In the final instalment of its special reports on tax evasion in Europe, EU-OCS asks if the UK is serious about reforming the notorious the tax havens that make up some of its overseas dependencies.
In a speech he gave during the Scottish independence referendum campaign, then Prime-minister David Cameron, extolling the UK’s virtues and reasons why Scotland should vote to remain within the Union, described it as “brave, brilliant,” and “buccaneering.” Ironically, the term ‘buccaneering Britain’ would later catch on among proponents of the leave vote in the UK’s own ‘independence’ referendum from the EU.
The term conjures an image of a plucky, outward-looking little country, which, once unmoored from onerous EU regulations will be cast free as a nimble vessel able to gybe and tack its way through the headwinds of global trade. While this depiction of the UK may swell the hearts of Brexiteers with pride, it sends shivers down the spines of EU leaders. And that should come as no surprise when one recalls the role played by Buccaneers in British history. Operating in a grey area between government approved mercenaries and outright piracy, Buccaneers made a living raiding the colonies of Britain’s European rivals in the Caribbean.
Given that one of the UK’s primary objectives after Brexit will be to convince the EU that it is a reliable partner with whom to sign a trade deal, it might wise not to refer back to the days when Britain made a living raiding the profits of its European neighbours.
It might have been with this in mind, then, that when the EU signed the withdrawal agreement with the UK, setting out the arrangements for London’s departure from the bloc, it insisted on an annex on taxation – an area in which the UK, according to its critics, has never really shed its old buccaneering ways.
In the text, the UK agreed to continue to abide by key elements of the EU’s anti-money laundering and tax evasion legislation after Brexit, to appease fears that it would pursue a Singapore-on-Thames economic policy, effectively establishing itself as an offshore tax haven on the EU’s door step.
According to Bloomberg, EU leaders felt ‘reassured’ by the addition of the taxation annex. The EU’s lead Brexit negotiator Michel Barnier said it will “serve as an insurance against unfair competition and any erosion of the integrity of the EU single market.”
However, recent developments in the House of Commons may give them cause to reevaluate their optimism. In March, the government pulled a debate on the financial services bill because it included an amendment that would have enforced greater tax transparency in Britain’s Crown dependencies.
Specifically, the amendment called for a public register naming the beneficial owners of companies based in the Channel Islands and the Isle of Man – Jurisdictions that attract large numbers of letterbox companies thanks to their high levels of banking secrecy and low levels of tax.
According to the government, the amendment extending the transparency rules to the Channel islands would have been unconstitutional as they are not subject to laws passed in Westminster. But critics argue that the move to withdraw the bill is in keeping with the government’s foot dragging when it comes imposing real reform in this area, despite the lip service it pays to fighting tax evasion.
This was in fact the second time the government opposed moves to introduce greater transparency into the beneficial ownership of offshore companies. Last year, the same cross parliamentary group of MPs managed to get a similar amendment through the Commons forcing British overseas territories such as the Cayman Islands and the British Virgin Islands to introduce public registers of share ownership by 2020.
However this was not without the government trying to introduce its own last minute amendments to the bill in an effort to stymie its passage into law, only for the Speaker of the House to reject them for being tabled too late in the day.
In this case too, the government cited its reticence to break with a long tradition of not imposing laws on its overseas dependencies without their consent.
However, for the government’s critics, this amounts to a blank refusal to acknowledge the central role played by London in facilitating the shady practices of its overseas territories.
John Christensen of the Tax Justice Network told EU-OCS that: “It is a mistake to look at Britain in isolation from its dependent territories,” which he says are “intimately linked to the City of London through legal, economic, cultural and political ties.”
“Jointly they provide an ecosystem of permissive laws, lax regulation and weak compliance which support illicit financial flows and nurture crime and corrupt practices.”
According to Christensen, the UK and its overseas dependencies constitute a sprawling “tax evasion empire” that should be judged by its weakest link.
“As with all systems analysis, if you want to identify systemic weaknesses you must seek out the lowest common denominator across the entire ecosystem. The Financial Secrecy Index identifies the Turks and Caicos islands as the weakest point of the British tax haven empire. With a secrecy score of 77 out of 100, Turks and Caicos falls into the most secretive and least cooperative of all secrecy jurisdictions.”
“The UK government is well aware of these weaknesses, but chooses not to take action as we witnessed when the Prime Minister withdrew the Financial Services Bill from Parliament in March 2019.”
Campaigners also contest the government’s argument that its hands are tied when it comes to legislating for it overseas dependencies pointing to a Supreme Court ruling from 2014 stating that “the UK Parliament has power to legislate for the [Channel] Islands.”
Nevertheless the government maintains it has made serious strides towards ending financial secrecy. The public register of beneficial ownership, introduced in 2016 to record information about who owns and controls UK companies is, the government says, evidence of its bona fides on combating opaque tax arrangements where it does have a free hand to act, i.e within its own jurisdiction.
The government’s critics, however, remain unconvinced. According to Global Witness: “a major weakness of the UK register is that the data submitted is not verified and relies entirely on self-reported data from companies,” resulting in “poorer quality data and less confidence in the register as a useful tool for transparency.”
John Christensen points out that despite the register being open for public scrutiny, the failure to enforce companies to comply with its requirements means “that much of the information is out of date, inaccurate, or simply missing.”
None of the above should inspire confidence in EU that the UK has truly abandoned its post-Brexit Singapore-on-Thames strategy. If Brussels ultimately deems the UK to be uncooperative with the EU’s efforts to combat illicit money flows, it could, in theory, be added to its blacklist of tax havens, putting the UK in an awkward situation as it seeks to strike a trade deal with the block.
However, its questionable just how much of a deterrent this would be given that the blacklist itself has come in for criticism due the lack of sanctions that go with it and the fact that many known tax havens, including UK overseas dependencies like Bermuda and Jersey have somehow escaped inclusion on the list.
“There’s no doubt in my mind that the UK should be blacklisted,” Christensen said, adding that “Sadly, we know this is unlikely to happen any time soon, which reflects an awkward truth about contemporary politics: too many of our elites are currently in the tax haven brothel with their trousers round their ankles.”