Criminal Finances Bill

Written evidence submitted by Save the Children, ActionAid, Christian Aid and Oxfam (CFB 06)

Criminal Finances Bill – Public Bill Committee

‘…tax is the price we pay for living in a civilised society. No individual or no business, however rich, has succeeded all on their own. It doesn’t matter to me whether you’re Amazon, Google or Starbucks, you have a duty to put something back, you have a debt to fellow citizens and you have a responsibility to pay your taxes. So as Prime Minister, I will crack down on individual and corporate tax avoidance and evasion. It is not anti-business to suggest that big business needs to change.’ Prime Minister Theresa May 11th July 2016

1. Summary

1.1 We welcome the introduction of the Criminal Finances Bill. Following the Government’s leadership on these issues at the Anti-Corruption Summit in May, this Bill contains useful measures which have the potential to fight against corruption and tax evasion in the UK. However, UK-governed territories still facilitate secrecy and corruption around the world. If the Government wants to effectively tackle global corruption, which hits developing countries disproportionately, it should act to ensure the same level of transparency over company ownership in its Overseas Territories and Crown Dependencies as it has established for the rest of the UK. In order for the UK Government to make a truly transformational change in the global tax system and maintain its role as a global leader against corruption, it must act to boost transparency within tax havens under its jurisdictions.

1.2 Save the Children, ActionAid, Christian Aid and Oxfam provide life-saving aid and development programmes to the most vulnerable people worldwide. However, conservative estimates put the amount of money developing countries lose to tax evasion through tax havens every year at $170 billion [1] . Africa is actually a net creditor to the world [2] . To help to combat this, we campaign for global tax transparency in order to reduce global financial corruption, to enable developing countries to collect the tax they need to fund public services and to increase accountability to populations in developing countries. As the UK together with its Overseas Territories and Crown Dependencies is the biggest tax secrecy jurisdiction in the world, there is much that it can do to tackle corruption that is not included in this Bill.

1.3 We urge members of the Public Bill Committee to support NC21, which asks the Government to provide all reasonable assistance to the UK’s Overseas Territories and Crown Dependencies to introduce public registers of beneficial ownership by the end of 2017, and then if any Overseas Territories or Crown Dependencies have not introduced public registers by then, to adopt Orders in Council regarding the Overseas Territories, and to consult and take all reasonable steps to support the Crown Dependencies in adopting them.

1.4 At present, a third of all global illicit financial flows go through these UK tax havens. Their secret structures mean that developing countries cannot hold business and individuals accountable for the money they are owed.

1.5 The UK Government is the first G20 country to publish its own central, public register of beneficial ownership. This should be highly commended, and has led to some developing countries such as Nigeria, Afghanistan and Kenya also committing to create central, public registers of beneficial ownership. The UK Government has stated on numerous occasions over more than three years its desire for the UK’s Overseas Territories and Crown Dependencies to follow its lead. We welcome the commitment of the Overseas Territories and Crown Dependencies to establish private registers by June 2017, but these registers will not be publicly available.

1.6 This falls far short of the steps needed to make companies and individuals truly accountable to the developing countries that they operate in. Only public registers will ensure tax enforcement agencies have access to the information they need to investigate tax evasion, and that civil society organisations and local people can hold government’s accountable for money being hidden away. Public registers would also enable investors to know who they are doing business with.

1.7 Many Parliamentary groups have called on the Government to do all it can to ensure central, public registers of beneficial ownership in the Overseas Territories and Crown Dependencies. For example, the APPGs for Responsible Tax and Anti-Corruption, the International Development Committee, the Public Accounts Committee, and MPs from across the House during Second Reading of this Bill.

1.8 The Government’s recent response to these calls has been that legislating for the Overseas Territories is constitutionally difficult. However, as a matter of constitutional law it is possible. There is much precedent of legislation being used in this way on other issues, from corruption to pirate radio. We hope that legislation of this nature will not be necessary, but it should be kept as a backstop provision given the years of delays that we have seen. We call on the Government to do all it can to ensure public registers in the Overseas Territories. A timeline should be set, and if absolutely necessary, legislation should be used.

2. Development, Tax & DFID

2.1 Governments of developing countries take home half as much tax as a percentage of their income than rich OECD countries do – between 10 or 20 per cent of GDP, rather than 30 or 40 per cent. In order to have the money to invest in the public services that level the playing field and ensure all citizens have access to vital services such as free high quality education; universal health care; and inclusive social protection, domestic tax systems need reform.

2.2 All countries need to work hard to respond to this problem, but in particular, the world’s poorest countries – where services are often oversubscribed or simply absent – are not getting the tax receipts they are owed. DFID has recognised this, and through endeavours such as the Addis Tax Initiative, provides funding and technical expertise to enable these countries to reform their tax systems.

2.3 But this is also a global problem. One of the main reasons for low tax receipts is the use of complicated tax avoidance schemes and offshore tax havens by multinational corporations and wealthy individuals. These complicated schemes are used to hide profits and disguise who owns what – so that companies and individuals can avoid paying tax revenue that could be spent saving and changing the lives of the world’s poorest people.

2.4 As the only G20 member to create a central, public register of beneficial ownership, the UK should be a global leader on tax transparency, yet their unwillingness to take action on the Overseas Territories and Crown Dependencies means that they cannot credibly lobby other countries to match their efforts – and they are undermining their impressive development efforts.

2.5 The Independent Commission on Aid Impact recently published a learning review on UK aid’s contribution to tackling tax avoidance and evasion and rated DFID’s overall performance as ‘amber-red’. [3] The review states that DFID should adopt a more proactive approach in promoting policy coherence for development on international tax by assessing the impact of UK tax policies and practices on developing countries. The Government should heed this recommendation by taking steps to ensure that the UK’s tax policies and systems are as transparent as possible and do not undermine its development programming. A crucial step towards this would be by accepting NC21.

3. Delivering on the Anti-Corruption Summit

3.1 Earlier this year the Government convened the Anti-Corruption Summit in London, bringing together world leaders to agree, amongst other things, new approaches to tax transparency. This is something the UK can be proud of. However, many world leaders from developing countries rightly raised their frustration that UK tax havens were facilitating the very tax avoidance and corruption this summit sought to overcome.

3.2 Following commitments made at the summit, this Bill includes vital measures to tackle money laundering and corruption, to recover the proceeds of crime and to counter terrorist financing. Yet the largest enablers of tax avoidance are the UK’s Overseas Territories and Crown Dependencies, which are not included in the Bill.

3.3 The single most effective thing that the Government could do to tackle corruption and counter terrorist financing is to set a deadline by when its Overseas Territories and Crown Dependencies will adopt the same level of transparency as the rest of the UK: central, public registers of beneficial ownership. The Government’s facilitation of corruption through its Overseas Territories runs counter to its aims of tackling corruption in this Bill.

3.4 By supporting NC21, the Government will end this double standard, giving the UK a stronger hand to force international action when the G8 and G20 meet in 2017 – and the credibility to truly lead this critical, international agenda.

4. Beneficial ownership registers should be public

4.1 The private central registers of beneficial ownership that the Overseas Territories and Crown Dependencies are now developing are a step forward. But, without these registers being made public, they will not benefit people in developing countries or effectively root out corruption.

4.2 Greater transparency is needed to help developing countries investigate their tax affairs in these jurisdictions. These countries are not part of the UK’s agreements on automatic information sharing and do not have the resources or capacity to track tax evasion without public registers. For many of the poorer countries, getting their tax collection agencies up to speed so that they can pursue potential tax evaders and know what questions to ask is difficult – public registers make it much easier to interrogate suspected tax avoiders and evaders. Civil society should also have a role in interrogating tax affairs enabling citizens to hold their governments and multinational companies to account and they are not able to do this effectively without more transparency, including public registers.

4.3 Providing private registers is also a reactive response; if a register can be interrogated only by the international agencies that are allowed to have access, these agencies will have to know that there is something being hidden in the first place. Such an approach presupposes a degree of intensive resources and knowledge that will not necessarily be in place.

4.4 The UK Government recognised the need for its own register to be made public and should compel its jurisdictions to meet the same level of transparency.

5. The impact of tax evasion through UK Overseas Territories on developing countries

5.1 Recent estimates by the IMF put the cost of tax avoidance or tax planning to non-OECD countries at $28 billion in the ‘short run’, and around $180 billion in the ‘long term’. The OECD has estimated that tax havens may be costing developing countries a sum of up to three times the global aid budget [4] .

5.2 Tax already pays for the vast bulk of government spending on health and education. In 2012 in sub-Saharan Africa, 90 percent of spending on education and 70 percent of spending on health in government budgets came from domestically mobilised resources. Money generated through tax collection is the most sustainable and reliable source of funding for public services [5] .

5.3 Evidence further suggests that increasing the amount of tax a government collects is the most effective way to increase their spending on public services. For example, the Department for International Development’s investment in reforming the Rwandan tax system led to a tripling of revenues between 1998 and 2006. As a result, spending on health today is five times the 2003 level. Poverty is falling dramatically in Rwanda, the number of children in primary education has increased exponentially, and access to health services has doubled. The OECD has estimated that for every £1 that is spent on this kind of aid, up to £350 can be returned through increased tax collection [6] .

5.4 The recent Panama Papers leak revealed a number of companies based in developing countries, like Malawi are registered with Mossack Fonseca in the British Virgin Islands. Registration of these companies in tax havens makes it difficult for tax authorities, including the Malawian Revenue Authority, to scrutinise their affairs and ensure the correct tax is collected. The gap between resources needed to meet Malawi’s health needs and actual health expenditures is substantial; it is expected that it will reach $458 million in 2015–2016. As a result, the Malawian Government has recently mooted introducing healthcare user-fees. This means charging patients at the point of service – a cost that most households will be unable to manage. Worse still, it has been revealed that since 2004 Malawi lost, on average around $650 million a year through illicit financial flows – significantly more than the amount needed to plug the health financing gap.

5.5 The use of the British Overseas Territories and Crown Dependencies for tax avoidance and evasion is undisputed. When these jurisdictions are taken into account the UK is the single, biggest secrecy jurisdiction in the world. More than half the companies exposed in the Panama Papers are registered in UK governed tax havens, with the British Virgin Islands by far the most widely used tax haven in the leak. A World Bank review of 213 big corruption cases found that over 70% relied on secret company ownership. Company service providers registered in the UK and its Overseas Territories and Crown Dependencies were second on the list in providing these companies.

5.6 The Africa Progress Panel found that citizens of the Democratic Republic of the Congo were deprived of $1.35 billion, or twice their health and education budgets combined, due to the sale of mining contracts to five anonymous British Virgin Islands companies. Assets were sold at one sixth of their commercial value. Secretive offshore companies gained profits of over 500%.

6. All talk, no action

6.1 The previous and current Prime Minister, as well as the UK’s Finance and Home Office Ministers have all stated their support and desire for the Overseas Territories and Crown Dependencies to publish, central, public beneficial ownership registers – the Government should now take action to make these statements a reality.

6.2 It is right to ask business to play its part in ensuring we build a country that works for everyone. And that British business, which is so often on the front line of our engagement with the world and whose actions so often project our values in the world, is seen not just to do business but to do that business in the right way. The Prime Minister 14th November 2016.

6.3 In 2013, the former Prime Minister said to the Overseas Territories and Crown Dependencies that they had to rip aside the "cloak of secrecy" by creating a public register of beneficial ownership. In April 2014, he wrote to the Overseas Territories, saying that "beneficial ownership and public access to a central register is key to improving the transparency of company ownership and vital to meeting the urgent challenges of illicit finance and tax evasion." He also expressed his hope that the Overseas Territories would follow suit to "consult on a public registry and look closely at what we are doing in the UK."

6.4 When the UK established its own public register, David Cameron said that "there are also many wider benefits to making this information available to everyone. It’s better for businesses here, who’ll be better able to identify who really owns the companies they’re trading with. It’s better for developing countries, who’ll have easy access to all this data without having to submit endless requests for each line of inquiry. And it’s better for us all to have an open system which everyone has access to, because the more eyes that look at this information the more accurate it will be.’

6.5 When Brandon Lewis MP, the Home Office Minister, announced that the remaining Overseas Territories would create registers of beneficial ownership during the Second Reading debate, he said "we will continue to push for all countries to introduce public registers. This is good news, and we will continue to work on it".

7. This measure is widely supported

7.1 Enacting this measure is very popular. Recent YouGov polling shows that over two thirds of people think the Government should take this action [7] . ComRes polling before the general election showed that 88% of adults in marginal constituencies believe that tax dodging by large companies is morally wrong [8] . The vast majority of UK voters (85 percent) think that all UK and offshore companies should have to reveal their real owners. Almost four out of five (79 percent) British people want the Government to legally oblige the Overseas Territories to uphold the same transparency standards for companies registered there as the UK [9] .

7.2 More recently the International Development Committee said that ‘the continuing lack of transparency in the UK’s Overseas Territories and Crown Dependencies risks significantly hindering efforts to curb global corruption and damaging the UK’s reputation as a leader of anti-corruption’ [10] . It said ‘the Government must use the full weight of its influence’ [11] to persuade the Overseas Territories and Crown Dependencies to introduce public registers.

November 2016





[5] Reeves, A., Gourtsyannis, Y., Basu, S., McCoy, D., McKee, M. and D. Stuckler, 2015. Financing universal health coverage – effects of alternative tax structures on public health systems: cross-national modelling in 89 low-income and middle-income countries. The Lancet,

[6] - pg 14








Prepared 22nd November 2016