The almost 12 billion files that were published as the Pandora Papers in October 2021 are yet another reminder that the UK is at the core of a financial framework that is unjust, unethical, and detrimental to human rights globally. The UK has assumed this position voluntarily, by both tolerating and sometimes even encouraging the sophisticated workings of offshore finance. As a result, money obtained through tax evasion or other crimes is allowed to be spent without restraint – and often, it is spent in London.
London, and the UK generally, are greatly attractive to many who wish to conceal their wealth. Firstly, the UK offers a plenitude of revered professional enablers – accountants, lawyers, wealth managers, even art dealers, that can guide the money through the system that gives it the appearance of legality. Additionally, the UK provides the stability and prestige one seeks when deciding where to spend the now unproblematic money. For example, the Pandora Papers showed that in the last 15 years, the Azerbaijani President’s family and allies have traded close to £400m worth of UK properties. The Pandora Papers also link London properties to the King of Jordan and people close to the President of Pakistan.
Transparency International UK has estimated that £5 billion worth of UK property was bought with suspicious wealth. Political and market stability, as well as the reliable protection of property afforded by the rule of law, makes the purchase a low risk, and London’s exceedingly high property prices mean that a lower number of properties can be bought to stash the same amount of money than elsewhere. Once that is done, the city also provides a plenty of opportunities to spend the money on art and other luxuries.
Lastly, and most importantly, the UK does not denounce the practices employed by offshore financial centres, despite many prominent British politicians priding themselves on the UK’s fight against corruption. The off-shore centres allow for companies to be registered there without the ultimate owner being identified – such companies can then without restrictions buy property in the UK. In 2017, the former PM Tony Blair bought a London property from a company registered in the British Virgin Islands, reportedly saving £312,000 in stamp duty as a result. Many of Britain’s Overseas Territories and Crown Dependencies are notorious offshore financial centres, namely the Cayman Islands and Gibraltar. It was estimated by the Corporate Tax Haven Index that Britain and its Overseas Territories account for a third of the world’s tax dodging risks – notably, this statistic does not even consider proceeds of crime or corruption. Despite the UK Parliament legislating to require the Overseas Territories to set up publicly accessible registries of beneficial ownership by 2020, this change has not taken place and Parliament is not exerting any further pressure regarding the issue. This does not paint Parliament in a good light, since many MPs benefit from the current, unethical state of affairs in a variety of ways.
As illustrated on the example of Tony Blair, many powerful Brits can appreciate the benefits of concealed ownership. Furthermore, offshore finance is deeply intertwined with party donations, especially to the Conservative Party. Among notable donors was Mohamed Amersi, a businessman exposed by the Pandora Papers as being involved in a £162m corruption scandal. Lastly, MPs argue against taking action regarding offshore finance, not merely because they benefit from it, but because they are a part of its operations. For example, MP Geoffrey Cox earned almost £1 million as a lawyer representing the British Virgin Islands in a UK Government inquiry into the country’s involvement in corruption and money laundering, two years after arguing in Parliament that the UK should not meddle in the affairs of tax havens.
Offshore finance weakens UK’s democracy by allowing party support to be bought and creating clear instances of conflict of interest. Accepting money of suspicious, unknown origins also subverts many fundamental values of democracy, such as the rule of law, equality, and transparency, not only in the UK but everywhere.
The practices of offshore financial centres by themselves are not illegal and can serve a variety of acceptable purposes, such as wishing to save money in a country more politically stable, or setting up a company in a more convenient jurisdiction. However, stashing away income that was not declared in accordance with their home country’s laws is illegal. These are often vast sums of money that would, if properly taxed, assist the government in providing education, healthcare, and relief to the poor. Given that the money is made in that country, it should not be funnelled away, providing benefit only to the owner and to the ecosystem of accountants and lawyers facilitating it. For example, it was estimated by a coalition of campaigners that in 2015, the flow of loans and financial aid provided to Africa was $40 billion lower than the amount of money that left the continent, partly through tax havens. The lack of funds for governments caused by the offshore finance system is destabilising to the countries, perpetuating the poor living standards of many. This is can also be illustrated in relation to the already mentioned plethora of London property owned by the close circle of people around the President of Azerbaijan – since coming to power, they have enriched themselves through taking control of the country’s natural resources, while the country grapples with accusations of human rights abuses, corruption, and electoral fraud.
The system of offshore finance gives rise to a world where a select few do not have to pay taxes or can freely enjoy money gained through crime – neither of which can be accepted in view of equality and rule of law. Nonetheless, there are many factors than stand in the way of change in the UK, especially the financial benefit the country gains from the system. But there has never been a better time to take action, since the Pandora Papers brought the topic back to the forefront of public debate, and since the global minimum 15% corporate tax rate has recently been agreed to by world leaders, increasing companies’ desire to avoid taxation. Any efforts need to be balanced with legitimate considerations of the impact such changes would have on the British economy, as although immoral, offshore finance does bring in significant inward investment. Britain is also in the unfortunate position of a country that once encouraged the development of offshore finance in its Overseas Territories, as a means for them to gain more self-sufficiency. Taking steps that would have immense impact on the Overseas Territories’ economies could be met with criticisms of both hypocrisy and patronising attitudes.
There are many suggestions of the steps the government could take if it were to address the issue. The Registration of Overseas Entities Bill was drafted in 2018 and would require the ownership of companies to be transparent if they were to be registered. This draft bill was set aside, hence it would be desirable for it to be brought back to Parliament to be discussed. There are also calls for better supervision of the professional enablers, who currently lack deterrence from facilitating financial crime and do not fear detection. In fighting suspicious money, the UK could also utilise tools it already possesses, such as the Unexplained Wealth Orders, which allow for assets to be frozen if doubts as to the origin of funds arise. The Orders are used rarely due to fears of litigation; however, they would be capable of creating a hostile environment for anyone wishing to direct their illicit money into London properties.
The UK will inevitably have to decide whether they can accept the impact offshore financial centres have on equality and values of democracy in exchange for the financial benefit gained from illicit money flowing into the country. If it does decide to act, it has all the tools it needs at hand.
