In the wake of the Panama Paper revelations, United Kingdom Prime Minister David Cameron is doubling down on his preparations for hosting a potentially landmark anti-corruption summit next month in London. While the Panama disclosures in recent days are financial in nature, they have already had far-reaching political implications, including the resignation of the Icelandic prime minister, and Cameron may now announce a number of significant new measures to increase global tax transparency at the international meeting.
While the Panama paper episode was described by Russian President Vladimir Putin last Thursday as an American plot to destabilise his country and other key states, it is actually numerous UK territories that are seen by many as being at the heart of the affair. Hence, the reason why the London summit in May, which is being billed by the UK Government as the first of its kind and will bring together world leaders, business and civil society, is assuming such increased international focus.
During the process of decolonisation, Britain held on to a global network of islands, which either voted to remain UK territories, or have not chosen independence. Among these are the present-day 14 overseas territories (Akrotiri and Dhekelia; Anguilla; Bermuda; British Antarctic Territory; British Indian Ocean Territory; British Virgin Islands; Cayman Islands; Falkland Islands; Gibraltar; Monserrat; Pitcairn Islands; Saint Helena, Ascension and Tristan da Cunha; South Georgia and Sandwich Islands; and the Turks and Caicos Islands) and three British dependencies (Isle of Man, and the Baliwicks of Jersey and Guernsey).
A number of these territories feature prominently in the Panama papers, including the British Virgin Islands which is named at least 113,000 times. What this underlines is that some of these remnants of Empire are amongst the world’s leading centres of international tax avoidance.
The UK government has taken actions to ensure that these islands have fairer and more open tax systems, but this is very much a work in progress. The territories and dependencies have been asked three main requirements by London: automatic exchange of tax information, common reporting standards for multinational firms, and central registries so there is transparency over who owns companies. All the islands have delivered on the first two items of this agenda, and most on the third, and Cameron now is pushing for as much progress as possible before the summit in London in which tax transparency will be at the fore.
Ratcheting up the pressure on the prime minister, Labour Party leader Jeremy Corbyn has proposed that the government imposes direct rule on any of these territories which do not conform, fully, to UK tax laws. London has cracked down in the past in similar ways so this is not inconceivable.
In 2009, for instance, it imposed direct rule on the Turks and Caicos after local officials were accused of selling government land for personal gain. The islands saw home rule restored only after the local government passed acts that mandated tax information sharing with the British government.
It’s unclear at this stage whether the UK government will take comparable measures for any of the territories that have been named in the Panama Papers, but the international and domestic pressure to act is mounting with, for instance, almost 200,000 people having signed in recent days one online petition by the 38 degrees campaign group demanding the government to “shut down British tax havens”. While imposing direct rule is, in principle, a relatively straight forward process, critics have pointed out that a consequence of seeking to close down these UK centres of tax avoidance would be that people and firms simply move their money from one jurisdiction to another where there might be even fewer tax regulations and less transparency.
Many have therefore highlighted that what is needed is greater global moves toward tax transparency. This is a key reason for Cameron hosting next month’s summit, which will seek to galvanise the global response to tackle corporate secrecy, government transparency, the enforcement of anti-corruption laws, and the strengthening of international institutions. It is planned that specific, practical steps will be agreed to expose corruption, punish the perpetrators and support those affected by corruption.
Aside from next month’s summit, the United Kingdom has generally been at the forefront of debate on tackling international tax avoidance. The 2013 G-8 summit in Northern Ireland, also hosted by Cameron, resulted in the Lough Erne Declaration, which urged countries to “fight the scourge of tax evasion”. Leaders agreed, for instance, to measures that would combat the illegal evasion of taxes, as well as the use of tax havens and loopholes.
And Britain is the first member of the G20 to establish a public central registry of company beneficial ownership information which will go live in June. It has also introduced some of the world’s strictest legislation on bribery, in 2010, making it for instance a criminal offence for a company to fail to prevent a bribe being paid. Moreover, London also co-chaired a UN panel that put tackling corruption at the heart of the new UN Development Goals.
However, despite all of this, Cameron remains on the defensive after the Panama Paper revelations, not least because of his former personal connections with his now-deceased father’s Blairmore Investment Trust. Critics have pointed to Cameron’s apparent double standards here given that he has referred to tax avoidance as a moral issue, and at the 2013 G8 summit in Northern Ireland said, “You have to collect the taxes that are owed. That is only fair for companies and for people who play by the rules”. That same year, Cameron also lobbied the European Commission to exclude offshore trusts from being included in an EU-wide crackdown on tax dodging financial instruments, arguing that companies were the real issue and that trusts should not be subject to the same rules.
Taken overall, the Panama paper episode means that next month’s London summit is assuming significantly increased international focus. With Cameron looking to get on the offensive following recent revelations, the meeting could see significant new measures announced to fight corruption and increase global tax transparency.
Andrew Hammond is an Associate at LSE IDEAS (the Centre for International Affairs, Diplomacy and Strategy) at the London School of Economics.
