Parliament moves to halt AML activities in Overseas Territories

More than half of the companies exposed in the Panama and Paradise Papers were registered in the British Virgin Islands (BVI). Last week, Transparency International and BBC’s Panorama programme published details of a Ukrainian crime gang that had purchased eight luxury properties in London using BVI companies. Transparency International has found at least £4.4 billion (U.S. $6 billion) worth of property in the United Kingdom bought with laundered money—half of it using companies based in just the BVI alone. 

Now, it appears the party will be coming to an end. 

The U.K. parliament on 2 May accepted a cross-party amendment to the Sanctions and Anti-Money Laundering Bill that will force Britain’s 14 Overseas Territories (including the BVI) to set up public registers of beneficial ownership. The amendment states that the U.K.’s Secretary of State must, no later than 31 December 2020, prepare a draft Order in Council any Crown Territory that has not introduced such a register to do so.

The amendment resulted from the work of many NGOs and two House of Commons backbenchers, Labour MP Margaret Hodge and Conservative MP Andrew Mitchell, after the Conservative government had backed out of the disclosure commitment that was initially part of the bill. 

Hodge said that the intervention was of the utmost importance in the fight against money laundering and terrorist financing, noting that it was not the first time the United Kingdom had intervened in the Territories. It had forced the repeal of the death penalty in 1991 and decriminalised homosexuality in 2000.

Mitchell told MPs that the intervention was justified by the leaking of the Panama and Paradise Papers, though the impetus behind the bill was to ensure that Britain’s AML and sanctions policies—developed under European Union Fifth Anti-Money Laundering Directive (AMLD5)—would still be in place once the country left the union. The government’s U-turn on the amendment was as a result of the threatened defection of 20 Conservative MPs, who said they would join the Labour party, the Scottish National party, and the Liberal Democrats. This meant that the government would have lost a vote.

Today’s announcement is a huge win in the fight against the corruption, tax dodging and money laundering. The U.K.’s tax havens have featured in countless corruption and money laundering cases – ending their corporate secrecy will throw a huge spanner in the works of corrupt dictators, tax evaders and organised criminals.

Naomi Hirst, Anti-Corruption Campaigner at Global Witness



,

 “The bill was also introduced to ensure that the U.K. keeps up with any subsequent money-laundering directives,” said Ben Cowdock, senior research officer at Transparency International in the United Kingdom. “The U.K. has already committed to bringing in AMLD5, but if there is an AMLD 6, 7, or 8, the bill commits the U.K. to bringing in those standards as well.”

Geoffrey Cox, a Conservative backbencher, said the benefit from transparency would be “a one-hit wonder” and argued that “money will go to where it is darkest” to other global territories where there are no public disclosure requirements. 

“The new amendment is closing the net on those individuals,” qualified Cowdock. “People using BVI companies to launder corrupt money may run to other jurisdictions, but their options are dwindling. And it makes it even easier to spot those individuals who are using those types of company.” 

Cowdock predicted individuals and companies seeking to conceal ownership would shift their efforts to finding other “secrecy jurisdictions around the world.” 

“For example, Belize, Seychelles, Marshall Islands, and Dominica are regularly used to obscure ownership,” he said. “The Crown Dependencies (the Isle of Man and the Channel Islands), if they take no action, could also be candidates. And there are also U.S. states like Delaware, Nevada, and Nebraska, which also have very low transparency requirements. But anybody shifting companies to these jurisdictions will be treated with more suspicion.”

This is very welcome news that the U.K. will finally be able to open up the financial centres in the British Overseas Territories. These jurisdictions have long been the Achilles Heel of our defences against dirty money. Agreement on this represents a hugely significant moment in the fight against corruption, not just in the U.K. but around the world.This afternoon, corrupt individuals everywhere will be deeply concerned that they are about to lose the secrecy afforded by the British Overseas Territories that has until now given them an easy route to launder their ill-gotten gains.”
Duncan Hames, Director of Policy at Transparency International U.K.

Cowdock noted that Hodge’s new Clause 6, the amendment, only applies to the Overseas Territories: Anguilla, Bermuda, Cayman Islands, Gibraltar, Montserrat, Turks, and Caicos Islands, and the BVI, simply because the United Kingdom can’t directly legislate for the Crown Dependencies. 

Would those Dependencies follow suit regardless? Cowdock said that would depend on the global climate. 

“This could be a major turning point, if it’s seen that the U.K.’s secrecy havens are bringing in public registers then that could force FATF [(Financial Action Task Force)] to amend their standards on beneficial ownership information, which could prompt a domino effect around the world, forcing the U.S. and Canada to bring in those standards,” Cowdock explained. “It could be that the U.K.’s Crown Dependencies find themselves increasingly isolated by not having public registers, and it would put pressure on them.”

Supporters of the bill noted that the Overseas Territories were home to the “most egregious corporate profit shifting, tax-dodging, and money-laundering schemes ever discovered, and now those companies’ owners will be visible to everyone.” Already, the premiers of the Cayman Islands, the BVI and Bermuda have hinted at a legal challenge, saying it is unconstitutional. 

There’s a lot at stake; the BVI has indicated it generates about £73 million (U.S. $100 million) a year from company registration and related activities. When the Territories are forced to open up the vaults, they will join a very short list of territories that already require public registers of beneficial ownership. In addition to the United Kingdom, Denmark, Slovakia, and Ukraine have already implemented beneficial ownership registries, but none of the G20 nations have yet to do so. Many others, however, such as Luxembourg, are making progress in achieving it.

In addition to the registries, the amendment requires the Secretary of State to commission an independent report “on the likely effects, including the effects on money laundering, if publicly accessible registers of beneficial ownership of companies were introduced in the Crown Dependencies and certain British Overseas Territories.”

Whatever happens, it should to be easier for compliance officers to track down exactly who wishes to do business with their employers, and it’s going to make know your customer and customer due diligence exercises both simpler and more accurate.