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Britain should help its offshore tax havens develop alternative industries such as tourism in return for greater financial transparency, the government’s anti-corruption champion has said.
Baroness Margaret Hodge argued for “gentle persuasion” rather than compulsion, saying that the UK had a responsibility to help British overseas territories adapt to demands to publish registers of company ownership.
He said universities, private schools and museums may also need to implement “know your customer” checks similar to financial institutions.
Hodge was speaking as the UK government promised a tough crackdown on “dirty money” in an anti-corruption strategy published on Monday.
Deputy Prime Minister David Lammy said corruption coming from graft and organized crime “spreads across borders like a stain” and “often its trail goes from here to London”.
Campaign groups have praised the ambition in the plan, but said the UK’s pledges were weakened by a lack of transparency in Britain’s overseas territories.
While all 14 UK dependencies have promised registers of beneficial ownership, listing the person who ultimately controls or owns the asset, British investigative think-tank Taxwatch said only Gibraltar and Montserrat have made them fully public.
Ministers have expressed disappointment over the British Virgin Islands, which it says will provide more limited access to the register next year for people with a “legitimate interest”.
In other jurisdictions, this may include journalists investigating financial crimes and businesses conducting due diligence investigations.
Hodge, a former Labor MP and veteran anti-corruption campaigner, was appointed to the government advisory role last year and has urged a conciliatory approach.
“It’s always much healthier if you get there through compromise,” he told the Financial Times.
He argued that Britain had a “responsibility” to help overseas territories find alternative economic models to those that had encouraged them to become tax havens in previous generations.
“They were encouraged to develop into secret jurisdictions,” he said. “If we allow them to get there, we have to help them get out of there, so you have to help them restructure their economy.”
Hodge cited efforts to build an airport in the BVI capable of taking more direct flights from the US and Europe. “It’s a beautiful country, there’s a huge tourism industry, there are no airplane runways here that can take international flights,” he said.
“There is something we can do to support them in trying to develop an alternative economic base.”
Ministers are understood to have promised no specific aid in return for increased financial transparency from overseas territories.
Hodge said tougher action would be needed if they do not meet their commitments to provide ‘legitimate interest’ access to beneficial ownership registers by next summer.
He said, “After all, this is a very important matter for which there is support from across the government. So it has to happen.”
Hodge acknowledged that tax haven transparency is one of the “difficult” aspects of a strategy under which she will also review the ownership of assets in the UK and the ease of money laundering through the country.
“It will look at land, it will look at property, it will look at trusts, it will look at other corporate structures that people may be exploiting,” he said.
Recommendations are likely to include greater transparency particularly around trusts, he said: “What we know now is that a lot of illicit wealth is coming through trusts.”
The UK strategy also says the government will “encourage cultural and civic organizations to strengthen their resilience to corruption risks from high-value donations”.
The government has not said whether this will be mandatory, but Hodge said money-laundering checks required by banks should be extended to universities, museums and others.
“For this they have to know their customer – they have to properly investigate their customers to ensure the source of the funds,” he said.
“Many corrupt people who accumulate stolen wealth then attempt to tarnish their reputation by contributing to cultural institutions, educational institutions and universities.”
The UK Overseas Territories Association has been contacted for comment.
