Politicians’ desire to do what’s right blinds them to the counter-productive implications and wider dangers of their proposals – and to the hypocrisy of their own institutions, says Mark Pragnell.
On 1 May, politicians in London voted to impose tough restrictions on business in autonomous British territories – in an attempt to clamp down on the international laundering of ‘dirty money’.
The Labour party’s former chair of the Public Accounts Committee, Margaret Hodge, and Tory Andrew Mitchell, a former international development secretary, are leading efforts to force Bermuda, the British Virgin Islands, the Cayman Islands and others to establish “publicly accessible registers” of the underlying owners of offshore companies incorporated there. In so doing, they hope to end the secrecy that facilitates the illicit flows of capital apparently flowing through the streets of Kensington and Chelsea.
Putting aside the constitutional (or even ethical) propriety of Westminster legislators imposing their will on independent and democratically elected governments thousands of miles away, the British demands ride roughshod over the rights to privacy of potentially millions of individuals worldwide. They falsely conflate secrecy and privacy, and illicit activity with an individual’s justifiably private affairs.
Actress Emma Watson, whose name added some much-needed colour to the Panama Papers, was lambasted for having a BVI company – but her reasons for managing her wealth offshore are totally understandable and uncontentious. As her advisers said: “UK companies are required to publicly publish details of their shareholders, and therefore do not give her the necessary anonymity required to protect her personal safety, which has been jeopardised in the past owing to such information being publicly available. Offshore companies do not publish these shareholder details. Emma receives absolutely no tax or monetary advantages from this offshore company whatsoever – only privacy.”
Meanwhile, London has failed to deliver the arrangements domestically that it wants to impose on others abroad. Recent research by Global Witness highlighted that more than 500,000 companies in the UK have failed to identify their controlling shareholders despite the introduction of a public corporate register; more than one in ten are failing to declare their “persons of significant control.”
The British system relies on self-reporting, with nobody systematically checking for false information, laying the register wide open to abuse. Contrast this with the offshore financial centres, some of which have been capturing beneficial ownership data for decades, and have regulated intermediaries with responsibility for verifying company data.
The neo-colonial demands for public registers go far beyond standards agreed elsewhere in the world – the G20 have only signed up to government-held, not publicly accessible, registers, and will be a substantial hit to the competitiveness of the finance centres in these small islands. The BVI, for example, which predominantly provides offshore corporate structures to businesses and individuals in Asia (a market that values privacy even more than Hollywood celebrities) will lose business to less well-regulated centres, such as Mauritius, Seychelles or the US state of Delaware. It will cost the islands income and jobs, and will further hamper their urgent efforts to rebuild after last year’s devastating hurricanes.
And the new rules imposed by London will undermine an offshore system that has served both global prosperity and the UK economy well. Britain’s offshore finance centres facilitate trillions of pounds of foreign investment supporting hundreds of thousands of jobs here.
MPs would do better to look at the flaws highlighted in their own registry before over-extending their constitutional position and imposing their will on democratic governments overseas.
Mark Pragnell is director of strategy and consultancy at the economics consultancy Capital Economics.