For many years, the Isles of Man, Jersey, and Guernsey were popular holiday destinations for Brits looking a bit of sand and sunshine without traveling too far afield from the UK. Those territories were also popular locations for the deposit of offshore funds, which many people kept hidden, out of the watchful eye of the British exchequer. However, all that could be about to change.
In 1789, Benjamin Franklin penned in a letter to Jean-Baptiste Leroy, “Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.” Nobody has yet come up with a solution to dying, but, in the past, inventive minds have created many a solution to the persistent demands of the tax man.
For decades, the isles of Guernsey and Jersey, located just off the coast of France, and the Isle of Man, situated in the center of the Irish Sea, became tax havens for the rich and famous who would rather not bring their wealth to the English mainland. This tax-haven status was maintained until quite recently when pressure from the UK government resulted in offshore banks on those territories becoming more transparent in their financial reporting. However, as these islands were never actual colonies of the UK, the British government has found it difficult to impose further legislation demanding full disclosure. The territories themselves preferred to maintain a policy of “complicit confidentiality”.
Following legislation proposed by former British Prime Minister, David Cameron, the United Kingdom has built up a campaign against tax avoidance and money laundering. Cameron wanted to close down what he called the financial “getaway cars” for tax dodgers, terrorists, and drug dealers.
In promoting this initiative, the UK became one of the first G20 countries to push for a public registry of company owners. Cameron then set his target on the former dependent territories that Great Britain had colonized in the Caribbean and South Atlantic. However, following Cameron’s rapid exit from British politics following the Brexit vote, this process of financial transparency was put on hold.
Taking up the mantle, Labour MP Margaret Hodge, and Conservative MP Andrew Mitchell proposed an amendment to the UK anti-money-laundering bill to force UK residents with holdings in the Caribbean and Atlantic to fully disclose their assets. These territories included the British Virgin Islands (BVI), Bermuda, and the Cayman Islands, which would have to agree to establish public company records by the end of 2020. The British government supported the bill, largely for technical reasons, but it was turned down in the House of Lords, Britain’s second chamber. However, the bill is likely to pass the vote in a subsequent reading.
The change of sentiment among British legislators follows the negative press surrounding the attempted assassination of a former Russian spy and his daughter in the British city of Salisbury. The harmful media coverage received by Russia and the Russian oligarchs, many of whom made Britain their second home and invested in the country, made financial disclosure a hot topic. The move to impose financial regulation on former British protectorates has not been popular among the residents of those territories. Dr. Daniel Orland Smith, the premier of the BVI has accused the British government of a “breach of trust”. Smith’s wife, who just happens to run the agency that promotes financial activity on the islands, went further, saying that the British regulatory moves “smacked of colonialism”.
Regulatory liberalization went even further in 2009, when the UK imposed direct rule over former colony, the Turks and Caicos Islands, one of the British Overseas Territories in the Caribbean. Following the disclosure of government corruption, the UK government stepped in and generated a new constitution for the territory that clamped down on overly liberal tax and investment policies that had existed previously.
In spite of recent moves by the UK government to impose financial regulatory transparency on its former colonies, most regulations in those territories are actually better than those in most OECD countries, including the United States. However, with anti-corruption campaigners pushing for even tighter regulation, then further transparency moves are likely.
While anyone who was able to hide their wealth in these former UK province hideaways may have been inconvenienced by these financial transparency moves, there is no question that the general British population supports further regulation. After many years as tax havens for the rich and famous, these territories will now have to rely on their attraction as tourist holiday destinations.