This briefing presents different shades of what success would look like at this week’s international Anti-Corruption Summit in London — and what to look for when the announcements start to be made.
Tax havens or secrecy jurisdictions aren’t just about tax: the financial secrecy offered, together with light regulation, offer the perfect breeding ground for corrupt practices.
So dealing with tax havens must be at the heart of any action to combat global corruption.
British Prime Minister David Cameron is hosting the anti-corruption summit but he was caught on camera telling the Queen about the ‘fantastically corrupt’ countries attending. Yet the UK is at the heart of the global financial secrecy industry. The Tax Justice Network’s Financial Secrecy Index identifies the UK as the world’s number 1 player, when taken together with Cayman, the British Virgin Islands, Jersey, and all its other offshore crown dependencies and overseas territories.
The UK government and its satellite havens have said that Britain can only ‘persuade’ these dependencies to change. But this is wrong: Britain can impose transparency and anti-corruption measures on them, simply by summoning the political will to do so. It has done it before and it is fully entitled to do it again — and as one lawyer was quoted as saying this week, it would take 2 sides of A4 and could be “done by the next morning.” The UK government must explicitly assert that it can require them to change their secrecy laws.
The absolute minimum for Cameron to be able claim genuine progress in his anti-corruption summit would be for Britain to oblige these satellite havens to join the UK in implementing a PUBLIC register of the beneficial owners of offshore companies and, importantly, to include offshore trusts and foundations in that public register. If trusts and foundations are not included, a public register will be of limited value and Cameron could end up creating an opportunity for the UK’s extremely lucrative trusts sector.
There must be beneficial ownership disclosure for Scottish and English limited partnerships, or at the very least bar uncooperative jurisdictions from being able to host companies that can be partners of those partnerships – a loophole that recently cost Moldova the equivalent of an eighth of its GDP, via one of these ‘confidentiality vehicles’ run out of a Scottish ex-council flat.
If some secretive structures aren’t included and these registers are done piecemeal, there will be a rush towards the omitted alternative vehicles to hide ownership – and the enabling professions in law, accountancy, banking and company formation will be very happy to help set them up.
What would an even better outcome look like?
Even better, the following would happen:
Additional countries agree to join in with the implementation of a public register of the beneficial owners of offshore companies, Trusts and Foundations.
Tax Haven USA announces it will, finally, decide to cooperate by participating in automatic information exchange, coming in from the cold and joining over 100 other nations in implementing the Common Reporting Standard (CRS), a scheme for banking transparency run by the OECD.
If the U.S. does not play ball, leaders strongly urge the European Union to implement a withholding tax scheme, just like the U.S. imposes on others.
All countries participating in the CRS agree to authorise that information may be used by local law enforcement agencies to tackle corruption and money laundering (currently, that information may be used for tax purposes only.)
All countries using the CRS agree that developing country signatories (except for those with substantial financial centres) may receive data under the CRS without providing reciprocity, for a fixed window of at least five years.
Countries agree to beef up definitions of ‘beneficial ownership’ used by the Financial Action Task Force (FATF), and the EU’s anti-money laundering scheme. Both currently allow that when no natural person has more than 25% of the shares of a company (and the FATF adds: if no one has control through other means), a senior manager, who could be a nominee director, may be identified as the beneficial owner. Nominees, agents, proxies or equivalent should not be allowed to be considered a beneficial owner – and the threshold should be lowered to the smallest possible number1.
Tackle the enablers of financial secrecy. Banks, law firms, company formation agents and the Big Four accounting firms make a lot of money out of the tax haven game, often helping shield their clients from rules designed to prevent money laundering, tax evasion and corruption. Those professionals must act in accordance with the spirit as well as the letter of the law, including in matters related to tax. Failure to do so must lead to the loss of professional status and the privileges it confers. If professional bodies refuse to enforce this simple principle then let them be reformed by law to reflect the overwhelming hostility of the public to the use of professional services by criminals and others undermining the public good.
All companies in receipt of public funds must be required to provide a full, candid disclosure of their ultimate beneficial owners and of their global accounts, on a country by country basis. Companies that refuse to provide the information needed to establish a full and fair tax assessment must be disqualified from tendering for public work. In addition, governments can no longer permit such companies to continue to advise them on things like tax and finance reform – because there is a clear conflict of interest.
All elected representatives must provide a full and candid account of their financial position. This account should include their tax return and a declaration of any and all interests in trusts and other legal arrangements that either confer current benefits or might confer them in the future.
Some things that may be talked about but won’t work
A new anti-corruption agency? Nope.
This will surely be irrelevant – and most likely run by the club of rich and powerful countries. If this summit were only to come up with this, it would be guilty of ‘transparency-washing’ where the world’s wealthiest countries bend ‘reforms’ to their own advantage. In the area of tax at least there is (and has always been) a serious, genuinely inclusive alternative to the rich country clubs of the OECD and the G20 which have tended to set the tax rules – and that is the United Nations Tax Committee.
Improving sports governance? Tackle tax havens.
Reforming FIFA and other sports bodies is clearly an important issue. These bodies have been a disgrace to all participants in the game they manage. But any announcements on sports governance that don’t involve the transparency measures mentioned above will be of limited benefit. Potential proposals here will look all the more irrelevant if the major risk bodies such as FIFA and the IOC are not among the participants.
Blacklists? Handle with extreme caution.
Blacklists and sanctions can work – but it all depends on how you set them up, and who is on the list.
Many blacklists and sanctions are worthless because the biggest culprits in global financial secrecy – like the UK and USA – are powerful enough to ensure they’re excluded.
Any serious global blacklist would have to include tax haven USA for example, and of course the UK (with its satellite havens included). Are world leaders really prepared to implement sanctions against the world’s biggest players in the game?
If blacklists are based on objectively verifiable criteria, and not on the highly politicised selection processes we’ve seen in the past, then we’re into a different game.
And in fact, the world already has the tools from the Tax Justice Network for creating a serious, independent, de-politicised blacklist and sanctions system: the Financial Secrecy Index. The key question to ask might be: will governments use the objectively verifiable secrecy criteria that underpins it?
1 Otherwise, a company owned by a family of four people – or four friends – would easily be allowed to circumvent beneficial owner identification (since each would have only 25%, which is below the “more than 25% threshold”)