How the UK government has the power to make its tax havens stop enabling crime and corruption

The huge data leak from Panama law firm Mossack Fonseca has revealed the extent of the money laundering, tax evasion and other crimes enabled by offshore shell companies.  More than half the companies were registered in UK-governed tax havens, or “Overseas Territories”.

This is not surprising. Anonymously-owned companies are the main method used by tax evaders and the corrupt to hide their identity and therefore hide their money.  According to a study by the World Bank, the most popular place with the corrupt in which to incorporate a company is the UK’s Overseas Territories. 

This means the UK has the power to fix this problem, by requiring its Overseas Territories to create public registers of the real owners of companies, just as the UK has done.  This would allow law enforcement, journalists, civil society and the wider public to know who is behind these companies, and stop people being able to hide illicit activities behind them.

“It’s no surprise that the UK’s tax havens feature so prominently in the Panama leaks - we’ve seen for years how they are to the go-to destination for those with suspect cash to stash. The good news is, we can do something about it: the UK government has the power to make the tax havens come into the open by setting up public registries of the real owners of companies. The UK has intervened before when the issue was important enough - it should do so again now,” said Robert Palmer, campaigner at Global Witness.

“David Cameron has shown real global leadership in tackling corruption - he now faces a credibility test. Today’s news shows that unless the government uses the upcoming summit to require the UK’s tax havens to end anonymous company ownership, our other efforts won’t be effective in fighting poverty and instability. We have to clean up our own back yard first,” added Palmer.

David Cameron has himself stated that the UK’s overseas territories should do more to become transparent, while anti-corruption champion Sir Eric Pickles has said that the government could legislate to make this happen. The UK has used its powers over the Overseas Territories a number of times in the past. For example:

• Corruption in the Turks and Caicos Islands

The UK government suspended the Ministerial government and the House of Assembly in the Turks and Caicos Islands in 2009 following allegations of systemic corruption and administrative incompetence (1) The Governor, who is appointed by the UK government, was given the power to take charge of government matters, subject to instructions from the Foreign and Commonwealth Office. Direct rule from London was imposed despite opposition and criticism from other Caribbean countries.(2) Self-government was restored in 2011.(3)

• Abolishing the death penalty

In 1991 the UK government, by Order in Council, abolished capital punishment for the crime of murder in the Caribbean overseas territories (Anguilla, the British Virgin Islands, the Cayman Islands, Montserrat and the Turks and Caicos Islands).(4)

The exception to this legislative step was Bermuda, which is considered the most autonomous overseas territory. However the UK Government threatened that it would consider using the ‘unprecedented step’ of imposing such a change on Bermuda if it did not voluntarily introduce domestic legislation(5)  This threat had the effect of causing the Bermuda legislature to pass its own domestic legislation on the issue. 

• Decriminalising homosexuality

In 2000 the UK legislated against the will of the Caribbean Overseas Territories when it decriminalised homosexual acts by Order in Council.(6) While the overseas territories were given an opportunity to adopt the necessary legislation themselves, the UK government adopted the Order when it became clear that the Territories were unwilling to legislate themselves.