The BVI government is preparing its legal case against the UK over the plan to introduce public registers as part of the Sanctions and Anti-Money Laundering Act. British Virgin Islands deputy premier Kedrick Pickering held talks with Tariq Ahmad, the UK’s minister for the Commonwealth and United Nations, on June 12 to make the case against public registers.
No public statement suggests that the meeting resolved the split, and the BVI is preparing to settle the matter in court. International Tax Review contacted Hussein Haeri, head of public international law at Withers, who will represent the BVI in the case.
“We are confident that there are constitutional grounds for challenging the imposition of a public register of the beneficial ownership of companies and human rights issues raised by public access to the register,” Haeri said.
“The BVI’s consistent position is that it will not introduce public registers unless and until they become a global standard,” he added.
Unlike the BVI, the government of the Cayman Islands is cautious about rushing into court. Some observers suggest that the government is waiting until the UK moves to enforce compliance before resorting to legal action.
Caroline Garnham, CEO of Garnham Family Office Services in the UK, stressed the limits of what the UK government can expect to achieve in this.
“Sovereignty goes as far as our shores, but it doesn’t go beyond them,” Garnham told ITR. “We have very little control over our overseas territories and crown dependencies. If we don’t like it, we can blacklist them but we cannot tax income and gains made to their residents.”
The plan to introduce public registers comes with a deadline of December
Whose sovereignty?
The UK Parliament may exercise sovereignty over the British Isles, but the overseas territories and crown dependencies have long maintained special constitutional arrangements to exercise some degree of self-rule.
Geoff Cook, CEO of Jersey Finance, was surprised when the UK Parliament voted for public registers. He said that the question of sovereignty is “absolutely crucial” in this.
“I feel for the overseas territories with elected parliaments,” Cook said. “These territories see the UK imposing public registers as an affront to their democratic freedoms.”
“We have a different viewpoint as a crown dependency, and we share that position with Guernsey and the Isle of Man,” he explained. “Each overseas territory has its own agreement with Britain as they move towards independence.”
Unlike the BVI, Jersey has never been under direct governance from the UK though it has constitutional ties to the British monarchy. The island has had its own parliament for more than 800 years. This is why Jersey and Guernsey have more independence than the BVI and the Cayman Islands, where the registers might be imposed from above.
Richard Murphy, professor of practice in political economy, is unconvinced of the sovereignty argument.
“They’re not sovereign,” Murphy said. “They claim to be independent when it suits them, and dependent when it suits them. Parliament has got fed up with their excuses and told them to comply with the standards the world expects of them.”
“I hope the government will agree that it also has to do this for Guernsey, Jersey and the other crown dependencies,” he added.
Why clamp down on overseas territories?
Multinationals have invested more than $12 trillion in shell companies around the world, according to the IMF. This is almost 40% of global foreign direct investment (FDI). The UK sees 50% to 60% of outward FDI pass through shell companies, the report estimates.
Many of these shell companies, otherwise known as special purpose entities, are located in UK overseas territories such as Bermuda, the Cayman Islands and the BVI. This is why anti-tax avoidance campaigners have been pushing so hard for transparency.
Alex Cobham, director of the Tax Justice Network, told ITR that the territories face a choice: go independent or accept the new rules.
“The legal action is likely to fail,” Cobham said. “The real question is whether anonymous company ownership is a big enough part of the business model for any of the overseas territories that they would declare independence rather than conform.”
“The UK government must also consider how to compensate the [territories] so that they can gradually transition to more productive economic models,” he explained. “The ‘tax haven’ route was promoted in order to save the UK from paying aid.”
Alternatives
Registers of beneficial ownership are the final part of a three-pronged assault by tax campaigners on tax secrecy along with the automatic exchange of information and country-by-country reporting (CbCR). Yet it has been argued that the public registers will be ineffective without additional measures.
The strength of the Jersey model, Cook argued, comes down to verification checks. Public registers of beneficial ownership may be of little use if the information is unverified. Tax evasion and money laundering might not be constrained by such a system.
“Before any company can be established in Jersey, the owners have to go through verification checks where the information can be checked. The registry checks for any criminal ties,” Cook said. “We’ve had a corporate registry here for 30 years, and we share the information with corporate intelligence and government but not on a public basis.”
“Compliant confidentiality is a principle worth defending,” he added. “Some people think sunlight is the best disinfectant,” he continued. “My response is that too much sunlight gives you sunburn. It’s not a solution in all circumstances.”
The Jersey government has suggested it would accept public registers of beneficial ownership if they were the international norm. Otherwise, it makes little sense for crown dependencies and overseas territories to open up their books to public scrutiny, while every other jurisdiction keeps theirs closed.
In theory, the UK might be able to reach a compromise with crown dependencies and overseas territories, but in practice, the British government faces the difficulty of enforcing the plan if no concession can be made.
