Forcing transparency on UK Tax Havens: the art of the impossible

Five years ago this month, I walked into Her Majesty’s Treasury and was told, categorically, that forcing transparency on UK tax havens was legally impossible. This week, it happened.

The meeting with senior officials was in preparation for the UK G8 Summit, focused, at the behest of Prime Minister David Cameron, on tax, trade and transparency.

Anti-Corruption campaigners were delighted that the PM was using this global moment to push for progress on some of the key structural issues that undermine the development of low-income countries by allowing the corrupt to loot resources that could otherwise be spent on schools, clinics and so on.

I was the one elected to point out the elephant in the room: Great Britain presides over a network of territories that are global hubs for grand corruption of the highest order. To have any credibility, the UK should sort out anonymous shell companies — the get-away car for the corrupt. An earlier World Bank study surveyed the biggest grand corruption cases over two decades and found that 70% involved shell companies and trusts where you couldn’t find the true owner. The second most popular location was the British Virgin Islands.

I was told, in categorical terms, that this wasn’t legally possible. These territories were independent entities, and would have to make the decision themselves. I shared legal analysis I had commissioned to no avail.

That analysis showed that the Governors of these territories are in-fact appointed by and report to the Foreign Office and ultimately, the Queen. The UK Parliament had intervened before in cases where there was a moral duty — gay rights and the death penalty — and had the power to do so again.

To his credit, David Cameron organised a meeting to convince the havens to comply. Unsurprisingly they said no.

This week, the impossible became possible. After years of work by many campaigners slowly building parliamentary support for the issue, the government caved and supported an amendment to the Sanctions & Anti-Money Laundering Bill proposed by Andrew Mitchell MP (Cons) and Margaret Hodge MP (Lab). By 2020, these territories, which have long profited from financial secrecy, will have to publicly disclose the true owners of companies registered there.

This is a huge step. Along the way many have told me this could never happen because other jurisdictions would not reform before the US (the US state of Delaware was the most favoured location for shell companies in the World Bank’s study). But even there, there are significant shifts occurring, with legislation that could potentially move within the year, and this move by the UK could further increase pressure on the US to act.

What lessons can we learn from this campaign and where should we go next?

1. Don’t dream of what’s possible: It’s not the first time in my experience that the impossible has become possible. Almost ten years ago, just after the collapse of Lehman Brothers, in the same HM Treasury building, I was told that tax havens would never break open banking secrecy and automatically share information with other tax authorities — a major pre-requisite to cracking down on tax evasion. In 2014, a major agreement was signed in Berlin that almost 100 jurisdictions are now implementing. Campaigners should invest in campaigns that deliver big wins for the long term — even if they seem unrealistic now. In the past decade — many NGOs shifted to securing short term tactical campaigns that could be won quickly with limited resources, allowing them to tell a story of impact to donors and supporters. We should not confuse our job with that of politicians or bureaucrats who think in terms of what is possible. We should deal in terms of the world we want to see, then create the conditions that make it so.

2. Watch it like a hawk: Eight years ago also saw a major milestone in the US: the passing of Dodd Frank 1504, a law requiring oil, gas and mining firms to disclose payments to governments by country and by project. Big Oil has fought this tooth and nail from the start and we are still awaiting this law’s implementation. Campaigners should heed lessons from that experience and not expect any different from a well-resourced offshore lobby with massive influence and a huge incentive to kill this move by the UK government to crack down on offshore secrecy. Experience tells us that they very well could move quietly to exploit loopholes we didn’t even know existed. We must remain diligent and recruit a force of smart lawyers who can help us.

3. Tackle structural issues at risk of being forgotten: The UK is a global financial hub meaning in can be abused in more ways than one. And after successful campaigning for a Jubilee Debt Deal — a deal forged in church halls, meeting rooms and on the streets of the UK, debt is back. The IMF recently noted that 18 countries in Africa alone are, in, or at risk of debt distress. But the lenders have changed. Now it is China and big western banks rather than G8 countries. The uncomfortable truth is that 90% of Sub Saharan African debt is issued under English law. Legislation that would shift some of the responsibility for bad loans to the lenders and allow public scrutiny of the deals is urgently needed to avoid a debt crisis.

Of course, we are living in a tough political climate which is making it tough for organisations to think and act big. But it is our job to work hard, dream big and make those dreams possible. We have evidence that we can do it, and we must do it again.