News 17th Dec 2015

Lifting the Lid on Financial Secrecy


Ben Cowdock

Research Officer

Ben became a research officer for TI-UK in January 2016 and holds an MA in Governance and Corruption from the University of Sussex.

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The UK is presenting itself as a leading nation in the fight against global corruption, but there’s an elephant in the room – the secrecy laws in various British Overseas Territories and Crown Dependencies that allow the corrupt from around the world to launder stolen wealth through anonymous companies.

The UK is responsible for the good governance of its three Crowd Dependencies and 14 Overseas Territories. These islands have an odd position constitutionally; “loyal to the Crown” and under the responsibility of the UK government in international affairs, but not accountable to the UK Parliament.

Regrettably a number of these territories provide the corrupt with ideal conditions to launder their ill-gotten wealth. These Territories, particularly the financial centres of The British Virgin Islands, Cayman Islands, Turks and Caicos Islands and Bermuda are vital cogs in the machinery of global corruption and money laundering.

A joint report from Global Witness, Christian Aid and Transparency International UK outlines the problem of financial secrecy in these jurisdictions. More than 70% of corruption cases surveyed by the World Bank between 1980 and 2010 relied on anonymously-owned companies help to obscure what they were doing. These cases involved a total of 817 corporate vehicles, and those from the UK’s Overseas Territories were the most popular jurisdictions of choice among the corrupt.

Corrupt individuals can move their ill-gotten gains into the UK through Territories which don’t have central registers of company ownership, keeping their identity and the source of funds opaque. So far, only Montserrat and Jersey require names to be collected on a central register. Gibraltar also will likely to be obliged to introduce these measures by the EU. The inconsistency between the Overseas Territories’ standards presents loopholes the corrupt can ruthlessly exploit. When jurisdictions have weaker rules, they will be targeted by criminals and the corrupt and the breadcrumb trail of evidence becomes increasingly hard to trace back to the corrupt. UK law enforcement has elaborated on this problem saying it can take years for the right information to come to light when transactions are layered through offshore secrecy jurisdictions.

Earlier this month we were offered a glimmer of hope; the heads of the Overseas Territories met with the UK Government at the start of December. The meeting resulted in commitments to hold company information in central registers or “similarly effective systems”. The commitments represent a small step forward. But it must be emphasised the statement is worryingly vague and leaves room for the Overseas Territories to duck the demands for centralised and public registers of beneficial company ownership.

Even if the Overseas Territories did implement a register of company ownership, the commitments made fall short of making the registers publicly available. This is a problem. To achieve real accountability the data should be free, searchable and available to public scrutiny. Journalists should be able to access this information to hold public officials accountable. Companies doing business or investing in companies incorporated in the Overseas Territories should be able to conduct due diligence to avoid dealing with corrupt individuals and the proceeds of crime.

Most importantly banks and other financial institutions who represent the first line of defence against corrupt money entering the UK would have no access to beneficial ownership information in the registries that are being proposed by the Overseas Territories. Without this, these institutions will be incapable of carrying out the checks needed to provide a defence against dirty money entering the UK economy.

The picture does not have to be doom and gloom; the UK has the power to make laws for its Overseas Territories. The UK’s Anti-corruption Champion, Sir Eric Pickles, has labelled the standards in some Offshore Territories “simply unacceptable”, and David Cameron has called for the Overseas Territories to introduce transparency about who ultimately owns companies registered in their financial centres. Thus far, the lack of widespread political will has prevented the UK from intervening directly and implementing the necessary standards.

If sufficient progress isn’t made, then the threat of legislative action from the UK should be followed through. The flow of billions of pounds of stolen money away from those who need it most represents reasonable grounds to intervene. In the past, the UK has enforced legislation eliminating the death penalty and legalising homosexuality in the Overseas Territories. In 2009 due to rampant corruption and misrule the UK Government took direct control of the Turks and Caicos Islands.

Short of legislating directly over the Overseas Territories and Crown Dependencies, the UK can – at least – require foreign companies that hold UK property to declare they true owners. We called for the government to do this back in March 2015, and the UK Government suggested they would take this proposal forward in July. However, we’re yet to see any concrete proposals actually published. If you want to level the playing field with UK Companies and make foreign companies who own property here reveal their beneficial owners, please don’t forget to sign our online petition.

With the UK's global anti-corruption summit around the corner, the UK Government cannot afford to look hypocritical on the world stage. It must show determined leadership in the fight against corruption so others will follow. Opening up the UK’s Offshore Territories and Crown Dependencies with public registers of corporate beneficial ownership would be a significant step.

The next six months are a great opportunity to make real progress in the fight against corruption and the world is watching.