Many of the world’s richest and most powerful people are in the spotlight for the wrong reasons – again. The Pandora papers is the third and largest leak of documents in which the secret financial practices of the wealthy are exposed in the media. They highlight mass tax avoidance and evasion, as well as potential money laundering.
As with the Panama and Paradise papers, the UK is heavily referenced as either the origin or destination for funds that are moved through offshore financial centres to obscure the ultimate recipients. The papers also highlight the still prominent role of British overseas territories such as the British Virgin Islands and Cayman Islands in such schemes.
But what is missing from this story is that this UK involvement could have been avoided. The UK has long known it could do more to prevent individuals from moving money in and out of the country through offshore jurisdictions. The National Crime Agency identified the practice as an issue in its 2014 report. And in 2016, after the leak of the Panama papers, then prime minister, David Cameron, pushed for a beneficial ownership register that would force UK companies to reveal the person who ultimately enjoys the benefits of owning an asset, even if they are not the named owner. Five years later, we are no further forward.
Registration of overseas entities
In 2018, Theresa May’s government publishing a draft Registration of Overseas Entities Bill. This focused on setting up a register in which any “overseas entities” seeking to buy property in the UK would have to disclose their beneficial owners.
The register, which was originally due to come into operation in 2021, would have reduced the likelihood of the UK being embroiled in future scandals by making ownership of UK property transparent. But the legislation was not passed while May was in office and, since Boris Johnson took over in 2019, it appears to have been pushed to one side.
The UK also made it clear, by publishing a draft Order in Council under the Sanctions and Anti-Money Laundering Act 2018, that following consultation with British overseas territories they would be required to establish a public register of companies’ beneficial owners by 2021. However, it has since been reported this will now not be required until 2023.
The UK government does have a commitment to reform Companies House, giving it investigatory powers to verify the identities of proposed company directors before they can be appointed. But no timeline has been set for implementing this. So once again, for all the rhetoric around making the UK more resilient to financial crime, the government’s lack of action speaks louder than words.
This lack of political will is also evidenced by Johnson’s decision not to implement the EU’s 6th Anti-Money Laundering Directive. While the UK is no longer a member of the EU, it was still in the transition stage at the date when the directive was due to be implemented by member states (December 3 2020). However, the UK had a special concession under the Lisbon Treaty whereby it had the freedom to opt in to policing and criminal justice measures in the national interest. In this case, it simply chose not to opt in.
The UK government’s justification for this was that the UK is largely compliant with the directive. But this is not the case in relation to beneficial owners: had the UK implemented the directive, it would have introduced similar requirements to the Registration of Overseas Entities Bill. This therefore represents a further decision not to implement a register of overseas entities and their beneficial owners.
What it means
The frustration is that the mechanisms to combat offshore secrecy are there, but they are not being advanced – or certainly not with any urgency. If the political will existed, a bill could probably go from draft to assent in months.
My worry is that this inaction amounts to tacit acceptance by the UK government of the wealthy avoiding tax and of illicit finance circulating in the country. Years of leaks and negative attention have done little to spur on the government. And as other countries launch inquiries into the Pandora papers, the UK remains largely silent.
Why is this so? There have been suggestions that some Conservative Party donors are the beneficiaries of the currently flawed system. There is also the fact that the proceeds from such transactions ultimately benefit London’s financial district, and that the elites that benefit under this system are the kind of individuals that keep governments in power.
Whatever the case, misplaced media anger at the wealthy who exploit this system, rather than at Johnson and his government for failing to reform the law, perpetuates this inaction. It enables the prime minister to rest easy and make conference speeches about helping voters by levelling up the country, while the same voters are forced to pay more taxes to make up for the amounts that the ultra-wealthy have been able to avoid paying through offshore secrecy.