McDonnell demands Hammond introduce almost £1bn “Oligarch Levy” to hit Russian tax dodgers

The Shadow Chancellor has today called on Philip Hammond to introduce five measures, including the “Oligarch Levy”, to strengthen the UK’s hand in imposing effective sanctions on Russia and breaking up secretive offshore financial networks used by foreign oligarchs.

Labour’s five-point plan to take on the oligarchs:

“Oligarch Levy” to tax secret offshore purchases of UK residential property

Extend the beneficial ownership register for Crown Dependencies and Overseas Territories and Public Register of all trusts

Tighten “Politically Exposed Person” regime

Enforce Unexplained Wealth Orders to confiscate illegally-obtained wealth

“Magnitsky Clause” in full to apply sanctions against human rights abusers

The Offshore Company Property Levy, proposed in Labour’s manifesto at the General Election last year, would see a charge introduced against purchases of residential property by offshore trusts located in known tax havens, based on a blacklist of tax havens developed by HMRC.

It is similar in principle and application to the 15 per cent levy recently introduced in Toronto on foreign property owners or that Singapore and Hong Kong have maintained for many years.

However, this tax would be more tightly focused on specific forms of ownership associated with money laundering and tax avoidance.

If introduced now, newly obtained figures suggest this could have a very direct impact on such properties owned by Russian oligarchs.

Independent experts estimate this tax could raise up to £875m a year from Russian oligarch sources, given the estimates of “suspicious wealth” holdings in the UK.

John McDonnell MP, Labour’s Shadow Chancellor, said:

“We need to see less empty rhetoric from leading Tories competing for the leadership of their party, and more action from the top of government to strengthen any financial sanctions we impose on Russia.

“If we want to really take the fight to the gangster politicians and Russian elites hiding their money in the UK, then we need serious measures like the ‘Oligarch Levy’, which will hit them where it hurts – in their wallets.

“It’s time to call an end to the use of our financial system and property market as a hiding place for rich foreign oligarchs and their money men by implementing measures like full transparency for tax havens and our levy on secret offshore property purchases.

“The Chancellor needs to introduce serious measures that would strengthen the hand of the our authorities that want to impose penalties on those found to have been involved in the events of the past fortnight.

“The next Labour government will take a sledge hammer to money laundering and tax avoidance, and call an end to the exploitation of our financial system and property markets by the global elites.”

Ends

Notes to Editors:

Oligarch Levy

Labour’s “Oligarch Levy”, the Offshore Company Property Levy, was detailed in its 2017 Manifesto. It will apply a 15% surcharge to purchases of UK residential property made through property companies registered in offshore locations, where standards of reporting do not match the UK’s. Prof Prem Sikka of Essex University has estimated £3.5bn could be raised through such a tax before behavioural impacts (included in our Manifesto costings), based on Land Registry data. (See: Sikka, P., March 2017, “Proposal for Offshore Company Property Levy”:http://visar.csustan.edu/aaba/OFFSHOREPROPERTYLEVY.pdf)

Transparency International have found £4.4bn of suspicious wealth owned in the UK, of which around one-fifth is held by Russians. Of the Tier 1 visas applied for between 2008 and 2015, “when almost no checks were in place”, one-quarter of applicants (729 people and their families) were of Russian origin. (See: TI-UK, 14 March 2018, “End the UK’s role as a ‘safe haven for corrupt wealth’”:http://www.transparency.org.uk/press-releases/end-the-uks-role-as-a-safe-haven-for-corrupt-wealth/#.WqvbamrFKUk)

By its nature, oligarch wealth is hard to trace. However, these estimates suggest that between one-fifth and one-quarter of offshore purchases of UK residential property are from Russian sources, implying a potential revenue from the Oligarch Levy of £700-875m annually .

Magnitsky Clause

Sergei Magnitsky was a Russian tax accountant who died in jail in Russia after revealing details of a massive state-sponsored fraud.

Numerous countries have since introduced ‘Magnitsky provisions’, enabling them to apply sanctions against those connected to the persecution of Magnitsky, often extended to other people responsible for gross violations of human rights.

Labour has tabled amendments during the Committee Stage of the Sanctions and Anti-Money Laundering Bill calling for the introduction of a ‘Magnitsky clause’. This was opposed at the time by Tory MPs.

Beneficial ownership register for Crown Dependencies and Overseas Territories and Public Register of all trusts

Since 2016, the UK has had a “beneficial ownership” register, making transparent the ultimate beneficiaries of companies owned in the UK.

However, secrecy jurisdictions and tax havens for which the UK is responsible, and which enjoy the benefits of the English legal system, have no such register. This makes them a haven for money launderers and criminal activity, as well as tax avoidance.

Labour will ensure that Crown Dependencies and Overseas Territories also introduce full, transparent, publicly-accessible registers of beneficial owners.

Labour will create a public register of all trusts showing their assets and beneficiaries.

We will look particularly at trusts which transfer the residence of their trustees offshore, and those tax avoidance schemes involving trusts which are disclosed to the HMRC under the current law.

Tighten “Politically Exposed Person” regime

“Politically Exposed Person” (PEP) enforcement is intended to provide additional scrutiny by financial institutions of those more likely to be involved in corrupt practices. At present, the definition applies to high-level government figures, their families, and their close associates.

But the government is seeking to loosen its application, rather than tighten it. (See HM Treasury, “Consultation on Money Laundering Regulations 2017”,part 8: https://www.gov.uk/government/consultations/money-laundering-regulations-2017/money-laundering-regulations-2017#politically-exposed-persons)

This risks allowing corrupt individuals and their wealth through the net. Labour will insist on tighter enforcement by financial institutions and look at expanding the definition to include a wider spread of “associates”.

Enforce Unexplained Wealth Orders to confiscate illegally-obtained wealth

· An Unexplained Wealth Order (UWO) is designed to confiscate the proceeds of crime by using civil powers instead of criminal powers. The power was introduced by section 1 of the Criminal Finances Act 2017.

· From 31 January 2018, relevant enforcement authorities will be able to apply to require a person to explain and account for the origins of their assets. Namely, Unexplained Wealth Orders will be used where the assets owned by the person are inconsistent with their income level.

· No UWOs have yet been used. Labour will bring forward their use by removing secrecy from company and property registrations, and ensure the National Criminal Agency is properly resourced. We will provide an extra 10,000 police