Not everyone was happy when the House of Commons voted in April to require companies registered in UK overseas territories to publicly disclose their beneficial owners. Representatives of territories such as the British Virgin Islands said that the policy would undercut their status as offshore financial centers. Others argued that the more would only drive money launderers into even shadier corners of the global financial system.
If the finance industries of overseas territories are built solely on anonymity, then the disappearance of those industries is to be welcomed. But the information that will become public is already available to government, so they will not become wiser. In any case, the right of privacy for the wealthy must be weighed against the rights of the victims of criminals who move their gains into opaque shell companies. In our opinion it is legitimate for jurisdiction to compete for business by promising low tax rates or limited regulation. Not so the promise of freedom from all scrutiny.
It is true that there are other places hide wealth besides overseas territories in the Caribbean or Pacific. Not all of them are small islands or emerging world outposts. The US, which has for example strong disclosure and enforcement regulations, has very weak disclosure requirements for beneficial ownership of companies.
The UK does for sure not need to look across an ocean to see ways to tighten the net of ownerships in companies. A low requiring all British companies to identity beneficial shareholders has been in place for two years. Yet of the 4.1million companies registered with Companies House in the UK, more than 500,000 companies have not provided this information, according to the research from Global Witness, the non-governmental organization. Some for sure have good reasons – such as the lack of a single owner with a stake of more than 25%, the legal threshold for control. This illustrates a key point. Transparency, crucial as it is, is not sufficient.
There are three things we have learnt from the UK’s recent decision to advance legislation that will require its overseas territories to implement a public beneficial ownership registry by 2020, or face the prospect of the UK forcing them to do so via its reserve powers.
First, the bill, once law, imposes this obligation on the UK’s territories base in the Caribbean only and the UK’s Foreign office minister has admitted that the requirement is not a global standard. So if it is not a global standard, clients with legitimate rights to financial privacy that are not involved in nefarious activity will most probably move their business to a jurisdiction that has no such public registry – rendering the initiative as ineffective.
Second, the UK’s crown dependencies (Jersey, Guernsey and the Isle of Man) were initially included in the proposed provision that would have also required them to implement such a public registry by 2020. Within days they were removed from the provision. Imposing such provision solely on a select group of territories could be discriminatory.
Third, these territories are all signed up to the automatic exchanged of financial account information, under the OECD’s common reporting standard so HM Revenue and Customs already has access to all the information it requires to enforce UK tax low.
Furthermore, a large proportion of the cross – border business that these jurisdictions attract is conceived, constructed and managed in London, underpinning the UK’s position as one of the world’s leading wealth management centre.
In our opinion only if there is a global agreement on transparency measures with a level playing field – and UK economic interests – it will be preserved otherwise it is just a great way to destroy the UK’s unique global cross border business network, at a point of time, when Brexit makes it all the more important, as a means of facilitating global trade and London’s position at the world’s leading centre for financial and professional services.