ANALYSIS – UK forces offshore havens to become more transparent

By Michael Sercan Daventry

LONDON

The Panama Papers did not just expose the secret financial affairs of thousands of rich and influential people around the world.

They also served as a reminder that whole countries can be secretive too – chief of all, Britain.

According to the Tax Justice Network (TJN), a group of global tax analysts, the U.K. and its former colonies together account for the most secretive tax regime in the world.

“We regard the U.K. as one of the biggest, if not the biggest, single player in the global offshore system of tax havens (or secrecy jurisdictions) today,” the TJN said in its Financial Secrecy Index, a list that ranks countries according to their secrecy and the scale of their offshore financial activities.

It placed the U.K. in 15th place in 2015 but, in an indication of the country’s global influence, more than a quarter of top 25 territories on the index are former British colonies that retain important judicial and administrative connections with the U.K.

They include Caribbean territories such as the British Virgin Islands and Cayman Islands, as well as European havens like Jersey and Guernsey in the English Channel.

All are islands that enjoy considerable autonomy and have their own legislatures. All offer low or zero direct taxation on their residents’ income. None are independent countries.

The TJN said that if Britain was assessed together with these overseas possessions, it would rocket from 15th to the very top of its Financial Secrecy Index – higher than Switzerland, Hong Kong or Singapore.

The Panama Papers, a vast collection of documents leaked from Mossack Fonseca, a law firm based in the Central American country, have cast light on the financial arrangements of friends and relatives of world leaders.

Jeremy Corbyn, the leader of the main opposition Labour Party, believes they also showed why Britain needs to reassess its relationship with its former colonies.

“All of them enjoy security and protection provided by the U.K., all of them are dependent territories, all have some form of self-governance,” he told BBC television on Sunday morning.

“We want openness on who owns those companies, openness on the trusts and we want a tax regime that is reasonable so that they all pay some kind of contribution. It cannot be right that we’re just allowing people to shift resources offshore in order to avoid taxation in the U.K.”

Corbyn argued Britain should be doing more to pressure the territories’ governments into ensuring their records on company ownership and tax are more transparent and that information is routinely shared with the police so that the islands are not simply used as a vehicle for money laundering.

The treaties that govern Britain’s former colonies allow the U.K. government to abolish their democratically elected legislatures and impose direct rule from London.

This happened as recently as 2009, when the U.K. suspended the constitution of the Turks and Caicos Islands following allegations of corruption among the ruling classes. A democratic government was reinstated three years later.

Corbyn said the latest revelations showed the British people, having endured several years of reductions in domestic welfare spending and other areas of government, did not tolerate large amounts of money being moved offshore by the super-rich to avoid tax.

“I’ll tell you, people that have seen their local services cut, people that are seeing their health services in any country under threat get very angry when they see the super-rich not paying their way,” he said.

U.K. Prime Minister David Cameron, who was himself criticized for not declaring that his late father had bequeathed an offshore trust to his children, has since announced that Britain’s former colonies will now share tax information with the authorities in London.

He told the House of Commons on Monday: “There are basically three things we've been asking the crown dependencies to do. One is to exchange tax information; the second is to have a common reporting standard; and the third is to establish registers of beneficial ownership. They have now done all three.”

He added: “What we've tried to do with the overseas territories is say there is a perfectly legitimate business of providing financial services but they, like us, should be doing it on the basis of high standards, not low standards. I think that is an argument that they now accept and carry now and we should thank them for it.”