Summary
This article looks at the Government's attempts to tackle money laundering through its proposed development of public registers of beneficial ownership in the British Overseas Territories. It considers whether such registers will be successful, or whether more time is needed to provide the Territories with economic protection and improve global money laundering standards.
Background
The UK Government's drive to improve corporate transparency was evidenced by its creation of the People with Significant Control (PSC) register. As of 30 June 2016, UK companies, excluding listed companies and LLPs, have had to declare details of persons of significant control. These are persons who hold more than 25% of shares or voting rights in a company, can appoint or remove the majority of the board, or who otherwise exercise significant influence or control. In an additional recent development, the draft Registration of Overseas Entities Bill, published on 23 July 2018, aims to increase the transparency of overseas entities that own UK real estate by creating an additional public register of beneficial ownership for land, and is due to be operational in 2021.
Yet the UK still faces an epidemic of money laundering, with the Treasury Committee finding in March that annually "it can reasonably be said to run into the tens of billions of pounds, and probably the hundreds of billions". The UK, with the City of London, is a global hub for legitimate financial services but suffers from illicit wealth and proceeds of corruption being layered through it.
The British Overseas Territories, such as the financial centres in Bermuda, the Cayman Islands and the British Virgin islands (BVI), have drawn criticism for facilitating money laundering through secretive corporate vehicles. By way of example, international NGO Global Witness revealed in March that 87,000 properties in England and Wales, 40% of which are based in London, are owned by anonymous companies registered in tax havens. Furthermore, non-profit Transparency International UK identified 176 UK properties worth £4.4 billion bought with suspicious wealth. Of the 108 that could be traced to an identifiable jurisdiction, 90% were owned by BVI-incorporated companies.
Targeting the Territories
The Panama Papers leak in 2016 highlighted the role of offshore tax havens in facilitating money laundering and the need for the UK to protect its reputation for clean and transparent business. On 1 May 2018 the Government acquiesced to an amendment to the Sanctions and Anti-Money Laundering Bill, having listened to parliamentarians' concerns that the Territories were a conduit for money laundering. This amendment required a publicly accessible register of beneficial ownership, analogous to the PSC, to be established in each territory. Any that fails to establish one by 31 December 2020 risks having one imposed via an Order in Council.
The reaction from the Territories was fierce, the Cayman Islands' premier describing the move as a "gross affront", with the Bermuda government viewing it as a "retrograde step". The BVI government stated the legislation, now enacted, "flies in the face of constitutional arrangements made with the UK" with disbelief at "how the UK parliament can act so casually with a constitution when an entire economy is at stake". The BVI has since instructed a legal team to challenge the legislation on constitutional and human rights grounds, taking a position that it will not introduce public registers until they become a global standard.
With financial services providing approximately 60 percent of the BVI's government revenue, a legal challenge was inevitable. With the UK seeking further time to develop the concept of public registers on the world stage, Minister for Overseas Territories Lord Ahmad announced in January that the requirement for them to be operational in the Territories would not be until 2023.
Raising the Curtain?
Returning to UK shores, Global Witness reported in May that our own PSC register is worryingly flawed. Analysis found an improbable 336,224 companies with no beneficial owner. The analysis also found 6,711 companies controlled by a beneficial owner of over 100 companies, indicating the use of a nominee, and also discovered companies apparently controlled by children under the age of two.
In the context of our own imperfections at home, what must be considered is whether public registers will be effective in improving upon the existing corporate transparency in the Territories. From 30 June 2017 in the BVI, the Beneficial Ownership Secure Search System Act ensured in-scope companies must provide beneficial ownership information to their registered agent. Cayman Islands' companies, with specific exemptions, must also keep a register of beneficial ownership, with a centralised digital platform collating the information from 1 July 2017. From 23 March 2018 Bermuda companies, also with some express exemptions, were required to establish a beneficial ownership register, with similar obligations also placed on Bermuda's partnerships. Whilst these registers are not public, the legislation enacted in the Territories means that beneficial ownership information is now accessible to law enforcement agencies via appropriate requests.
Any additional value brought by public registers must be set against what they will achieve in the broader fight against money laundering. Economic criminals using patsies to hold their interests will rightly be concerned that organisations, such as Bellingcat, could use open source information to connect corporate assets back to their real owners without too much difficulty. But the knock on effect might well simply be a movement of the problem, and the money, to countries more vulnerable to money laundering, such as Belize. There is also a balance to be struck between the need to target money laundering and the right to privacy of persons using the Territories to hold legitimate wealth. Such individuals may, for example, need anonymity to avoid becoming victims of blackmail and extortion in their own countries.
Conclusion
With these factors in mind, the operational delay until 2023 for public registers in the Territories seems sensible. A united front amongst policymakers should then lead to the Territories being able to compete on a more equitable and transparent playing field, encouraging them to help develop the improved international money laundering controls of the future.
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