Public registers of beneficial ownership of companies in the British overseas territories

Sanctions and Anti-Money Laundering Bill [Lords] – in a Public Bill Committee at 10:45 am on 6th March 2018.

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(1) For the purpose of preventing money laundering, the Secretary of State must provide all reasonable assistance to the governments of—

(a) Anguilla;

(b) Bermuda;

(c) the British Virgin Islands;

(d) the Cayman Islands;

(e) Montserrat; and

(f) the Turks and Caicos Islands,

to enable each of those governments to establish a publicly accessible register of the beneficial ownership of companies registered in that government’s jurisdiction.

(2) No later than 1 January 2019 the Secretary of State must prepare an Order in Council in respect of any British overseas territories listed in subsection (1) that have not by that date introduced a publicly accessible register of the beneficial ownership of companies within their jurisdiction, requiring them to adopt such a register by 1 January 2020.

(3) In this section a “publicly accessible register of beneficial ownership of companies” means a register which, in the opinion of the Secretary of State, provides information broadly equivalent to that available in accordance with the provisions of Part 21A of the Companies Act 2006 (information about people with significant control).—

This new clause would require the Secretary of State to take steps to ensure the governments of specified British overseas territories introduce public registers of beneficial ownership of companies.

Brought up, and read the First time.

Photo of Helen Goodman Helen Goodman Shadow Minister (Foreign and Commonwealth Affairs)

I beg to move, That the clause be read a Second time.

Photo of Steve McCabe Steve McCabe Labour, Birmingham, Selly Oak

With this it will be convenient to discuss new clause 8—Public registers of beneficial ownership of companies in the British Crown Dependencies

(1) For the purpose of preventing money laundering, the Secretary of State must consult with the authorities of governments in each Crown Dependency on establishing a publicly accessible register of the beneficial ownership of companies registered in their jurisdictions.

(2) Within 6 months of this Act being passed, and every 12 months thereafter, the Secretary of State must report to Parliament on progress within the Crown Dependencies on establishing registers as referred to in subsection (1).

(3) In this section a “publicly accessible register of beneficial ownership of companies” means a register which, in the opinion of the Secretary of State, provides information broadly equivalent to that available in accordance with the provisions of Part 21A of the Companies Act 2006 (information about people with significant control).”

This new clause would require the Secretary of State to consult with the governments in each Crown Dependency about introducing public registers of beneficial ownership of companies in the Crown Dependencies, and to report to Parliament on the progress of establishing such registers.

Photo of Helen Goodman Helen Goodman Shadow Minister (Foreign and Commonwealth Affairs)

The issue of the secret jurisdictions of the Crown dependencies and the overseas territories is extremely vexed. The Opposition are disappointed by what has happened, because we felt that considerable progress was made under David Cameron’s Administration on this matter. There are no Liberal Democrats on the Committee—they normally take credit for anything positive that happened when David Cameron was Prime Minister—but my impression from talking to Conservative Members is that many of them were strongly supportive of what the then Prime Minister promised.

I will remind hon. Members what was promised, go through what has happened and the current state of play, say something about why it matters, and then say something about both the counter-arguments and what we are proposing. The Government of the day committed to implementing a central registry of company beneficial ownership information at the G8 conference in Lough Erne in June 2013. It was truly a British initiative; I was criticised on Second Reading for not giving David Cameron credit, but I am not going to fall into that trap today.

The Companies House register contains information on people with significant control, meaning individuals who hold more than 25% of a company’s shares or voting rights. The Department for Business, Innovation and Skills published details of its intention to create such a register in a discussion paper called “Transparency and Trust” and then made a call for evidence. The Government passed the relevant primary legislation—the Small Business, Enterprise and Employment Act 2015—at the end of March 2015 and the new register went live in 2016.

The new register is very interesting. Searching for information at Companies House used to involve trolling through lots of papers without finding anything of interest, but now that we can see who is controlling companies, we can spend a very interesting hour finding out who owns what—we are all interested in companies in our constituencies. The register is not perfect, as will become evident when we debate other Opposition new clauses—there is no process for checking information, and 10% of the 4 million companies have not submitted the information—but it is a big, helpful step forward none the less.

In parallel with the new register, the then Prime Minister wrote to the overseas territories to encourage them to consult on a public registry and look closely at what we were doing in this country. Whereas progress in this country has been good, albeit not perfect, progress in Crown dependencies and overseas territories has been extremely limited. Let me explain the very different situations in each place.

In the British Virgin Islands, legislation is in place and a registry exists, but it is not public—a big weakness. There is information sharing with five or six regulatory or prosecuting authorities in this country, including the National Crime Agency, the Serious Fraud Office and Her Majesty’s Revenue and Customs. Those organisations can phone up and say, “We are suspicious about Bloggs, the Member for Salisbury South.”

Photo of Helen Goodman Helen Goodman Shadow Minister (Foreign and Commonwealth Affairs)

Yes, indeed. Our authorities can ask the BVI registry to check what is going on, which I understand has been quite helpful. However, unlike our register, the BVI registry is not public, which means that our authorities are not allowed to go on fishing expeditions; they need a reason to ask for information. The problem is that they cannot see the full pattern of ownership. That can make it very difficult to work out what is going on, because people involved in money laundering set up extremely complex structures and relationships. In other areas of organised crime, the NCA maps nodal interconnections, which helps it to find criminals, but a secret register makes that impossible.

Another relevant point is which EU list people are on—whether they are on the greylist, or whether they are not on the list, for lacking transparency. The BVI were given more time in order not to be on the greylist.

The situation in the Cayman Islands is similar. We have an exchange of beneficial ownership information—a central register—but it is done in secret. They are on the European Union’s greylist. The Turks and Caicos have a private register. Like the British Virgin Islands, they were given more time by the European Union because they were affected by the hurricanes. Bermuda has a private register and is on the European Union greylist. The legislation is in place for Montserrat, but no register has been set up. Mind you, Montserrat does not have any particular financial expertise, so it does not matter very much.

Photo of Alan Duncan Alan Duncan Minister of State

The hon. Lady is trying to paint a picture of the OTs and we all understand what she is trying to do. She said a moment ago that progress in the Crown dependencies and Overseas Territories was “extremely limited”. However, I think it is undeniable—and I would ask her to confirm that she admits this—that progress in these areas is steps ahead of all the other G20 countries, except the UK. Can she put it on the record that she admits that that is the case?

Photo of Helen Goodman Helen Goodman Shadow Minister (Foreign and Commonwealth Affairs)

I was going to come to that point at the end, because I anticipated that that was an argument. If the Minister will be a little patient, I will stick to the structure of my speech. In the case of Gibraltar, we have exchange of beneficial ownership information. Gibraltar is in a different situation because it is subject to European legislation. In Anguilla, we have exchange of beneficial ownership information. Like the BVI, it was given more time due to the hurricanes.

In the case of Jersey, Guernsey and the Isle of Man, there is exchange of beneficial ownership information legislation in place, but all three are, unfortunately, on the greylist. This is obviously a matter of regret and it is also extremely damaging to our reputation.

Photo of Alan Duncan Alan Duncan Minister of State

It is very important that some of the basic facts are established as either true or false, and I hope the hon. Lady will not object to my pointing out another thing that she has got wrong. She spoke about the greylist. There is no greylist. The EU Council conclusions, which I could explain at length, set out the jurisdictions that have been cleared. She is wrong on the greylist in the way she explained it earlier.

Photo of Helen Goodman Helen Goodman Shadow Minister (Foreign and Commonwealth Affairs)

I am interested that that is the Minister’s perception, but I think there might be a competing perception.

Photo of Anneliese Dodds Anneliese Dodds Shadow Minister (Treasury)

I regret to contradict the Minister, but perhaps there is a slight information gap around the procedure operated by the EU in regard to these matters. There is a blacklist of jurisdictions that have definitely been viewed as beyond the pale by the EU. That has followed a very intensive process of consultation through ECOFIN, which is obviously an intergovernmental mechanism. Countries that are not yet on the blacklist, but about which there are concerns, are on the greylist. I suggest that it would be helpful to look at that list.

I am grateful to my hon. Friend for enabling me to intervene. I made a freedom of information request to the UK Government to find out what they had done to try to remove jurisdictions from the blacklist, and the lobbying they had done in that case, which appeared to reveal that our Government had been active on this matter. So I hope Ministers will update us on what the Government have been doing in relation to this issue.

Photo of Helen Goodman Helen Goodman Shadow Minister (Foreign and Commonwealth Affairs) 11:00 am, 6th March 2018

Now I turn to why this issue matters. I am extremely grateful to Christian Aid for its very thorough briefing. The problems fall into three categories: tax losses, corruption and crime, and the impact on the least developed countries.

On tax losses, the problem is that people are basically using secret jurisdictions to hide both capital and income, and, in doing so, avoiding tax. A particularly powerful example is the case of Bywater Investments. In November 2016, an Australian federal court found that two anonymous Cayman Islands companies controlled by an Australian accountant had facilitated multimillion-dollar tax evasion schemes, leading to 300 million Australian dollars of repayments and fines. The scam relied on the accountant being able to pretend that the companies were owned and controlled by someone else, thanks to beneficial ownership secrecy in the Cayman Islands. Despite the existence of a legally binding tax information sharing agreement between Australia and the Cayman Islands, Cayman courts and laws had blocked both Australian and UK tax authorities from access to information about the real owner of the companies—and these laws still exist. In that particular case, the tax losses were to the Australian Revenue, but I think that everybody is conscious that we, too, are losing tax in this country.

On corruption, crime and money laundering, I will talk about the problem of the Azeri Government. The first time that I came across Azeri money laundering was about seven years ago, when the hon. Members for Bridgwater and West Somerset (Mr Liddell-Grainger) and for Na h-Eileanan an Iar (Angus Brendan MacNeil) and I all became very concerned that some students had been locked up for putting a video on the internet about some donkeys. Those donkeys had been bought from the Germans and each donkey was worth $250,000. The students made a video and they found that the reason the donkeys were so valuable was that they could play the violin like Menuhin, and there were photographs of them doing so. That kind of creative sarcasm would get somebody a television award in this country, but in Azerbaijan those students were locked up. The hon. Members for Bridgwater and West Somerset and for Na h-Eileanan an Iar and I tabled an early-day motion and we got the students released.

That is not the sort of money laundering that usually goes on in Azerbaijan. My hon. Friend the Member for Oxford East spoke about the laundromat case. When discussing money laundering cases, we may use one example to illustrate a multitude of problems, because there is not just one problem. My hon. Friend, for example, has mentioned Scottish limited partnerships. Secret jurisdictions were also part of the problem, because the beneficial ownership secrecy gave the Azeri politicians the opportunity to circumvent money laundering laws. Two of the four UK-registered partnerships whose control and ownership was concealed were registered in the BVI.

Crime and corruption cases often involve a great deal of violence in the initial corruption and the initial crime. It is easy to take the view that these are white-collar crimes and that nobody really gets hurt, and that it is just about moving money from one bank account to another and clicking on a computer. What is really going on, however, is that people are stealing from weak and fragile states and running big organised crime gangs. For example—this relates to an earlier point made by the Economic Secretary—kidnappers in Mexico requested that the ransom be paid in bitcoin. The Mexican authorities said that they had never come across that before, although they had certainly come across kidnappings before: 70 people a day are kidnapped in Mexico, which is linked to drug running.

Large international organised crime syndicates are involved in extremes of violence and the destruction of societies. Stealing taxpayers’ money from former Soviet Union states or getting involved in big drug deals in Latin America is worth their while only if they can one day get that money and spend it; otherwise, why would they bother? Although these crimes might not seem very serious, they have horrendous consequences for other people. I am not saying that everybody who puts their money in a secret jurisdiction in the British overseas territories is doing so for criminal purposes—that is obviously not the case—but some people are doing that and we need to end the secrecy in order to identify them and track them down.

Last week we discussed sanctions busting and the selling of weapons of mass destruction and their components and materials to North Korea, which also involves shell companies. United Nations investigators and the American courts showed that the North Koreans had used networks of shell companies to evade UN sanctions and to help conceal the origins and destinations of the money that they needed to do so. A significant proportion of those shell company networks have been registered in the BVI and Anguilla. It is unfortunate that the BVI is mentioned a lot, but that is because their specialism lies in this type of registration. It does happen in the other places, but it happens a lot there because it is a world leader in the provision of offshore companies, whereas the Caymans specialise in hedge funds, and Bermuda in captive insurance.

Christian Aid is concerned about the issue because of its impact on developing countries. The former president of Zambia stole $25 million, which he put through an anonymous BVI company and bought property in Brussels. Zambia’s per capita income is $4,000 a year. The Nigerian dictator, Sani Abacha, used a BVI company to hold at least $450 million of the $2 billion he is believed to have stolen from the Government during his time in power. Nigeria has a per capita income of below $6,000 a year. The case of Equatorial Guinea is tragic. It has a much higher average income because of its oil reserves, but those reserves have not been used for the benefit of the people, because the President’s son, Teodorin Obiang, and others have stolen $38 million of their country’s money and spent it on private jets and other luxuries.

The United Nations Conference on Trade and Development estimates that the overall loss to developing countries is some £100 billion a year, which is more than the aid flows going into those countries. If we could sort this out, we would be doing something as useful as all of DFID’s efforts. [Interruption.] I can hear the Minister saying from a sedentary position, “Yeah, but the real fundamental problem is corruption.” He has a point, but we facilitate it. We make it easy, but why? It makes no sense.

We want the Government to set up public registers of beneficial ownership of companies in the British overseas territories. For the purposes of preventing money laundering, the Secretary of State should provide all reasonable assistance to the Governments of the countries we have listed, to enable them to establish a publicly accessible register. The Minister is concerned about the constitutional niceties of making a distinction between the constitutional arrangements in the overseas territories and those in the Crown dependencies. To respect that distinction, we tabled new clause 8, which requires the Secretary of State to consult the authorities of Governments in the Crown dependencies.

The Minister said again this morning that we do not intervene directly. I have two points to make about that: first, we run the foreign policy bit, and secondly, we also run domestic legislation from time to time. We have intervened on gay rights and capital punishment. There was a suspicion that Royal Assent was given to the change to gay marriage laws in Bermuda because it was felt that that was a price worth paying for not having the counter-example of us debating, within a month, these tax privileges—

Photo of Alan Duncan Alan Duncan Minister of State

No, no, the hon. Lady cannot allow that to lie on the record. The decision on Bermuda was taken—

Photo of Alan Duncan Alan Duncan Minister of State

I meant lie in the sense of nestling into its duvet on the record.

Photo of Steve McCabe Steve McCabe Labour, Birmingham, Selly Oak

Thank you, Sir Alan. You have woken me from my slumbers!

Photo of Alan Duncan Alan Duncan Minister of State

Bermuda introduced a gay marriage Act that gave no particular rights. When it introduced civil partnerships for everybody, it gave proper pension and equality rights, which was in itself a good step, even though it is not called gay marriage.

Photo of Helen Goodman Helen Goodman Shadow Minister (Foreign and Commonwealth Affairs) 11:15 am, 6th March 2018

I am grateful to the Minister for that interpretation. I will come now to the counter-arguments. The first is the one the Minister put to me a few minutes ago, that the overseas territories are ahead of others and we should not focus on them.

The problem with that argument is twofold. First, everybody else will catch up soon: there is the EU anti-money-laundering directive, and other countries across the world are introducing public registers. Secondly, we are responsible for what happens, to some extent, and we can influence it. We can make a change if we want to. I will end by asking why Ministers are not making a change. Furthermore, these secret jurisdictions are the most used: the BVI was by far the most popular tax haven in the Panama papers and Bermuda ranked as number one on Oxfam’s list of worst corporate tax havens. So we are talking not about obscure little operations, but about the centre of this financial secrecy problem.

The next counter-argument is that we should wait until public registers of beneficial ownership become a global standard, and then expect swift change. I will not be able to speak as eloquently as Nick Herbert did on Second Reading, but he put the kibosh on that argument very effectively. We do not say about other crime or problems that we are not going to deal with that thief over there until we have caught this one somewhere else. That is not a sensible way to run policy. The fact is that the UK is at the centre of this problem. Post-Brexit we could do so much to regain leadership on anti-corruption.

The third counter-argument is that the overseas territories’ economies are heavily reliant on financial services. There are a number of things to say about that, but first being that, were we to have more tax revenues, we would be able to support the overseas territories better in trying to shift their economies from where they are now to where we would like them to be. Examples of alternatives include tourism and the geothermal resources in Montserrat. There are a number of ways in which we could support a better and more balanced development of their economies.

Another reason is that, in the long run, people want to use financial services in jurisdictions that are trustworthy, have a high reputation and where the rule of law is enforced. The rule of law is one reason why London is such a successful financial services centre. Some of the overseas territories’ activities—for example, the insurance market—are perfectly legitimate and reasonable, and they can get an income from that. Leaders of large businesses are now calling for that, including at HSBC—notorious for its involvement in the Mexico problem.

We then have the argument that trying to intervene in the overseas territories is neo-colonialist. I think that is a problem of missing the wood for the trees, given that it cannot be neo-colonialist to want to ensure that African countries are not ripped off and lose their tax revenues and the value of their assets. That is not neo-colonialist; it is supportive of their development. That is why, for examples, the South Africans were very pleased with the information they got from the Panama papers, and they used it.

The next argument is that public beneficial ownership registers degrade the quality of information available to law enforcement. I am puzzled by that argument, as that does not seem to be the case, given that the more people are scrutinising something, the more likely it is that the quality of information will be improved.

Another argument is that such a policy threatens the privacy and security of people using the secrecy jurisdictions. There are two things to say about that: first, we seem to be extremely worried about the privacy and security of a very small number of rich people, but not at all worried about the massive and violent crimes inflicted on people who are suffering from human trafficking, drugs gangs or other kinds of violence. Even if we say that we need to address that, though, it is adequately addressed in the British regime; and we are suggesting that they run a similar publication regime. An analysis commissioned by the Government found that the UK register would actually save our law enforcement authorities £30 million a year; so I think that that argument is also extremely weak.

When David Cameron was in power we were making progress on this. I do not know what has changed or why this Government seem to be in a different place. Perhaps it is because there are too many people influencing the Government who keep their money in these offshore havens. For example, Mr Rees-Mogg was referred to in the Paradise papers because of a $680,000 payment he received when the BVI-based investment firm he worked for was bought by a Canadian bank. Everybody knows that the hon. Gentleman is extremely rich and his finances are complex, but his stake in Somerset Capital is managed by subsidiaries in the tax havens of the Cayman Islands and Singapore. Or are we seeking to protect the interests of Philip May, who works for an investment management firm—

Photo of Alan Duncan Alan Duncan Minister of State

On a point of order, Mr McCabe, I think these ad hominem attacks are highly inappropriate for this stage of the Committee, or indeed any stage in our Parliamentary proceedings.

Photo of Steve McCabe Steve McCabe Labour, Birmingham, Selly Oak

That is not strictly speaking a point of order. Perhaps we can stick with the detail of the new clause, though.

Photo of Helen Goodman Helen Goodman Shadow Minister (Foreign and Commonwealth Affairs)

I know what the rules of the House are and I wrote to the hon. Member for North East Somerset yesterday, telling him I would be mentioning him in the Committee today. However, the rules and courtesies of the House do not apply to people who are not Members of the House. It is perfectly reasonable to tell the Committee that Philip May works for an investment management firm, Capital Group, which reportedly used offshore-registered funds to make investments in a Bermuda registered company.

The Chair adjourned the Committee without Question put (Standing Order No. 88).

Adjourned till this day at Two o’clock.