More than a month after the hue and cry over the Panama papers first erupted, public anxiety about offshore tax havens is still running strong. In Britain, much of the disquiet has focused on David Cameron and the revelation that the prime minister benefited from a family offshore trust. This has thrown a spotlight on an international corruption summit he is hosting in London this week, which aims to tighten the screws further on tax havens and offshore finance.
Mr Cameron, who agreed to host the conference more than a year ago, has long championed the drive against money laundering and other international graft. However, following the attention showered on his own affairs, he is facing pressure to take tougher steps to crack down on secretive jurisdictions where much of the world’s hidden wealth is to be found.
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More than 300 economists, including Thomas Piketty, have published an open letter arguing that there is no economic benefit to tax havens. They have called for the secrecy that surrounds them to be wholly removed.
This poses a particular conundrum for British policy. Much of the debate about offshore jurisdictions tends to focus on traditional centres such as Jersey and the British Virgin Islands. This is understandable. Not only do they remain repositories for a vast amount of global money; many are UK crown dependencies, and are hence amenable to some degree of British control.
Mr Cameron has rightly been urging greater openness on the territories. He wants them to agree to a form of automatic exchange on the ownership of companies. While this falls short of the sweeping transparency campaigners are demanding, London must contend with political realities. The traditional British offshore centres may be dependencies, but they are also autonomous. If the prime minister so wished, he could legislate over their heads, perhaps by threatening to deny them access to the UK financial system. The question is whether this would be the best use of his political clout.
There are several reasons why Mr Cameron should be cautious. One is that many of the activities being conducted in these territories are legitimate. There are entirely unexceptionable uses for a BVI company. Many are used as vehicles for international investment in ways that do not seek to dodge tax.
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Second, activity has already slumped because of privacy concerns and tighter regulation following the financial crisis. The number of companies registered in Britain’s offshore havens has fallen since 2010. That compares with the rapid growth of much less open centres such as Hong Kong, the Seychelles and the US state of Delaware.
Important as it is to bring transparency to offshore centres, Mr Cameron should also turn his attention closer to home. Britain’s laissez faire system of company formation remains a honeypot for those seeking to stash away property. It remains far from clear whether new UK rules on beneficial ownership will tighten things up.
A similar case could be made regarding the US. America has emerged as a big challenger to traditional offshore centres. While it has long trumpeted its commitment to ending banking secrecy abroad, the same cannot be said of using companies to hide money.
Public anger about offshore finance will not ease off any time soon. Across the west, politicians are responding with the right noises. But leaders need to act in ways that are effective and not just crowd pleasing. It will take a concerted international effort not a piecemeal one to make inroads into restricting illicit offshore finance.
Courtesy : ft.com