The British parliament decided this week to impose more transparency on its overseas territories, including the British Virgin Islands and the Cayman Islands, in a move that, although welcome, will likely prove inadequate for its intended purpose.
Every year, according to the United Nations, $800 to $2 trillion is laundered, with impunity.
With impunity, because it is currently impossible to know who this money belongs to, where it comes from and who benefits from it. But this week, the UK government took a step towards remedying the this situation.
With its overseas territories, the United Kingdom has the largest network of tax secrecy in the world. And this was not a situation that the UK inherited; rather, it knowingly organised it in the 1950s by encouraging these small remote islands to become tax havens to compensate for the gradual decline in financial aid.
For example, the British Virgin Islands has 28,000 inhabitants, and 400,000 registered companies. From 2020 onwards, natural persons who benefit at the end of the chain from the funds moving through these companies must be identified and their names made available to the public.
This will be the case in all 14 British overseas territories. Initially against the proposal, the government ultimately relented after it gathered support from Conservative and Labour MPs.
However, now the government must contend with the push-back from the territories themselves, which benefit handsomely from the current arrangement and have accused the UK government of undue interference in their affairs.
In addition, the British dependencies closer to London (Jersey, Isle of Man, Guernsey), are not included in the legislation meaning they can continue to hide the identities of the beneficial owners of companies based there.
Is transparency in itself enough to stamp out the problem of illicit funds? Four years ago, the identification of beneficial owners of companies and trusts became a top priority for the G20. And in the wake of Panama and Paradise Papers, there are indeed more and more countries that keep these records or have committed to do so.
The problem is though, that nobody can attest that these records are or will be correct and up to date. Currently, if Mr Jones opens a company to receive funds, very few countries will verify that he is in fact Mr Jones, besides checking a basic id card, which can be easily faked.
Only 8 countries in the G20 require bankers, lawyers and other intermediaries to carry out additional identity checks. In other words, the beneficial ownership registers can multiply around the world, but who will verify that they are not fake?
In order to keep on top of the all the transactions, sales and changes of shareholder, that take place in hundreds of thousands of companies registered in the UK’s overseas dependencies, it would require thousands of officials, an expense that isn’t accounted for in the legislation, and without which it is difficult to see how difference the new will make.
