The Blog

Why It Is Time to Call Time on the British Treasure Islands

The UK can no longer provide tacit shelter, heaven and refuge for the world's rich, powerful and corrupt. The shadowy systems of secrecy which permeate our territories abroad must come to an end. All of us who pay our tax - demand no less. And the poorest who lose out the most - deserve no less.

With the startling revelations that have come to light in the Panama Papers over the past few days, it is all too easy to brush this aside another example of corruption in the already corrupted and convoluted developing world - specifically in this case Latin America and Panama - being exploited by rich elites in both the developed and developing world.

Blaming the Global South for it's problems of corruption is something we in the west do very well - indeed the shrill and misleading Mail on Sunday attacks on the aid budget in recent weeks uses this as a major stick to beat our international development efforts.

However, we miss the point if this is where our attention is drawn to when we delve into the Panama Papers.

We miss the point that is once again staring us all starkly in the face.

The corruption, evasion and avoidance by the world elite is happening in our own back garden, it is happening in British Overseas Territories and Crown Dependencies. British Territories that still fundamentally depend on us for their defence and security but have in some cases (the Falklands notably aside) descended into safety deposit boxes for the elite and the corrupt.

A look into the papers reveals that Britain was second only to Hong Kong in a list of international jurisdictions where the most banks and law firms associated with the Panama Papers operate. UK Overseas Territories and Crown dependencies sit at the centre of a spectral network of companies used by the super-rich, celebrities and politicians to hide their global assets and wealth.

Over half of the companies implicated in the Panama Papers are incorporated in the tiny British Virgin Islands. Three major British and Channel Islands Banks - HSBC, Coutts and Rothschilds are named among the top ten banks that most frequently request offshore accounts. Indeed research by the Tax Justice Network puts the UK, its Overseas Territories and Crown Dependencies as the world's largest collective tax haven.

When I worked at the Department for International Development I was astonished to find how difficult it was to address even the question of whether even directly backed agencies of government used these tax havens.

In that case I had asked whether the UK tax-payer backed Commonwealth Development Corporation (a private investment wing of the UK in developing countries) was barred from operating in or utilising tax havens.

But even asking questions in private about places like Anguilla and BVI caused civil service eyebrows to be raised in the Treasury and the FCO, "it's all very difficult", "it's all very complicated" was a common response.

Well it needn't be.

This leak exposes the extent to which UK tax havens and UK based intermediaries are at the very heart of a shadowy world system exploited by those who can afford the legal advice and bank accounts.

It is high time we in the UK clean up our own back yard and get serious about tackling the hidden financial systems of our Overseas Territories that not only facilitate tax evasion by the elite but actively encourage it.

Tax evasion in British overseas territory is not only a national embarrassment, it denies funds that could be spent on public services at home and helps in part enable global poverty. A recent review that was published by Christian Aid and the Financial Transparency Coalition of the leaks from the Swiss branch of HSBC, evidenced that poorer countries lose far more to tax evasion, relative to the size of their economies, compared to rich countries.

The IMF recently calculated that developing countries are losing around $200 billion a year to tax avoidance by companies. This is substantially more than they receive in aid. This coupled with the fact that the OECD has estimated that tax havens may be costing developing countries a sum of up to three times the global aid budget is truly shocking.

When I personally visited the BVIs some years ago I was surprised by their beauty and friendliness - but also two other things. A striking number of people living on clearly very low incomes in islands that have a per capita income of over $42,000 a year; and the revealing conversation I had with a British man who told me how he was involved in "efficient tax planning" for companies and wealthy individuals.

In 2013, David Cameron stated "I do not think it is fair any longer to refer to any of the overseas territories or Crown dependencies as tax havens - they have taken action to make sure that they have fair and open tax systems."

This is utter nonsense.

One thing is abundantly clear from the Panama Papers, is that some British Territories and Dependencies are at the heart of them. This government is simply not doing enough to uphold international standards of transparency. It is time for Cameron to follow through on the agreements made the 2013 G8 to ensure that British territories take action to tackle tax avoidance.

Nearly three years on, next to no progress has been made.

As my colleague Mike Kane has rightly argued - the key question now is whether the Prime Minister will step in before his Anti-Corruption Summit on 12 May to require registers of beneficial ownership in the UK's Overseas Territories. This would further demonstrate the UK's leadership on this issue.

But I believe we need to go further - it is our duty to call time on secretive British-backed tax havens and renegotiate our relationship, even if that means moving to more direct funding of the Overseas Territories in the short term to make up for lost "business". It is only right and moral that UK Overseas Territories and Dependencies come into line with the British public's expectations on tax.

The UK can no longer provide tacit shelter, heaven and refuge for the world's rich, powerful and corrupt. The shadowy systems of secrecy which permeate our territories abroad must come to an end.

All of us who pay our tax - demand no less. And the poorest who lose out the most - deserve no less.

Stephen Doughty MP is Labour and Coop MP for Cardiff South and Penarth and a former Shadow Minister for Trade and Industry and Foreign Affairs. He sits on the International Development Committee

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