London at heart of global tax-dodging network: NGO

File photo. The Appleby offices in Hamilton, Bermuda 6 November 2017. Media reports on 5 November 2017 state that a trove of financial documents dubbed the 'Paradise Papers' with 13.4 million documents has revealed how powerful and ultra-wealthy people secretly invest vast amounts of cash in offshore tax havens. [EPA-EFE/TED SWISS]

Campaigners are calling on the government in London to take tougher action against tax havens, after the Pandora Papers shone a light on British overseas territories in a global tax-dodging network.

Alex Cobham, director of the Tax Justice Network, which lobbies for greater transparency, said Britain was “dragging its feet” on reforms, despite protests to the contrary from the government.

And he told AFP in an interview that far from progress being made, old habits could die hard now that Britain seeks a freer, more global role on its own after leaving the European Union in full earlier this year.

“There’s a real danger that the UK, in this moment of Brexit, is really going backwards back to that old model of… the post-colonial network of taxing jurisdictions with the City of London (financial centre) at its heart,” he said.

The Pandora Papers, detailing how heads of state use offshore tax havens to stash assets worth hundreds of millions of dollars, highlights how two-thirds of the shell companies listed are in the British Virgin Islands.

Pandora Papers reveals hidden wealth of world's most powerful

A massive leak of financial documents on Sunday (3 October) that allegedly ties 27 EU politicians and global figures including King Abdullah of Jordan, Czech Prime Minister Andrej Babis, and associates of Russian President Vladimir Putin to secret stores of wealth.

The authorities in the British overseas territory, where companies can be registered quickly and simply, have promised to publish their company registers.

Two years ago, London issued a directive to overseas territories and crown dependencies to make public the real owners of shell companies to cut down on money laundering.

The move applied to places such as Bermuda, Jersey, Guernsey and the Isle of Man.

A Treasury spokesperson said Britain had “led the world in tackling tax avoidance and evasion and in improving tax transparency, spearheading global initiatives to help tax authorities uncover income and assets held by their taxpayers”.

“We are also committed to making the UK a hostile place for illicit finance and economic crime,” the spokesperson added, promising to look at the data leak “to see if it reveals anything new to our existing knowledge and ongoing investigations”.

But Cobham said the Virgin Islands had only paid “lip service” to the request — and made publication conditional on others doing so as well.

He said the answer was simple: London should legislate and by not doing so it showed it was “not serious” in tackling the problem, he added.

Rotten barrel

The Pandora Papers has revived the public debate about tax avoidance, which is legal and exploits loopholes, and tax evasion, which is illegal.

While the UK is a major player in tax dodging, the United States — the world’s biggest financial centre — is the “biggest threat” as it is doing nothing about it, Cobham said.

Fighting both tax avoidance and evasion depends on an exchange of information between countries but the US refuses to do so.

The huge Pandora Papers leak, the latest in recent years after the Paradise Papers and LuxLeaks, has shown that the problem persists despite promises of reform, Cobham said.

“There’s no longer any way of thinking this is anything other than globally systemic. This isn’t a few bad apples, it’s not something at the margins,” he added.

“This is at the core of the global economic and financial system.”

Responses so far have been “piecemeal” but need to be “comprehensive”, he said, singling out the United States to lead the way.

“After 9/11, when the US was really strong (against the) financing of terrorism, the banks were absolutely striving to be compliant because they knew there would be penalties including criminal penalties for individuals involved,” he said.

The Tax Justice Network is calling for an end to anonymity for owners and beneficiaries of shell companies and trusts given how they can be a cover for high-level corruption.

It also wants multinationals to publicly declare profits and taxes paid in every country where they operate, rather than just where they are based.

And it said criminal investigations should be ramped up, along with penalties for banks, lawyers and accountants who allow the practice to continue.

“Every time they’ll say, ‘Oh, sorry, now we’ve changed,’ but you know, they’re not changing, they’re not going to change until there is a step change in the level of criminal punishment for individuals buying those schemes.”

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