The FT has noted that:
The acting premier of the British Virgin Islands, Natalio Wheatley, has rejected as “unacceptable” the reimposition of direct rule from London, setting up a confrontation with the UK over the central recommendation of an official inquiry into corruption and maladministration in the Caribbean tax haven.
He is wrong. And the fact that he does not recognise that the BVI is so systemically corrupt shows that, because that is what it is. That he comes from an old political family within the islands, also suggesting that he is part of the architecture that created this systemic problem is also indicative of why he is wrong and change must be imposed. It is apparent that the required changes cannot come from within the BVI now.
Let me offer some theory to support this argument. In 2009 I wrote a paper for the Tax Justice Network that has had some significance since then, not least in still shaping most of the work of the tax justice movement in putting a focus on secrecy, as it has also done for most regulators. The preamble to the paper noted:
The summary was quite short:
What the paper did was develop a schematic summary of the new language that I proposed to explain the offshore world, which when fully developed looked like this:
An example demonstrated the idea in this way, showing how abuse existed in a secrecy space resulting from the interaction of many secrecy providers operating from secrecy jurisdictions:
What I suggested was that there was a systemic, deliberately created, interlocking network of secrecy jurisdictions and secrecy providers (banks, lawyers and accountants) who created a secrecy space in which abuse could take place beyond regulation. The book that I co-authored that resulted from this work is still one of the most cited in academic offshore literature.
The BVI is an enormous player in the creation of this secrecy space. It hosts 370,000 companies of which almost nothing is known. That is by continuing choice. The result is massive opacity in the world that undermines fair competition and effective markets and simultaneously permits corruption. I stress, this is deliberate.
The UK has the right to intervene for this reason. It is responsible for the maintenance of good governance, law and order and stable international relations in the islands. Law and order has obviously failed: the premier and a senior official are under arrest in the USA. Good governance has failed, as indicated by the choice to supply corruption services. And this is a foreign affairs issue. The companies the BVI creates are deliberately intended to undermine the law, order and tax systems of other states.
The BVI remains a key component in the creation of the secrecy space. It has to be taken out of action. But I stress, direct rule without ending this secrecy would make the UK responsible for it. And that would be intolerable, so direct rule c9mes with conditions, which is that BVI secrecy goes.
What does that mean? Full beneficial ownership of all companies on public record plus full accounts on that same record. That's the minimum demand for the BVI.
The UK must take control of the BVI now. It has a constitutional duty to do so. But if it does it cannot duck its own duty to end BVI secrecy. We will be watching.
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Corruption is one thing – and the UK has its own problems on that score – but the UK should not be asking (or indeed exercising imperial power to force) the BVI government to do something it is not doing itself. Where is the UK’s public register of beneficial ownership of all UK companies, and full accounts for all UK companies? The records at Companies House fall far short of that standard. Let’s get our own house in order first. (Although I doubt it would suit our present government to do much about it.)
There is still some opacity, but the BVI has taken significant steps since your paper in 2009 – not least the Model 1 IGA with the US for FATCA in 2014 and accession to the CRS in 2015.
In a world that is tending towards authoritarianism, I wonder if we should be so sanguine about all states demanding information about all assets from everyone everywhere. There was a reason for the creation and use of Swiss banking secrecy, and indeed why many from a passing generation of Germans kept assets hidden from the authorities, just in case. Legal professional privilege (and wider client confidentiality) are not just about secrecy; they protect very fundamental rights. No doubt there are plenty of Russians who don’t what their government to know where all of their assets are. Sadly I can see the UK going a similar way.
Actually, we are heading for full accounts on public record, which I think much more important than beneficial ownership data
As for secrecy, no thanks……
Abolishing abridged and filleted accounts is a good thing, but I’d suggest that a simple P&L and balance sheet still falls far short of “full accounts”.
If you are suggesting that companies incorporated in the BVI and other British overseas dependencies and territories should be required to publish as much (or as little) information as UK companies, I would not disagree.
I think that is where this will head
And I suspect the U.K. will see all nites published in future
You have long championed this issue…. and early on identified it to be primarily a “secrecy” issue. Every company, everywhere in the world should publish accounts. Forming a company is a privilege and it is reasonable that society knows what each company is up to. I hear Andrew’s concerns about the state intruding into private lives – but companies are not private.
Individuals might have some more reasonable case for privacy. Some individuals might hope that secrecy will allow them to hide assets from “bad” regimes but I might suggest that if rich individuals in a country could not hide their wealth then they might take a stronger role in trying to secure good governance. Would Putin come to be what he is if wealthy Russians were unable to launder money in London and other places? I don’t know.
You share my approach
I can only imagine that there will be some sort botch job done as when HSBC was done for for money laundering in the U.S. and George Osbourne stepped in. The paid around £2 billion in fines but no one went to jail as far as I know. HSBC should have had their banking license revoked really.
I imagine BVI will also get out of it somehow – after all they are well connected.
Your cynicism is well placed
I have to say Richard your approach to the BVI as a jurisdiction stinks of racism. You are expressly saying “the UK is better than the BVI” and with it an underlying tone of racism.
You should know better
Politely, I say say the same of Jersey
Stop being stupid
I am criticising tax havens
The depths that people like Greaves will go to to undermine a valid argument are simply incredible.
Your post is about process and accountability. There’s no hint of racism at all.
John Greaves! You Sir are a disgrace.