As I wrote at the time about the Panama Papers, the revelations in the disclosures are seldom the important part of a story such as this in the longer term. When it comes to the Paradise Papers I believe that the key issue is that the British Overseas Territories and the Crown Dependencies have to reorient themselves to a new world in which it is politically unacceptable for the UK to be the dependable partner it once was.
Much of the bluster coming out about the Paradise Papers centres on the notion that all business done in offshore centres is about evading tax somewhere else, and that those territories connected with the UK through the Crown are somehow the worst offenders in the world. Only The Times this morning seemed to offer some respite for the onslaught.
The real problem with the current populist trend in politics driving the calls to “Do Something” and to “Close Down the Tax Havens” is that it has a nihilist streak that taps into the politics of envy and enmity and ends up driving everything to the lowest common denominator. Currently all of those jurisdictions featured in the Panorama documentary share information with tax authorities around the world. The demands for public disclosure of ultimate beneficial ownership has nothing to do with tax transparency and everything to do with prurient desire to delve into private lives.
Of course, offshore financial centres have resisted this, unless all jurisdictions do the same including onshore jurisdictions. Were the UK to act unilaterally, which is possible in relation to the British Overseas Territories, more challenging in the Crown Dependencies, then the business would simply move to Luxembourg, Malta, Cyprus, Singapore and multiple other jurisdictions. It would be disastrous for the economies of the affected countries, but the man in the street in the UK would be satisfied.
This may seem somewhat alarmist, but consider two things.
Firstly after the devastation of the hurricane season this year in the British Virgin islands there was an outcry in the UK about why aid was being sent to a tax haven. Here is a typical post about an article in the Financial Times on the subject:
“Why are we pouring money into these places.. they are epitome of everything which is wrong in the world... tax havens, offshore wealth, illegal money laundering.. and yet these guys are squealing when mother nature smacks them down. of course then they will come scurrying to the British taxpayer and military to help them..
We should not send a single penny there.. they don't give us anything..don’t pay tax to HMRC and help the rich evade their responsibility..
I am so angry that the UK media was challenging our defence secretary on why they didn’t respond quicker.. Seriously!!! .. no.. seriously!!”
This was on the FT website, not the Guardian or the Daily Mirror, and reflects the bile now hurled at the offshore world, even in the face of a humanitarian crisis.
Secondly, consider the fact that the current leader of the opposition in the UK, and much of the opposition leadership, campaigned for many years for unilateral nuclear disarmament. Were they to come to power they are not ones to worry unduly about what the rest of the world wants to do, and will not hesitate to act without any concessions from elsewhere, because they believe that they are in the right. Just as unilateral nuclear disarmament by the UK would have not made the world a safer place, unilaterally imposing a public register on the British Overseas Territories will not reduce tax evasion, money laundering, drug smuggling or financing terrorism, but it will make the politicians responsible feel good.
So, in the wake of all this antipathy towards the British Overseas Territories and the Crown Dependencies what should they do? In my view there are four core action points.
· Work together - there has always been healthy competition for business between the jurisdictions but they now need to understand that there is a need to confront the challenges ahead with a common voice, that will be one that is stronger for being unified;
· Introduce clear requirements for offshore financial centres - I have written previously about the need to have clear requirements, such as maintaining a balanced budget, that will ensure offshore financial centres are above criticism;
· Reach out beyond traditional partners - the jurisdictions that once would have seen London as the focus for their partnerships now need to work across other offshore territories and onshore locations, developing links at a Governmental and business level; and
· Improve global understanding of their status – in my view the offshore world has failed to ensure that the onshore world understands the fundamental changes that have happened over the past couple of decades. The impression is still that "offshore" means men in dark glasses turning up with sackfuls of cash. If the jurisdictions are working together and pooling resources it would make improving that understanding significantly easier.
It is never easy to admit that a partner that has been through thick and thin with you for centuries no longer wants the relationship that has been so good for both sides, but that is where we are in the Queen’s offshore dominions today.
Islands have always faced the need to change, because the economies will always be subject to effects from the other side of the world, natural or man-made. Governments across the British Overseas Territories and Crown Dependencies need to accept that the world has changed and work diligently to ensure that it doesn’t undermine the communities that they serve.