The author is MP for Sutton Coldfield and was Development Secretary 2010-2012
The UK is losing its reputation as a reliable jurisdiction. Our companies have become the vehicles of choice to wash poorly earned profits. The vulnerability of our real estate market, the weakness of our regulation and our pathetic enforcement against economic crime are all being exploited by those who like to take advantage of this offense. It is time for the government to act.
The Pandora Papers recently shed light on the country’s role on an industrial scale in facilitating tax avoidance and illegal financing, revealed by the £ 4 billion foreign owners in British property. They have exposed more than six hundred companies in the British Virgin Islands, and hundreds of others elsewhere, by 12 million records.
Why does it matter? Because the OECD has estimated that tax havens could cost developing countries up to three times the global aid budget. The ONE Campaign estimates that, in developing countries alone, about $ 1 billion is lost each year to corruption.
It is these countries that suffer excessively from channeling dirty money to tax havens as autocrats, dictators and oligarchs move their money abroad. Instead of funding essential public services such as health care and education in the global south, the money often ends up in the developed world where it is used to buy property, clear reputations and buy influence. And it is Britain that is sitting right in the heart of this.
The UK and our network of foreign tax havens – the overseas territories and crown dependencies – have become global money laundering hubs. Parliament’s Intelligence and Security Committee recently described our capital as the ‘London Laundry’.
We will never build a prosperous, global Britain from the back of dirty money. We can not create sustainable economic growth while we are the jurisdiction of choice for kleptocrats and crooks. The National Crime Agency estimates that money laundering costs the British economy £ 100 billion every year. Transparency International has found at least 900 UK tracking companies used in corruption and money laundering cases. The government’s integrated review of defense, security and foreign policy emphasized that economic crime and illicit finances “finance organized crime groups, terrorists and other malicious actors, undermine good governance and faith in our economy, and tarnish our global reputation”.
The revision again committed to introducing draft legislation “as soon as parliamentary time allows”. Yet we are still waiting. In 2015, David Cameron announced a register of true UK property owners to prevent stolen or corrupt money from being hidden, and in 2018, the Department of Business, Energy and Industrial Strategy published a draft bill for such a register. Along with proposed changes to Companies House, these reforms will help tackle money laundering and tax avoidance. But no parliamentary time was found for that legislation.
These transparency measures are robust and well-designed, with support between parties. Addressing this issue is popular – 83 percent of conservative voters support “Tougher action” on tax avoidance in the wake of the Pandora Papers. They will strengthen the City’s reputation as a great place to do business and curb investor costs. But above all, they would show that the government is fulfilling its obligations.
Transparency is a powerful tool. We saw this with our public register of company ownership. But we also need an open register of the ultimate beneficial owners of UK-owned properties overseas. With such transparency, we could see who owns what and where, and in what directions illegal funding flows. Only then can we eradicate dirty money.