but as a proportion of the several hundred that could have done, it remained a minority sport.
Dirty money launderette
Fairhead was no more convincing on her record at HSBC, where she chaired the audit committee responsible for “internal control” as it became the world’s largest dirty money launderette, notably for Mexican drugs cash, and incurred a $1.9bn fine in the US. Fairhead had only the standard failed director’s response: "I think one has to be realistic and say sometimes bad things do happen and sometimes the controls that you think are effective turn out not to be so and there I think it’s about how you respond.”
Pressed on how well she performed her role of challenging the bank, Fairhead waffled: "You always look back and say: did I question enough and what more could I have done?” So what were her answers to her own questions, Farrelly asked. The incoming chairwoman spluttered and failed to answer, instead claiming that duff information had come to her from Mexico and offering more flannel about restructuring the business after the event.
Asked how she would respond to difficult issues brought to her directly, Fairhead cited the kinds of procedures used (woefully) at HSBC and said she would listen to any complaint as long as it had gone through the “proper process” – which is precisely how large organisations squash problems in the first place. After all the BBC has been through, Fairhead looks some way short of what it needs.