British Overseas Territories Are Up In Arms Over Proposed Changes To Financial Transparency Laws

British Overseas Territories Are Up In Arms Over Proposed Changes To Financial Transparency Laws

Despite initially indicating that it did not want to damage the autonomy of its overseas territories, the UK government now looks set to pass a bill that will force the likes of the British Virgin Islands, Bermuda, Gibraltar and the Cayman Islands to reveal and publish the names of the beneficial owners of the offshore companies registered there by 2020.

Ever since the “Panama Papers” scandal leaked information about how some of the world’s richest people disguised their ownership of assets in order to avoid paying tax on them or attracting unwanted attention, by setting up complex webs of offshore companies, British overseas territories, well-known for providing such services, have been under considerable scrutiny.

An amendment to the Sanctions and Anti-Money Laundering Bill introduced by Conservative MP Andrew Mitchell and Labour’s Dame Margaret Hodge last week was allowed to pass without debate by Speaker John Bercow, meaning a set of legislation first proposed by David Cameron’s government 5 years ago will now come into effect, putting pressure on overseas territories to be more transparent about revealing who the beneficial owners of the companies they help to set up and manage are.

Although the UK government originally took the position that it did not wish to intervene in the way that overseas territories administered their affairs, it subsequently backed down after the extent of the support for the changes to the bill became clear. Andrew Mitchell rallied 20 Conservative MPs to push for the amendments to be approved, arguing that the companies overseas territories were helping to set up were a significant contributing factor in the UK’s £90 billion-per-year money laundering problem.

Under the new regulations, overseas territories will also be vulnerable to increased sanctions if any entities are suspected of being involved in human rights abuses. Human rights group Global Witness told the Financial Times that the new regulations would be “a huge win in the fight against corruption, tax dodging and money laundering”, whilst OXFAM said that; “Ending secrecy in UK-linked tax havens will help developing countries to recoup billions of lost revenue that could pay for much-needed schools and hospitals.”

The Overseas territories in question, however, take a different view, arguing that the UK is over-reaching its authority and acting in a colonial manner by imposing its laws on its territories directly and ignoring the territories own elected governments, who disagree with the new measures.

The Hon. Alden McLaughlin, Premier of the Cayman Islands, argued that “imposing such an obligation on the Overseas Territories while exempting the Crown Dependencies discriminates unfairly against the Overseas Territories. This amendment is based solely on prejudice and a wilful misunderstanding of our current regulatory framework.”

Fabien Picardo, chief minister of Gibraltar added that the decision was “more than retrograde” and an “unacceptable act of modern colonialism”.

The Labour Party’s Dame Margaret Hodge, on the other hand, has argued that since the problem is related to money laundering, it is a foreign policy issue and therefore within Westminster’s jurisdiction.

Many of Britain’s overseas territories are not rich in natural resources and their economies rely heavily on their ability to provide offshore financial services, they argue. They also make the argument that they are not engaged in illegal practices and carry out their business on behalf of a range of clients – including the Queen – for a range of different tax-efficient, but not illegal purposes.

That being said, scandals such as The Panama Papers, and “Paradise Papers”, which showed how complex offshore company structures can be set up to help disguise the real owners of assets, enable individuals to avoid paying tax on their assets, and even potentially help fund terrorism or launder the proceeds of crime back into the monetary system, have rocked the industry to its core.

Overseas territories point out that as well as damaging their reputation in the global marketplace, criminals use a range of techniques to launder money and it is unfair to single out offshore banking. Introducing this extra level of privacy, they say, will only serve to discourage legitimate customers. Not only that, but the new requirements will be extremely costly to implement.

The Territories – there are 14 in total – are said to be mulling over their options, which include a legal challenge to the bill, whilst questioning the UK’s right to make such decisions and impose them on the territories’ democratically elected governments.

Meanwhile, Mitchell and Hodge have now turned their attentions to the UK’s Crown Dependencies; which includes the Channel Islands and Isle of Man. Having originally thought that the constitutional position of these territories was different, having realised their error Mitchell and Hodge are now insisting that the Crown territories also be included in the legislation, and must publish Public Ownership Registers by the end of the decade.

Given the complexity of the issues at stake, the UK government’s unwillingness to get involved directly is contentious, but now that it has, perhaps it is an opportunity to rethink the entire offshore company structure problem, which would be of benefit of everyone involved.