The UK Parliament today has taken a significant step toward global tax transparency – by imposing public registers of beneficial ownership of companies on the UK’s Overseas Territories (OTs). The OTs are relatively small but highly secretive financial centres, responsible for just over 4% of the global provision of financial services to non-residents – but nearly twice that share of our measure of global financial secrecy (see “FSI Share”, below). This table below shows the measures of financial secrecy for those seven Overseas Territories which we reviewed in our Financial Secrecy Index 2018, and which will now be covered by the new measures. Compared to the average secrecy score of 66 for all 112 jurisdictions we reviewed, the average secrecy score of those 7 UK overseas territories covered by the FSI is substantially higher with 74%. This tells you what a significant contribution their secrecy services make globally.

Overseas Territories on the Financial Secrecy Index 2018

Rank Jurisdiction FSI Value FSI Share Secrecy Score Global Scale Weight 3 Cayman Islands 1267.68 4.00% 72.28 3.79% 16 British Virgin Islands 502.76 1.59% 68.65 0.38% 36 Bermuda 281.83 0.89% 73.05 0.04% 56 Anguilla 195.04 0.62% 77.50 0.01% 83 Gibraltar 107.44 0.34% 70.83 0.00% 87 Turks and Caicos Islands 98.08 0.31% 76.78 0.00% 112 Montserrat 16.53 0.05% 77.50 0.00% SUM 7.79% 4.21% Average 73.80

Tax Justice Network CEO Alex Cobham says:

As we have documented at length, the UK’s financial secrecy network is the biggest in the world. While the UK itself is only moderately secretive according to our Financial Secrecy Index, this reflects the deliberate outsourcing of secrecy to the Crown Dependencies (Jersey, Guernsey and the Isle of Man) and the more numerous Overseas Territories (OTs) such as the Cayman Islands, number 3 in our most recent Financial Secrecy Index, and the British Virgin Islands at number 16.”

In fact that the Panama Papers might more fairly have been branded the British Virgin Islands Papers: that’s because more than twice as many companies involved in that leak were registered there (the notorious offshore law firm Mossack Fonseca’s favourite jurisdiction) rather than in Panama:

Successive UK governments since the 1950s encouraged the various OTs down the road of tax havenry, as part of a deliberate plan to reduce British responsibilities to provide financial aid. Perhaps needless to say, the development path that financial secrecy offers does not tend to support broad-based human development. Instead, elites and expatriate workers typically garner the greatest benefits, leaving many living in poverty and at the wrong end of greater inequalities than before.

But the lobbying power of those elites, and the international professional services firms that extract benefit from the OTs, has ensured the business model continues largely uninterrupted – even as the evidence of secrecy’s costs, and international public anger, have mounted.

Although there have been previous attempts by the UK Parliament to impose registers of beneficial ownership on the overseas territories (and crown dependencies), these efforts were halted by a surprise General Election in 2017. In recent years, the British government has refused to impose more financial transparency on these territories, especially with regard to trusts. On the contrary, it’s actively protected them from international scrutiny, for example, by lobbying to remove them from the EU’s list of tax havens released in 2017. In fact trusts (and foundations) are the elephant in the room when it comes to greater transparency – because despite this step forward today on public registers of the real owners of companies in Britain’s OTs, these alternative secrecy escape vehicles remain in the shadows. This is why the Tax Justice Network has always argued for public registers of companies, as well as for trusts and foundations. You can read more about our concerns over trust secrecy on Andres Knobel’s recent TJN paper ‘Trusts: Weapons of Mass Injustice’ here. He also discusses the context around beneficial ownership and the EU’s efforts regarding the anti-money laundering directive here.

Until now UK governments and parliamentarians have been unwilling to impose greater transparency. Despite the UK being legally responsible and able to do so, no action has been taken. But cross-party and Opposition support in the UK parliament means that today an amendment was passed as part of the Sanctions and Anti-Money Laundering Bill, requiring the OTs to create public registers of beneficial ownership of companies – meeting the emerging international standard.

Markus Meinzer of the Tax Justice Network says:

Today’s vote is good news for the protection of human rights and democracy across the globe, and bad news for tax dodgers, money launderers and kleptocrats. The risks for dirty business ending up in bright daylight is increasing. Let’s now move on to tackle the next strongholds of financial secrecy – there are enough left for a lifetime.”

Quite. And while this is definitely a moment for celebrating, we would still want to draw attention to those parts of the UK realm of direct influence which have been left out of the new measures. As some shocking scenes from documentary movie “The Spider’s Web. Britain’s Second Empire” makes amply clear, the Crown Dependencies such as Jersey are in urgent need of transparency reform. This finding is corroborated by the Financial Secrecy Index, where Jersey, Guernsey and Isle of Man still contribute a further 4% of our global total of financial secrecy, with an average secrecy score of 67%, far higher than UKs. And then there is the question of implementation of the new measures, and the widespread loopholes left in the definition of company beneficial ownership. And let’s not forget about the trusts…