If ever there were a parable about saving money and not splurging your bonus on the first car or watch that crosses your path, the sorry tale ofJPMorgan’s employee benefit trust (EBT) would seem to be it. Well over a decade since bonuses were allocated, some JPMorgan recipients are being asked to pay money back – to the taxman.
Back in the late 1990s and early 2000s, JPMorgan’s employee benefit trust was a major perk of working for the bank in London. After paying their bonuses into the offshore trust, JPMorgan’s bankers received loans in return. These loans were subject to neither income tax nor national insurance, which should have accounted for around 50% of the total. It wasn’t very ethical, but these were the go-go years and ethics were not front of mind.
“Historically, a lot of the MDs at JPMorgan were paid their bonuses through the employee benefit trust,” one headhunter told us in 2012. “The idea was that they could borrow against the trust, tax free, and that if they went to live offshore they could access all their past bonuses without paying tax on them.” Thanks to this arrangement, senior people rarely left JPM: no one wanted a huge tax-induced pay cut to work elsewhere.
Estimates of the amount of money paid into the JPM trust vary, with some saying £2bn and some saying as much as £9bn. The money was transferred from at least 1998, with the bulk paid in after 2005/6.
As with all good morality tales, the perpetrators in JPMorgan’s story received karmic retribution, in this case at the hands of the British taxman, whose revenge has been eked out over years.
More here – efinancialnewscareers
PS This is somewhat analogous to what happened to insurance agents in the mid 1980’s. During the 1980’s National Mutual and AMP were competing for agent netwroks and would often buy out competing agents for huge premiums. These premiums were paid as an agency development loans. Insurance agents being none too bright and ever so greedy then took these and invested them in local share funds which they then geared up again. This worked ever so well until October 1987 when most of the funds they invested in imploded.
You probably can be too clever…..