Britain will force its overseas tax havens to publicly disclose the true owners of companies following a series of dirty money scandals.
Theresa May’s government conceded defeat on Tuesday after party rebels backed plans to force Britain’s overseas territories to introduce publicly-accessible ownership registers to tackle money laundering, corruption and tax dodging.
The move was resisted by some of the 14 territories that have developed major financial services - including the British Virgin Islands (BVI) and the Cayman Islands – who will be compelled to set up ownership registers if they do not comply by December 2020.
The UK government came under pressure to impose the rule on its former colonies after a leak of millions of documents from legal services provider Mossack Fonseca in 2016, known as the Panama Papers, revealed the extent that accounts based in the territories had been used to facilitate financial crime.
The campaign for greater transparency was given fresh impetus following the suspected state-sponsored poisoning of a Russian former spy in Salisbury, southern England, in March and the government’s stated ambition to target Russian illicit money flowing into the UK.
Campaigners this week highlighted figures suggesting that seven times more Russian money flowed to the overseas territories than the UK over the last ten years, amounting to some £68 billion.
Officials for the islands said that the move to impose the registers would infringe the territories’ right to self-determination. “It’s simply not right. This is all smacking of colonialism,” Lorna Smith, the BVI’s former envoy to London and a representative of its finance industry, told the BBC.
Britain has increasingly sought to devolve powers to the territories, former colonial possessions that have retained links to the UK, but has occasionally imposed rules including to ban the death penalty.
The overseas territories currently benefit from free access to the EU single market, funds and access to decision-makers to put their case amid calls that they should be blacklisted by the 28-nation bloc because of the secrecy of their financial services industries.
Those advantages are set to be cut when Britain leaves the EU in 2019, potentially decreasing the advantages of the ties with the former colonial power.
It has prompted debate that the territories would weaken their ties with the UK and seek greater advantages with other regional groupings.
“The idea of the UK being a benevolent patron is wearing a bit thin,” said Dr Peter Clegg, an associate professor at the University of the West of England. “They feel their interests are not necessarily going to be defended. There were suggestions that the UK felt that the overseas territories with offshore financial centres were a bit of an embarrassment.”
Britain is the only major nation that has so far introduced fully public ownership registers during a campaign against corrupt cash under the premiership of Mrs May’s predecessor, David Cameron. The BVI agreed to collect and share ownership data with UK investigators but refused calls by Mr Cameron to make the information public.
Orlando Smith, the premier of the BVI, said in a statement last week that his government rejected the idea that “our democratically elected Government should be superseded by the United Kingdom Parliament, especially in an area which has been entrusted to the BVI people.
“It would undermine the constitutional relationship between the BVI and the UK and indeed be a sad day for democracy,” he said.
Eric Bush, the Cayman Islands representative in the UK, told the National that a push for independence “is not something considered seriously in the Cayman Islands to date”.
An attempt by lawmakers to introduce the registers last year failed following a lobbying effort by representatives of the financial centres and a refusal by ministers to coerce the semi-autonomous territories into accepting the measures.
But Mrs May was weakened by a disastrous election result last year that saw her heading a minority administration. A rebellion by a small number of her MPs was enough to ensure that the measure would pass.
Duncan Hames, of campaigning group Transparency International, said: “Agreement on this represents a hugely significant moment in the fight against corruption, not just in the UK but around the world.”