It’s the UK and EU’s turn for a bloody nose

The UK may see itself as one of the self-appointed global anti-corruption, anti-money laundering aficionados, but to many, especially its own Overseas Territories and Crown Dependencies, it is nothing more than the playground bully and a champion of hypocrisy. The news that the Institute for Economic Affairs (IEA) issued a report in March seeking to stand between the bully and its intended victims is both admirable and, more importantly, a punch on the nose for those who seek ‘out’ the weak and defenceless in the name of their own self-righteousness. The IEA attacked the UK government’s attempts at vilifying what it sees as tax havens, stating: “It undermines tax competition and breaches people’s right to privacy.” By 2023 all Overseas Territories will have to introduce new ‘open’ company registers, with MPs Andrew Mitchell and Dame Margaret Hodge pushing the same for Crown Dependencies too. The author of the IEA’s report, Dr. Jamie Whyte, points out that clamping down on offshore financial centres (OFCs) “shows a stark disregard of economic sense: The forty-year period prior to 2016, during which tax competition increased and corporate rates fell, saw the most rapid reduction in poverty in history.” The IEA report points out that the UK’s position undermines the rule of law, the right of a citizen to vote for a representative to sit in a democratically elected local House of Assembly, and the right to self-determination of the islands that make up their targets. In addition, the IEA report adds weight to my observations that not only will the imposition of a public UBO [ultimate beneficial owner] registry of companies damage the economies of the islands concerned, but in so doing, it will negatively impact upon the globe’s financial plumbing, dependent as it is on offshore company service providers to conduct their business. In addition, the other bully (otherwise known as the EU) has also taken a beating. EU members have effectively shown a red card to those responsible for drawing up the bloc’s so-called “blacklist”, intended to put pressure on (yes, you guessed it), jurisdictions such as the Overseas Territories and the Crown Dependencies. They are taken to task on the principled basis that (i) sovereign governments are free to design their own tax policies, and (ii) the same rules ought to apply to everyone. The EU applies the brutal instrument of blacklisting only to ‘third countries’ like Overseas Territories, exempting EU countries from the same scrutiny and the possibility of being blacklisted. In standing up to the UK and more latterly the EU, I have become a target for some who champion the naïve prospect of global transparency. It is the word “transparency” that trips from the lips of your average anti-1% activist as a self evident truth that causes me the most concern. It means nothing and is entirely unattainable in the context that they use it. To them ‘open’ company registers to be imposed on the Overseas Territories are the panacea to global corruption, to tax avoidance (which is lawful) and evasion (which is not) and terrorist financing. I have pointed to the naivety of their ambitions to no avail. We are arguing with a political doctrine and ideology. I have literally just put my pen down having commented on the plight of the Luxembourg Freeport, another miniscule country’s attempt to participate in tax competition that finds itself in the sights of those who have spotted another easy target. In this instance, EU politicians are seeking ‘transparency’ on the basis that Freeports are a hub for money laundering and the hiding of assets. I accept, and common sense dictates, that Freeports can be used as a hideaway for assets for the professional money launderer or those determined to evade tax, as are offshore and onshore financial services alike. But increased AML (anti-money laundering) compliance from Freeports is the answer – not shutting them down. The people we should all be seeking to restrain are crooks. They tell lies and they are inherently dishonest. All they need to do in order to frustrate the regulations designed to ‘out’ a UBO behind a company is to put up a ‘frontperson’ or what we used to call a ‘man of straw’. You can conduct superficial levels of due-diligence in order to satisfy ‘Know Your Customer’ (KYC) protocols, but unless you are going to finance significant and intrusive investigations, you will simply run out of money. The profitability and margins in such facilities are finite, hence the lack of any KYC regarding the identities of UBOs of, say, 800,000 Delaware companies in the USA which exist in a virtual ‘black hole’. The main issue causing stress to the communities of the Overseas Territories and Crown Dependencies is the non-stop rumblings by NGOs – and the politicians who share their views – that any form of so-called transparency (even if it is worthless) is the answer. All that will be accomplished is that the vast majority who live their lives by the rules, who conduct themselves in a manner conducive to the regulations, will have to face increased costs. The crooks, like an intelligent rat, will continue to duck, dive and hide. While the privacy of all UBOs of offshore companies might be available for strangers to examine from a computer, self evidently crooks would still be able to operate clandestinely and without impediment. The new IEA report states: “It said that someone named on an overseas register will be labelled a “tax cheat” and “face the commercial and social risks attendant on that status”, exposing them “to the rule of the mob.” I couldn’t have put it better myself. What we are seeing post-Panama/Paradise Papers revelations is something akin to mob mentality. It has to stop, or else those who pride themselves on being righteous and fair will simply tag onto the back of the crowd who appear hellbent on a lynching. Labour MP Dame Margaret Hodge, whom I have previously taken to task and is a leading advocate for the tax transparency campaign in Britain’s so-called ‘tax havens’, responded to the IEA’s charge that UK politicians like her were wrongly advocating the destruction of the right to privacy, by saying: “Public registers of beneficial ownership tackle secrecy not privacy.” She added that UBO data in a private corporate registry systems protects “secrecy” (and therefore should be outed), while bank account data is “private” and should therefore be protected by privacy law (which is the law in the EU). So confidentially owning an offshore company is a social bad; while confidentially owning a bank account is socially neutral? What sophistry, nay: “Oh what a tangled web [they] weave when first they practice to deceive.” – Sir Walter Scott (Marmion) How can you tackle ‘secrecy’ ahead of ‘privacy’? Surely the first thing that is breached when you attack so-called secrecy is privacy. You can’t unveil one without the other. What Dame Hodge repeatedly refuses to acknowledge is that there is no ‘secrecy’ in the Overseas Territories and Crown Dependencies. The law requires offshore trust companies to know their customer, or to identify the UBOs that they serve. They quite properly maintain their clients’ privacy by shielding them from the prying eyes of the public (and I include the campaigning NGOs) as well as strident politicians. If a competent authority, be that a law enforcement agency or tax agency, has a legitimate basis to seek UBO identification information, it is readily available. This, by definition, makes the information confidential, but not secret. Furthermore, the Overseas Territories and Crown Dependencies have seriously upped their compliance game in response to the unrelenting onslaught wrought upon them by the Panama/Paradise Papers. Some of their due diligence improvements were already in place before the papers were released. Many of the shenanigans highlighted by the papers were historical and couldn’t re-occur in this day and age. If the UK and the EU operated at the same compliance level as the Overseas Territories and Crown Dependencies, they would go some way to sorting out their problems themselves without having to throw their weight around. Nobody wants people prying into their bedroom or bank accounts. We are entitled to live our lives with dignity. The bare assertion that if you are against the imposition of public UBO registers then you have something illicit to hide is outrageous. In conclusion, the EU (in fact all governments) must address the issue of effective KYC in order to improve transparency. Without doing so, they are seeking to put the cart before the horse. So why don’t the UK and the EU implement the KYC regulatory improvements already in place in the Overseas Territories and Crown Dependencies? Because it would be massively expensive. It is much cheaper to abnegate your responsibilities by passing the buck and attacking the small populations in the Overseas Territories and Crown Dependencies. Picking easy targets instead of taking on the USA, for example – and its genuinely secret offshore service providers in Nevada and Delaware – would run the risk of complete failure. The anti-1% activists in the UK know that they carry no stick over the powerful Delaware Congressional caucus. Why were very few Americans implicated in the Panama/Paradise Papers? Because they had no need of them. They had genuine secrecy on their own doorstep. What Margaret Hodge and the NGOs are displaying is hypocrisy in the first degree and worthy of a white feather. If UBO identification information is vetted and readily available to the global competent authorities, where is the secrecy? Demanding ‘transparency’ simply because the word resonates clarity is naïve – and it misses the point. Commenting on the IEA’s report, Dr. Whyte said: “British politicians waging a war against the use of off-shore financial centres — or “tax havens”, as they are often called – present themselves as crusaders for justice. In fact, they are opponents of the competition in corporate tax rates that has done the world so much good over the last 40 years. And they trample on important liberal principles, such as the right to privacy and the rule of law.” I couldn’t agree more. With thanks to Tony McClements, Senior Investigator at Martin Kenney & Co, for his assistance with this post. Martin Kenney is Managing Partner of Martin Kenney & Co., Solicitors, a specialist investigative and asset recovery practice based in the BVI, focused on multi-jurisdictional fraud and grand corruption cases | @MKSolicitors. In 2014 he was the recipient of the ACFE’s highest honor: the Cressey Award for life-time achievement in the detection and deterrence of fraud. He was selected as one of the Top Thought Leaders of the Legal Profession in 2018 and 2019 by Who’s Who Legal International and as the number one offshore lawyer for asset recovery in 2017 and 2018.