The Secrecy Laws of the Anonymous Offshore World

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The offshore world is one where information about company ownership is kept hidden from ordinary taxpayers and law enforcement authorities.

The publication of the Panama Papers in 2016 and the Paradise Papers in 2017 has laid bare the fact tax havens have been used by the world’s elite and wealthy to launder money, evade tax and finance dirty ventures.  

The Guardian, for instance, exposed the Azerbaijan ruling elite’s secret £2.2bn scheme to buy luxury  goods and launder money through a network of four opaque British companies - with the owners of two of them hidden through companies registered in the British Virgin Islands.

These unprecedented leaks of data have put the spotlight on a system that protects the rich and powerful through hard-to-trace companies and anonymous investment vehicles.

Following the revelations, Germany passed a new anti-offshore law called the “Panama Plan” and the UK has just voted on an amendment which could kick the door open on anonymous accounts in British overseas territories. 

But for now, companies and individual business tycoons continue to use the offshore system to hide behind regulations protecting their identity. Over the years, the offshore system has enabled crime, corruption and wrongdoing but not much has been done to stop it.

While it is not illegal for companies to use offshore entities to manage their business assets, it creates a web of untraceable and shadowy entities leaving the door open to fraud and scams.

Companies often register a holding company in an offshore location but this does not necessarily mean it is involved in tax avoidance, evasion, or corruption. Yet, the tax haven system is designed in a way that makes it much more difficult to expose those companies who do.

In a country like the UK, where financial services contribute such a large chunk of the country’s economy the need for transparency of company ownership is exacerbated. In 2016, financial and insurance services contributed £124.2bn in gross value added to the UK economy, or 7.2 percent.   

The UK is one of 51 countries to have signed up to the Extractive Industries Transparency Initiative (EITI), a global standard aimed at promoting the open and accountable management of a country’s oil, gas and mining resources.

Under the scheme, companies incorporated in the UK have to disclose payments made to government agencies including overseas. But the EITI is going further and has called on all countries implementing the scheme to ensure that by 2020 companies that apply for or hold a participating interest in an oil, gas or mining license or contract in their country disclose their beneficial owners.

According to the EITI, “hidden ownership of companies is wide open to abuse” and this is “a particular challenge in the extractive sector”.

The EITI scheme has led to countries such as the UK to commit to establish public registers of beneficial ownership.

Law enforcers, civil society and others have a responsibility to scrutinise the information and to take action to hold those who misuse anonymous companies,” the EITI says.

But while the UK looks like it is doing its part to tackle offshore crimes, many of the world’s tax havens operate under British jurisdiction. These tax havens in the Caribbean and the Channel Islands for instance allow the anonymous offshore system to flourish.

British crown dependencies and overseas territories are only required to provide information on the true owners of offshore companies if requested by law enforcement officials.

Late last year, the EU published the first tax haven blacklist and named and shamed 17 countries where secrecy laws apply while 47 other countries were put on notice. Countries on notice include the crown dependencies of Jersey, Guernsey and the Isle of Man and the overseas territories of Bermuda and the Cayman Islands.

In a 2013 report, research by Oxfam estimated of the £12tn being held by individuals in tax havens around the world, over a third — or £4.7 trillion — was sitting in accounts in British overseas territories and crown dependencies.

A Global Financial Integrity report found that developing countries have been losing a trillion dollars a year and rising since 2011 as a result of corrupt or illegal deals, many of which involved anonymous companies.

Global Witness, an NGO that campaigns against corruption and human and environmental abuse, described the secrecy laws of the offshore system as “a gateway for corporate abuse and corruption”.

The NGO has long called for the UK Government to face its responsibilities in putting pressure on British overseas territories and crown dependencies to disclose company registers.

In February this year, a cross-party group of MPs called on the UK government to force British overseas territories to reveal the true ownership of offshore companies to tackle money laundering, tax avoidance and tax evasion.

After saying it would not force overseas territories to adopt new transparency measures, the government u-turned and accepted an amendment to the sanctions and anti-money laundering bill voted in Parliament earlier this month.

The new amendment will require 14 overseas territories, including the British Virgin Islands and the Cayman Islands, to introduce public ownership registers by the end of 2020 of face having them imposed by the UK government.

This does not apply to the Channel Islands such as Jersey and Guernsey or the Isle of Man because parliament does not have the legal right to impose legislation on them.

Conservative MP Andrew Mitchell, who put down the amendment with Labour MP Margaret Hodge, told parliament: “It is only by openness and scrutiny, by allowing charities, NGOs and the media to join up the dots, that we can expose this dirty money and those people standing behind it. Closed registers do not begin to allow us to do it.”

For Global Witness and other transparency campaigners the new legislation is a major step forward in the fight against money-laundering and tax dodging.

Naomi Hirst, anti-corruption campaigner at Global Witness, said the vote was “a huge win in the fight against the corruption, tax dodging and money laundering”.

She added: “This is the result of years of dogged campaigning by MPs, investigative journalists and a coalition of anti-corruption and anti-poverty campaigners from around the world.”

This now raises the stakes for the remaining jurisdictions which are happy to sell secrecy - it is now only a matter of time until anonymous companies are a thing of the past”.

Read DeSmog UK's Empire Oil series:

Part One - Black Gold’: London’s African Oil Hub

Part Two - Taking AIM: London’s Wild West Stock Market

Part Three - Exposed: The Elite ‘Boys Club’ Running London’s Opaque Oil Network

Image Credit: Nick Youngson/Alpha Stock Images/ CC BY-SA 3.0

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