As 2019 draws to a close, the clock is ticking down on corporate secrecy in the UK’s offshore financial centres. For years, the anonymity provided by companies incorporated in these islands has provided a hiding place for all sorts of bounty and buccaneers. We have found these opaque legal structures, where the name of their ultimate owners are withheld from public view, playing key roles in over 250 global cases of high-end money laundering and corruption. And this is only the tip of the iceberg.

New stories with a UK offshore connection are uncovered with worrying regularity. Recently the Organised Crime and Corruption Reporting Project (OCCRP) uncovered millions of pounds of suspicious funds linked to a former Russian Minister were moved through 25 different companies based in the British Virgin Islands (BVI). Based on our most recent calculations, the economic damage enabled by corporate secrecy in the UK’s Overseas Territories alone was almost as big as the United Kingdom’s entire overseas aid budget over the last two decades.

Yet despite the secrecy industry playing a notable role in some of their economies, growing numbers of these offshore financial centres now acknowledge the tide is changing. Whether it be the Panama Papers or the Salisbury poisoning, there has been a growing recognition that corporate opacity is as much an asset for corrupt officials and regimes as it is for legitimate business. This is no longer an obscure debate about corporate governance and tax, it is a national security issue.

Those forward-looking jurisdictions keen to navigate these new waters have taken matters into their own hands. The Crown Dependencies have set a self-imposed timetable for reform, which would deliver corporate transparency in Guernsey, the Isle of Man and Jersey by 2023. Some might wonder whether this could happen much sooner, and one would hope someone is keeping a watchful eye on those making a run for it as the sun starts to rise on this new order, however cooperation is much more preferable to compulsion given the circumstances.

Under the Sanctions and Anti-Money Laundering Act 2018 (SAMLA), the Overseas Territories now have until the end of 2020 to publish voluntarily who really owns companies incorporated in their jurisdictions. Some of these, like the Cayman Islands, have proactively committed to doing so within a similar timeframe to the Crown Dependencies. There are some, however, who are keen to maintain corporate secrecy, giving those hiding suspect wealth and dubious pasts a place to hide. Although those failing to comply with the requirements of SAMLA will be compelled by Orders in council to disclose these details, it would be preferable for everyone for it not to come to this.

As 2019 comes to a close we have taken stock of progress to date, highlighting those reforming their company transparency regimes as well as those resisting.

The Reformers

Gibraltar was the first major UK offshore centre to embrace reform, announcing in May 2018 it would implement the EU’s 5th anti-money laundering directive, making company ownership information publicly available from January 2020. Others will be slower. Over the summer, the UK’s Crown Dependencies – Jersey, Guernsey and the Isle of Man – announced a joint timetable for introducing a public register of company beneficial ownership. By 2021, their registers will be connected to those of EU member states, with access granted to law enforcement agencies. Following the EU’s review of public registers in 2022, they will seek to make their own registers public too, following best practice established by that point.

In October 2019, the Cayman Islands – a major financial centre in the UK’s Overseas Territories – followed suit, announcing they too would begin preparations for a public beneficial ownership register. They are adopting a similar timeline to the Crown Dependencies with legislation expected after the EU’s 2022 review of the firth money laundering directive. And the Turks and Caicos Islands have also committed to transparency by the end of 2023.

These announcements mark a key-change in attitudes towards corporate transparency. Only three years ago, all of these jurisdictions apart from Montserrat remained opposed to ending the secrecy industry, and would only share information on beneficial owners with law enforcement agencies on an ad hoc basis. Now over half of the UK’s major offshore centres have committed to delivering some form of public register by the end of 2023, which would cover a third of all companies incorporated in these islands. This is a radical shift towards embracing corporate transparency as the new global norm; however, there are still some who are resisting change or lagging behind.

The Resistors 

The most vocal resistance to beneficial ownership transparency has come from the British Virgin Islands (BVI). Our 2018 research highlighted how criminals have favoured their companies as a money laundering vehicle, with 92 per cent (1,107) of the legal entities used in 213 major corruption and money laundering cases incorporated in this jurisdiction. Their use by those smuggling illicit loot across borders is so prolific that ‘BVI’ risks becoming synonymous with questionable financial dealings.

Curiously, this infamy has not stopped it from fighting a rearguard action against greater openness. Immediately after the UK Parliament passed SAMLA in 2018, the BVI appointed a law firm with a view to challenging the legislation. In July this year, the BVI’s special envoy, indicated the territory may seek to renegotiate its constitutional relationship with the UK to avoid having to implement public beneficial ownership registers.

Part of the BVI’s reticence to introduce transparency is the perception that this would drive business from its shores, which would have severe consequences for its public finances. According to its latest budget estimates, receipts from its corporate register – the biggest by far in the UK’s offshore financial centres – account for almost 60 per cent of its state revenue. Yet studies have shown businesses favour transparency due to the legal clarity it brings and, as shown by the UK, public registers with free access to beneficial ownership and corporate information can bring substantial economic benefits.

In September 2019, the UK department for Business Energy and Industrial Strategy (BEIS) published a study showing the UK register generated user benefits of around £3 billion per year. The BVI could still provide a flexible and reliable place to host businesses, with the benefits of its English system of common law, whilst improving its corporate transparency standards. It may be that the BVI’s company register caters for a very different client than most of those in the UK, who seem perfectly happy with their beneficiaries in the limelight. However, making that claim leaves one with the impression that its secrecy industry is highly dependent on those involved in activity that sails dangerously close to the wind.

Bermuda and Anguilla have not been as vocal in their resistance, but are yet to give firm timelines to which they will implement public registers, with Bermuda indicating they will only do so ‘once such a global standard is agreed’. However, given the Cayman Islands have already recognised public disclosure as the new emerging international standard and good practice, this seems like a moot point.

Delivery and commitments to date

To appraise progress to date, we have produced a scorecard containing a high-level ‘state of play’ for the Crown Dependencies and key Overseas Territories. It uses a simple Red, Amber and Green rating to assess how each jurisdiction has approached implementing central beneficial ownership registers – a key part of providing easily accessible information to users – and their commitment and delivery of public registers. Publishing company ownership information allows businesses, civil society and journalists to identify potential wrongdoing and report it to law enforcement agencies.

We have also included the number and proportion of companies incorporated in the jurisdiction, and the date when we expect to see public registers implemented in practice. Full details of the scoring methods are included in the Annex below.

Note the scorecard does not reflect the systems that each jurisdiction has in place to ensure accurate data is collected and submitted on a timely basis. There is plenty more that will need to be assessed as and when these new registers go live.

What next?

As many of these jurisdictions start to implement their beneficial ownership registers, they should ensure they have measures in place to ensure this information can be relied on in the fight against financial crime:

Information entered onto the register should be verified – either by the registrar or a professional regulated for money laundering purposes – to ensure greater accuracy.
They should be free to use. Paywalls would represent a barrier to analysis of company information.
There should be ‘bulk download’ options to enable thorough data analysis, aiding suspicious activity detection and accuracy checking.

2019 may come to be seen as the beginning of the end for offshore secrecy as corporate transparency is increasingly viewed as the norm. There is a strong sense now that those that continue to resist this risk becoming pariah states, increasingly isolated from the global financial system. Companies in the UK’s offshore centres have long been seen as aids to plunder, but if these jurisdictions open-up their corporate registers to scrutiny with effective registers it will certainly go a long way to addressing this reputation.

Annex 1: Scoring criteria

The Crown Dependencies are grouped as they have made similar commitments and progress.

Centralised register

• Red – Register is not centralised
• Amber – Register is not centralised but ‘similar’ arrangements in place
• Green – Centralised register

Public Commitment

• Red – No firm public commitment to a public register
• Amber – Commitment to public register with variable timeline
• Green – Commitment to public register before December 2020

Public registers implemented

• Red – Beneficial ownership information is not public
• Amber – Beneficial ownership information is accessible but behind paywall/not available as bulk download
• Green – Free access to company ownership information, which is available as bulk download