2The UK Government approach to tackling corruption overseas
The need for a ‘whole of Government’ approach
12.The amount of money lost by developing countries through corrupt practices far outweighs the support they receive through foreign aid.23 It is therefore essential for the Government to address the UK’s role in facilitating global corruption, or else risk undermining the support DFID is providing to tackle corruption in its priority countries. For example, Global Witness highlighted the case of the Democratic Republic of Congo (DRC), where it claims “inconsistent UK policy on corruption is undermining the effectiveness of aid contributions in some circumstances”.24 They told us that “DFID currently spends around £150m in aid contributions [annually] in DRC, yet $1.36 billion in mining revenues were lost via British tax havens and London-listed companies”.25 Better policy coherence across Government is essential to prevent cases like this.
13.Efforts to tackle global corruption, and in particular the UK’s part in it, are an essential element of the UK’s support for developing countries. As Professor Heywood of the University of Nottingham told us, this will require action from all Government departments:
“DFID alone cannot be expected to address or solve the problems. These are, by their nature, immensely complex, intertwined, interconnected issues, which involve a whole series of different levels. DFID can only work to the extent that it is supported in its work by other actors doing the right kind of thing as well. I imagine you are going to come on to the question of a one-HMG anti-corruption strategy. It is really important that it is understood that DFID needs support across the range of Government activity, both nationally and internationally, if it is going to be effective.”26
14.In written evidence to this inquiry, the Government stated that it was aware of the “multi-faceted” nature of corruption and the need for “targeted work in the UK, internationally and in developing countries to tackle it”.27 It outlined that the UK would therefore work:
“a. domestically, in the UK to get our house in order to ensure that our financial systems are not used to facilitate the movement or holding of illicitly-acquired funds, and to assist in their tracing, recovery and return when they are found in the UK;
b. internationally, to strengthen the global anti-corruption ‘architecture’ including contributing to the development of global standards and support for new agencies;
c. Within DFID’s partner developing countries, to assist in the strengthening of their national systems and the prevention of corrupt practices and asset flight.”28
15.It is DFID’s responsibility to ensure that UK aid spending is free from corruption. It also supports anti-corruption efforts in its priority countries, through its bilateral programmes and through its support for multilateral and civil society organisations. However, DFID also works with other government departments, as its submission states:
“DFID is working closely with other government departments including Cabinet Office, Home Office, Foreign and Commonwealth Office and HM Treasury to deliver on a broad range of initiatives. The recently-created Joint Anti-Corruption Unit (JACU) of the Cabinet Office is in the centre of this coordination effort to ensure an ambitious step change to fighting corruption in a coherent cross-UK Government approach and in influencing at the international level.”29
DFID also supports the investigation of international bribery, corruption and money laundering through its funding of the International Corruption Unit (ICU), which is part of the National Crime Agency.30 The ICU’s main functions are to investigate:
- “money laundering in the UK resulting from corruption of high-ranking officials overseas;
- bribery involving UK-based companies or nationals which has an international element;
- cross-border bribery where there is a link to the UK”31
The ICU also “traces and recovers the proceeds of international corruption”.32
16.Policy coherence across Government on its approach to anti-corruption is essential to ensure that DFID’s efforts to reduce corruption in developing countries are not undermined by broader policies and programming pursued by other Government departments.
The role of the UK in facilitating global corruption
17.It is clear from the evidence we received that companies and individuals in the UK, Crown Dependencies and Overseas Territories play a major role in facilitating global corruption. Professor Heywood told us:
“[…] the UK is involved as, unfortunately, a facilitator of international corruption. That is because there are very, very significant financial flows that go through the City of London where, although we have rules in place and there are quite clear rules of diligence and political exposed persons and requirements on a whole host of people to take action, in reality that action is not too often taken.”33
Global Witness described the UK as an “enabler of corruption”34 and, when asked whether the UK played a role in facilitating corruption, Robert Barrington, Executive Director of Transparency International, told us, “Unambiguously, yes”.35 The previous Minister of State for International Development, Rt Hon. Sir Desmond Swayne MP, responded to these comments by stating that he disagreed “profoundly” and was “pretty cheesed off by the assessment given by those organisations”.36 Overall, the evidence presented to this inquiry makes it clear that some individuals and businesses based in the UK have played a role in facilitating corruption and, despite progress, the UK Government has more to do to get its own house in order.37 Whilst petty corruption is endemic in many countries, Professor Heywood made it clear that the most detrimental forms of corruption for developing countries are often enabled by developed countries:
“the most damaging forms of stealing state assets in the developing world, as well as corrupt procurement deals that favour multinational corporations, are in many cases enabled and facilitated by established democracies. In particular, the role of banks (and the City of London) in allowing corrupt money to flow must not be underestimated. This is an issue where the UK can, and should, take a real lead.”38
Money laundering
18.Evidence to the inquiry highlighted the UK’s failure to tackle money laundering through the UK. Robert Barrington of Transparency International UK (TI UK) told us, “The role of the UK as a centre of global money-laundering is widely acknowledged. There is loads of data.”39 Indeed, a TI UK report reissued this year cites data from the UK Financial Services Authority (prior to its 2013 abolition) estimating that “£23–57bn was being laundered within and through the UK each year”.40 Richard Riley, Director of Serious and Organised Crime at the Home Office, acknowledged the Government’s awareness of some of the issues in evidence, stating, “the Government certainly recognise that money laundering through and in the City is a problem”.41 Professor Heywood also highlighted the issue of money being laundered through the London property market, stating “We are all acutely aware of the issue of property prices in London being artificially inflated through a whole series of purchases of big properties in the most desirable parts of the city using corrupt funds from a range of countries”.42
19.In April, following our call for written evidence, the Government released a new ‘Action plan for anti-money laundering and counter-terrorist finance’43. TI UK stated that they “broadly welcome[d] the Plan”, and praised innovations such as Unexplained Wealth Orders,44 which require “those suspected of money laundering to declare their wealth”.45 However, TI UK remained concerned over the failure to commit to the most innovative parts of the plan, but instead committing to “explore or consult”.46 There was also concern over the lack of commitment to conduct due diligence over money that was already in the UK. Furthermore, there was continued unease over the failure to act on the secrecy that still shrouds the Overseas Territories and Crown Dependencies.47 In addition, Corruption Watch highlighted that the UK must show that it will prosecute the perpetrators of corruption or risk undermining the legitimacy of their anti-corruption efforts overseas: “Until the UK can show that it will prosecute banks and individuals involved in laundering corrupt assets, it is unlikely to have credibility on the international stage that it is serious about tackling overseas corruption.”48
20.Given the amount of money that is laundered through the UK, we welcome the Action Plan for Anti-Money Laundering and Terrorist Financing launched in April 2016 and look forward to seeing this plan implemented in its entirety by the new Government.
21.We recommend that the Government consider conducting a thorough assessment of money that has already been laundered through the UK and continue to lobby for the same level of transparency and accountability to be applied in the UK’s Overseas Territories and Crown Dependencies.
Tax evasion and tax avoidance
22.One of the major concerns raised during the inquiry was the role of the UK in facilitating global tax avoidance and tax evasion, particularly through the UK’s Overseas Territories and Crown Dependencies. This was also a major focus of civil society campaigning in the run-up to the London Anti-Corruption Summit. The OECD estimates that as much as $240bn in tax revenue is lost each year due to tax avoidance and developing countries are hit the hardest.49 Citing World Bank President Jim Kim, Oliver Pearce of Oxfam told us: “tax avoidance is ‘a form of corruption that hurts the poor’”.50 He went on to say:
“We understand that there is a spectrum of corruption, from downright illegality to people manipulating the rules in a way that benefits them. […] We know that in the wide spectrum of illicit financial flows, tax avoidance is an important part of the problem.”51
Box 2: Definitions of tax avoidance and tax evasion
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Tax evasion is defined by TI UK as the “illegal non-payment or under-payment of taxes, usually by deliberately making a false declaration or no declaration to tax authorities”.52 Tax avoidance is usually engineered through legal loopholes by bending the tax rules in a way Parliament did not intend.,53 This is distinct from legitimate tax planning, such as putting cash into an ISA. Her Majesty’s Revenue and Customs (HMRC) recently issued some guidance on what they consider to be tax avoidance “Tax avoidance involves bending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage. It involves operating within the letter, but not the spirit, of the law.”54 |
Source: Various, as footnoted
23.The release of the Panama Papers in April 2016, just prior to the London Anti-Corruption Summit, exposed the extent of tax evasion and tax avoidance through tax havens around the world. It also highlighted the UK’s involvement in such schemes. Approximately half of the companies—over 113,000 in total—which featured in the Mossack Fonseca files were registered in the British Virgin Islands, a UK Overseas Territory. (see Chart 1) In addition to this, almost two–thousand UK-based intermediaries were revealed in the leaks, making the UK second only to Hong Kong for the number of facilitators of tax evasion and avoidance it hosts. (see Chart 2)
Chart 1: The 10 most popular tax havens in the Panama Papers
Source: ICIJ, Explore the Panama Papers Key Figures, accessed 12 October 2016
Chart 2: Top 10 countries where intermediaries operate
Source: ICIJ, Explore the Panama Papers Key Figures, accessed 12 October 2016
24.Enabling money to be held or hidden in offshore tax havens too often deprives developing countries of essential tax revenues, which can have a devastating impact on the provision of public services. A recent Oxfam report highlights the problems this is causing in Africa:
“Almost a third (30%) of rich Africans’ wealth—a total of $500bn—is held offshore in tax havens. It is estimated that this costs African countries $14bn a year in lost tax revenues. This is enough money to pay for healthcare that could save the lives of 4 million children and employ enough teachers to get every African child into school.”55
Talking about this issue in evidence to us, Shauna Leven of Global Witness stated, “It is a real disservice to DFID, who is championing anti-corruption issues, that other parts of the Government are allowing this to happen.”56 The most recent report from the Independent Commission for Aid Impact (ICAI), on ‘UK aid’s contribution to tackling tax avoidance and evasion’, expresses similar concerns, giving DFID an amber/red rating in this area. It concluded that “DFID does not have a clear approach to promoting policy coherence for development in tax” and highlighted that there were “potential areas of tension between UK policies and developing country interests, including those concerning international tax competition and bilateral tax treaties”.57
Public registers of beneficial ownership
25.Lack of transparency about the real owners of companies, land and property allows corruption, such as money laundering, to flourish. The UK has shown itself to be a leader in the world on enhancing transparency, by publishing its first central public beneficial ownership register in June 2016.58 However, the UK’s Overseas Territories and Crown Dependencies, where a huge number of companies are registered and assets are held, have not agreed to adhere to the same standards of transparency. Much of the evidence we received demanded that the Government put greater pressure on the UK’s Overseas Territories and Crown Dependencies to create public beneficial ownership registers.59 As TI UK stated in its evidence:
“Secrecy and corruption in the UK’s Overseas Territories and Crown Dependencies make a significant contribution to the UK’s role as a safe haven for corrupt funds. The secrecy offered by the offshore company structure enables corrupt individuals to hide the source of their funds and use them to buy property, luxury goods and education in the UK. Public registries of beneficial ownership are necessary for real accountability.”60
26.In advance of the London Anti-Corruption Summit, DFID told us:
“The UK will maintain its focus on beneficial ownership through the G20 Anti-Corruption Working Group and as part of the Anti-Corruption Summit. The FCO is also leading a dialogue with the Overseas Territories and Crown Dependencies to adopt a similar level of transparency; and as a minimum to ensure that UK law enforcement agencies have timely and secure access to centrally held company beneficial ownership information.”61
In the end, a number of the Overseas Territories and Crown Dependencies chose not to attend the Summit and only the “minimum”, outlined in the quotation above, was achieved.62 The governments agreed to hold central beneficial ownership registers and give UK law enforcement and tax agencies automatic access to the information, but they did not agree to make that information public.63
27.In the response to our recent Report on UK implementation of the Sustainable Development Goals, the Government clearly states that it, “continues to work closely with the Territories and Dependencies on the implementation of the commitment to direct access for law enforcement authorities and on the issues involved in developing a new global standard for automatic exchange”.64 This response implies that the Government will not be pressing the Overseas Territories and Crown Dependencies to make their central beneficial ownership registers public, as the UK has done and—as the evidence has highlighted—is necessary to uncover the secrecy and corruption being routed through these nations.
28.The Government has so far failed to persuade the UK’s Overseas Territories and Crown Dependencies to create central public registers of beneficial ownership. Although a number of stakeholders have suggested the Government could compel them to act, in practice this could raise constitutional questions about their self-determination and (qualified) constitutional autonomy.65 However, lack of transparency in the Overseas Territories and Crown Dependencies will significantly hinder efforts to curb global corruption and continue to damage the UK’s reputation as a leader on anti-corruption. It is disappointing that the Government has missed an opportunity to build on the momentum of the Anti-Corruption Summit.
29.The Government must use the full weight of its influence to lobby the UK’s Overseas Territories and Crown Dependencies to increase transparency by creating public beneficial ownership registers.
Country by country reporting
30.The current global tax system allows multinational companies to shift their profits into jurisdictions with lower tax rates to minimise their tax burden.66 As corporations are currently only required to publish the amount of profit generated globally and the total amount of tax paid globally, there is no opportunity for governments in countries where they are operating to find out whether they are receiving a fair share of the corporate tax. In order to deal with this issue, the UK has recently committed itself to ensuring multinational corporations report on a country by country basis. HMRC has made filing country by country reports mandatory for multinational enterprises meeting certain criteria after 1st of January 2016.67
31.At the time of submission, Oxfam’s evidence advocated for the Government to make country-by-country reporting public. It argued:
“It is vital for CBCR [country by country reporting] to be disclosed publicly so that citizens, civil society and journalists are able to hold corporations to account. PCBCR [public country by country reporting] will also ensure that developing country tax administrations can access the information they need to tackle corporate tax avoidance in their country. Without CBCR information being made available publicly, many of its benefits will be lost.”68
32.The concept of CBCR had been broadly supported by the former Chancellor of the Exchequer, Rt Hon. George Osborne MP, who put through legislation in the Finance Act 2015 which gave “the Treasury the power to make regulations to require MNEs [Multi-National Enterprises] to provide HMRC with a country-by-country report”.69 In September, Parliament agreed an amendment to the Finance Act 2016 proposed by Rt Hon. Caroline Flint MP, which permits the Treasury to make these reports, from all multinational companies based in the UK, public.70 This move has been widely welcomed by stakeholders and having access to this information could be a big step forward for developing countries who suffer from companies evading taxation through base erosion and profit shifting. However, organisations such as the Tax Justice Network are rightly cautious that the amendment does not commit the UK Government to publication.71
33.Public country-by-country reporting of multinationals’ profits and payments to governments will enable citizens, civil society and journalists in the countries where they operate to check whether companies are paying their fair share of tax. We therefore warmly welcome the Government’s decision to accept an amendment to the Finance Bill 2016 which will permit the Treasury to make country-by-country reporting public.
34.The amendment to the Finance Act 2016 allows, but does not commit, the Government to publication of country by country reports produced by multinational enterprises. We urge the Government to publically commit to making country by country reporting by UK-based multinational enterprises public. This will enable non-governmental stakeholders in developing countries to hold the companies—and their governments—to account if appropriate levels of tax are not being paid.
Extractive industries
35.The UK has made a strong contribution to tackling corruption in the extractive industries, which remains a particular problem for resource-rich developing countries. Through its commitment to the Extractive Industries Transparency Initiative (EITI) and the Open Government Partnership (OGP) the UK has been seen as a global leader on transparency in this area. It is clear that the UK has an important role to play. Publish What You Pay (PWYP) highlighted that, “The UK is responsible for 25% of the global commodity trade in oil and one of the world’s largest hubs for oil and other commodities trading”, as well as being home to a number of major UK-registered or listed oil and mining companies.72
36.Chapter 10 of the EU Accounting Directive 2013/34/EU73 was a breakthrough in extractive industries transparency, as it obliges all UK registered companies to report payments made to governments in other countries. PWYP would like to see the UK Government include payments related to oil, gas and mineral commodities trading included in its mandatory reporting requirements. This would mean that all payments made by UK-based or listed companies to governments for commodity trading would have to be publically reported, helping to root out corruption. In countries like Nigeria, Angola and Libya, where crude oil sales make up the majority of total government revenues, this could make a significant difference to the amount of money lost through corruption.74
37.A large number of major oil, gas and mining companies, including those engaged in commodity trading, are registered or listed in the UK. Because of this, by tightening its regulations on transparency the Government can play an important role in rooting out corruption that is negatively impacting resource-rich developing countries like Nigeria.
38.We welcome the Government’s continued commitment to tackling corruption in the extractive industries and encourage it to engage with Publish What You Pay’s suggestions on commodity trading to see what more can be done to encourage greater transparency.
The Government’s approach to anti-corruption
UK leadership on anti-corruption
39.The UK has been a leader in the field of anti-corruption since the passing of the Bribery Act in 2010.75 The Act covers the criminal law relating to bribery and has a near-universal jurisdiction, allowing for the prosecution of an individual or company with links to the United Kingdom, regardless of where the crime occurred. The UK Bribery Act however is only concerned with bribery, and not with other forms of white collar crime. The Act “is not concerned with fraud, theft, books and record offences, Companies Act offences, money laundering offences or competition law”.76 Although it was a ground-breaking piece of legislation when first passed, the scope of the Bribery Act is limited and the number of prosecutions under the Act are still low. It has enabled the Serious Fraud Office (SFO) to pursue cases, however, including its first prosecution under the Act which saw the British arm of South Africa’s Standard Bank agree to pay a $25.2m fine for failing to prevent bribery in a Tanzanian subsidiary. The fine included a payment of $6m to the Tanzanian Government.77
40.Whilst in office, former Prime Minister, Rt Hon. David Cameron, spoke extensively about the importance of anti-corruption efforts to securing the ‘golden thread’ of development. In a speech to the UN in May 2013, he stated:
“[…] there’s this new commitment to strong institutions and governance because these are essential to end conflict, to protect the rule of law, to stamp out corruption and insecurity and to hold governments accountable. This, I believe, is a totally new addition to the Millennium Development Goals: the importance of good governments, lack of corruption—what I call the golden thread of development.”78
Soon after this speech, in June 2013, the then Prime Minister used the UK’s Presidency of the G8 to promote a global agenda on advancing trade, ensuring tax compliance and promoting greater transparency. Then, in July 2015, he gave a much cited speech in Singapore, in which he espoused his commitment to tackling corruption as a way to tackle global poverty (see Box 3).
Box 3: Tackling corruption: David Cameron speech in Singapore
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“Think of all our efforts to drive global growth. And then consider the fact that corruption adds 10% to business costs globally and that cutting corruption by just 10% could benefit the global economy by $380 billion every year—substantially more than was estimated for the entire Doha Trade Round. Then think of all our efforts to tackle global poverty. And then consider what happens when corrupt governments syphon off all the benefits and proceeds of growth that rightly belong to their people. Think of all our efforts on the other side of the world to rescue people drowning in the Mediterranean and then consider why those migrants are there fleeing, in many cases, from corrupt African states where they have no economic prospects because everything is controlled by a corrupt elite. […] Corruption is one of the greatest enemies of progress in our time. It is the cancer at the heart of so many of the world’s problems. It affects everything—from a family’s ability to send their child to school, to the credibility of the world’s favourite sport, football. And yet when it comes to tackling corruption, the international community has looked the other way for too long. We simply cannot afford to side-step this issue or make excuses for corruption any more. We need to step up and tackle it.” |
Source: Tackling corruption: PM speech in Singapore, Prime Minister’s Office, 28 July 2015
UK Anti-Corruption Plan
41.In 2014 the then Coalition Government produced a substantive cross-government UK Anti-Corruption Plan, which outlined its approach to corruption in the UK and overseas.79 It brought together the responsibilities and activities of all Government departments aimed at tackling corruption, from DFID to the Home Office and the then Department for Business, Innovation and Skills (BIS).
Box 4: Government Anti-Corruption Plan: The UK
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1. Prosecuting and disrupting people engaged in corruption (Pursue); 2. Preventing people from engaging in corruption (Prevent); 3. Increasing protection against corruption (Protect); 4. Reducing the impact of corruption where it takes place (Prepare) |
Source: HMG, UK Anti-Corruption Plan (December 2014)
42.On the UK’s international approach to corruption, the Plan states:
“Internationally, our priority is to continue to be at the forefront of engaging with our overseas partners (including foreign governments, the United Nations and other international institutions) to:
- improve transparency, tackle money-laundering and return stolen assets;
- raise global standards for all, including through our international development programmes; and
- promote sustainable growth, including through our work to stop bribery.”80
UK Anti-Corruption Strategy
43.Although the UK Anti-Corruption Plan was broadly welcomed, a number of stakeholders were critical of the Government’s failure to produce an overarching ‘One HMG’ strategy on anti-corruption. Transparency International called for “an over-arching strategy that would improve coordination between departments and should have a substantial beneficial effect on addressing corruption in developing countries”.81 Following the London Anti-Corruption Summit in May 2016, the Government announced in its statement that it would produce such a strategy:
“The UK will develop a cross-government Anti-Corruption Strategy by the end of 2016, which will set out our long-term vision for tackling corruption.”82
44.We welcome the Government’s announcement that it will develop a cross-government Anti-Corruption Strategy and ask that it provides us with an update on progress and a timeline for publication of the Strategy, which is due to be released before the end of 2016.
The Anti-Corruption Champion
45.Since 2005 successive governments have appointed Anti-Corruption Champions. Some have held the position whilst Secretary of State and members of the Cabinet (Hilary Benn—International Development, John Hutton—Business, Enterprise and Regulatory Reform, Jack Straw—Justice), others whilst serving as Ministers (Ken Clarke—Cabinet Office, Matthew Hancock—Business, Innovation and Skills). Last year, Rt Hon. Sir Eric Pickles MP, who at that time held neither Cabinet-level nor ministerial responsibilities, was appointed to the role. In evidence, Transparency International expressed concern that the role of Champion had been “weakened by a downgrading of the position to non-Cabinet level”.83 Robert Barrington told us:
“The Anti-Corruption Champion is a position that has been up and down in terms of how effective it is and how seriously the incumbents take it. Indeed, it is a post that was a Cabinet Minister, then an attendee of Cabinet and is now not even a Government Minister. The nature of that post and their clout within Government has clearly changed as well.”84
46.Transparency International has in the past outlined what it believes makes a good Champion: “a willingness to pick up the brief, to form a plan, to articulate the plan internally and externally, to be accountable; and above all an ability to get things moving in a coordinated way across government, since anti-corruption activities are split among so many departments”.85 In order to ensure coordination across Government, the Champion currently holds the Chair of the inter-ministerial working group on anti-corruption, whose membership when last recorded in 2015 included a number of Government Ministers (although no one at Cabinet level). The then Minister of State for International Development, Rt Hon. Sir Desmond Swayne MP, told us in June that:
“In terms of keeping the foot to the fire here, I believe that the inter-ministerial working group on anti-corruption chaired by Eric Pickles is going to be the driver in that respect. He is a very formidable if not terrifying chairman.”86
47.The Champion has recently been supported by the Joint Anti-Corruption Unit (JACU); which was set up in advance of the London Anti-Corruption Summit in May 2016 and is based in the Cabinet Office. CAFOD recommended in evidence that JACU should be formalised.87 Talking to us about JACU, Robert Barrington expressed concern that after the Summit, the Unit could be disbanded and, “The many people seconded to that unit will go back to their Departments and do what they did before, and the coordination will drop away”.88
48.The appointment (or reappointment) of the Anti-Corruption Champion has yet to be announced following the Government reshuffle earlier this year. In answer to a parliamentary question raised by Jonathan Ashworth MP on 18 July 2016, the Minister for the Cabinet Office, Rt Hon. Ben Gummer MP, stated: “The Prime Minister will consider all such appointments, including that of the anti-corruption champion, in due course.”89 There has been no further update to Parliament so far. Given that Transparency International has expressed concern about previous “long gaps in appointments between champions”90 the delay is likely to cause concern. The new membership of the inter-ministerial working group, or even its continued existence, is also yet to be confirmed and the future of JACU is unclear.
49.Evidence has also raised the issue of the Champion’s accountability to Parliament on delivery of the cross-government Anti-Corruption Plan. In evidence submitted prior to the London Anti-Corruption Summit, CAFOD called for an official mechanism to make the Champion accountable to Parliament:
“The Champion should provide an annual report to parliament on his/her work and the design and implementation of the plan. The report should include, at a minimum, a written ministerial statement and should be distinct from wider reporting on serious and organised crime. This would provide Parliament and other stakeholders with an opportunity to review and debate progress.”91
However, on 12 May 2016, a Progress Update on the UK Anti-Corruption Plan was formally brought to the attention of the House in a written statement from the then Minister for State and Security, Rt Hon. John Hayes MP.92 Although this was a biennial, rather than annual, update it highlighted the Government’s accountability to Parliament on the delivery of the Plan.
50.We thank the Government’s Anti-Corruption Champion, Rt Hon. Sir Eric Pickles MP, for meeting with the Committee privately in advance of the UK Anti-Corruption Summit to discuss its aims and possible outcomes. However, although we understand that non-Cabinet members may have more time to dedicate to the post, we agree with the view that a Cabinet-level appointment to the post of Anti-Corruption Champion would enable them to exert greater influence and ensure more effective coordination at the highest levels of Government.
51.We welcome the establishment of the Joint Anti-Corruption Unit (JACU), based in the Cabinet Office, as a mechanism for ensuring greater cross-government coordination on anti-corruption efforts.
52.We understand the concerns that there is not yet an official parliamentary mechanism for holding the Champion to account on the progress of the UK Anti-Corruption Plan and the suggestion that the Champion produces an annual report to Parliament. We note that since this recommendation was submitted to the Committee, the Government has released a Progress Update on the Anti-Corruption Plan93 which was brought to the attention of the House in a written statement from John Hayes MP, the then Minister for State and Security at the Home Office, on behalf of the Minister and the Anti-Corruption Champion.94
53.We recommend that the Government announce the appointment—or reappointment—of the Anti-Corruption Champion as soon as possible, in order to show its continued commitment to tackling corruption. We believe that this position should be a Cabinet-level appointment. A Cabinet-level Champion would be able to exert more influence, encourage a coordinated approach and ensure that anti-corruption efforts remain a key priority at the highest levels of Government.
54.We also urge the Government to formalise the Joint Anti-Corruption Unit (JACU) currently based at the Cabinet Office, in recognition of the fact that tackling corruption at home and overseas requires coordinated delivery of the UK Anti-Corruption Plan and forthcoming Anti-Corruption Strategy across Government.
Multilateral work
55.International cooperation is essential to tackle corruption in the global economy and, as Oxfam highlighted, “there needs to be much greater multilateral action at the international level”.95 In recognition of this, the Government works across a number of multilateral platforms on anti-corruption initiatives. Over the last five years, successive UK Governments have put corruption at the top of the agenda at UK-hosted international meetings such as the then G8 at Lough Erne in 2013 and the London Anti-Corruption Summit in May 2016. They have also worked closely with international organisations, such as the United Nations, Council of Europe, World Bank and IMF.96
56.The UK Government has worked closely with the OECD on their base erosion and profit shifting (BEPS) project, which aims to tackle the “shifting of profits to low or no-tax locations where there is little or no economic activity”.97 However, as we concluded in our Report on UK implementation of the Sustainable Development Goals, we remain concerned that discussions and decisions on international cooperation in tax matters are happening primarily through the OECD, whose membership is mainly developed countries, rather than a more inclusive body such as the UN.98 Significant concerns have been raised about the BEPS project by organisations such as the Tax Justice Network (TJN). TJN’s Director of Research, Alex Cobham, raised specific concerns about the failure to mandate public country-by-country reporting in the BEPS outcome report. He stated that, “The home country tax authorities of multinationals, mostly in the OECD, will receive this information; while many host countries will not. If anything then, the current measure will further disadvantage developing countries and the world’s poorest people.”99
57.The latest report from the Independent Commission for Aid Impact (ICAI) on UK aid’s contribution to tackling tax avoidance and evasion highlights similar concerns about the inclusion of developing countries in such international decision-making processes.
“DFID’s efforts to make the international standard-setting processes more inclusive of developing countries were, nonetheless, only partially successful. DFID supported the participation of developing countries in various G20 and OECD processes, including the OECD Tax and Development Task Force and the Global Forum on Transparency and Exchange of Information. However, key stakeholders from both OECD and developing countries agree that developing countries gained little practical influence over the new standards. Consultations with developing countries occurred late in the process, when the priorities had already been agreed. We were only able to find evidence of two measures introduced in response to developing country concerns. According to our survey and interviews, a number of issues of interest to DFID’s partner countries remain excluded.”100
58.We remain concerned that discussions and decisions on international cooperation in tax matters are happening primarily through the OECD. We understand the Government’s reservations with regards to the previously proposed upgrading of the UN Tax Committee, and concern that there would be duplication with the work the OECD is conducting.101 We also welcome the work that the OECD has undertaken through its Base Erosion and Profit Shifting (BEPS) work. However, international tax discussions must be fully reflective of international concerns, including those of developing countries, and we remain concerned that the OECD—due to its composition—is not adequately reflecting the needs of the poorest countries in its policy outcomes.
59.The Government should reconsider whether the OECD is the best forum for discussions and decisions on international tax matters. If the Government believes it is, then more must be done to ensure the voices of developing countries are heard within this forum and that policy outcomes are reflective of the needs of both developed and developing countries. The Government should provide us with an update on work in this area.
60.As the OECD’s base erosion and profit shifting (BEPS) work is rolled out to different countries, the OECD should consult developing countries regularly on the effectiveness of the measures in preventing base erosion and profit shifting from their jurisdictions and seek views on suggested modifications or enhancements. As a key OECD member, the UK Government should encourage and support this action to ensure that developing, as well as developed, countries benefit fully from this initiative.
UK exit from the European Union
61.With the exception of the oral evidence given to us by the former Minister of State for International Development, all the evidence received to this inquiry was submitted prior to the European Union (EU) referendum on Thursday 23 June 2016. However, it is likely that the vote to leave the EU will have a significant impact on the UK’s anti-corruption efforts, so it is necessary to include it here. The decision to leave the EU will clearly have an impact on all UK Government departments, not least because EU exit negotiations will have risen to the top of the agenda for Secretaries of State and Ministers. Concerns have been raised about the possibility of the anti-corruption agenda being relegated as a result of the UK’s exit from the EU and that corruption risks could be heightened.102
62.A number of the UK regulations designed to increase transparency and tackle corruption stem from EU directives. For example, the aforementioned Chapter 10 of the Accounting Directive, which obliges all UK registered companies to report payments made to governments in other countries.103 The Government will need to ensure that such important regulations around industry transparency are not lost when the UK leaves the EU. Evidence to the inquiry also suggested that the UK could use its close relationships with European counterparts to encourage other countries in Europe to allow for public country-by-country reporting, as the UK has done.104 In order to do this, it is important that these strong relationships are maintained and that the UK continues to be able to work in partnership with its EU neighbours on cross-border anti-corruption efforts.
63.The UK has shown strong leadership on anti-corruption, particularly over the last six years, but recent revelations such as the Panama Papers show how far the UK needs to go to effectively tackle corruption both in the UK and overseas. It is essential that momentum is not lost in the wake of the decision to leave the European Union, when laws, regulations and trading arrangements are reviewed.
64.In advance of its negotiations to leave the European Union, the Government must consider the ramifications of the UK’s exit on the laws and regulations designed to curb corruption both here and overseas, such as the provisions on extractive industries transparency included in the EU Accounting Directive. The Government must ensure that tackling corruption is not deprioritised as we negotiate our European exit and that the momentum to tackle corruption, and the alliances the UK has made with a number of other European countries in this regard, are not lost. We would encourage the Government to continue to use its influence with other European countries to encourage them to commit to publishing country-by-country reporting data for multinational enterprises, as it is now permitted in the UK.
The future of UK leadership on anti-corruption
65.The former Prime Minister was a clear advocate of anti-corruption measures. In evidence to this inquiry, DFID emphasised his leadership, stating that, “DFID and other UK government departments will work to deliver on the Prime Minister’s ambition to further strengthen the UK’s response.”105 In order to maintain momentum, it will be essential for the new Prime Minister, Rt Hon. Theresa May MP, to show the same level of commitment. Both she and a Treasury Minister have already made clear statements about her administration’s determination to tackle corruption. It was under her tenure as Home Secretary that the 2014 UK Anti-Corruption Plan was introduced and, in a statement to Parliament following attendance at her first G20 meeting in September 2016, she said:
“Together, we agreed to continue efforts to fight corruption—building on the London summit—and do more to stop aggressive tax avoidance, including stopping companies avoiding tax by shifting profits from one jurisdiction to another.”106
66.Soon after the Prime Minister’s speech, the Financial Secretary to the Treasury, Jane Ellison MP, echoed this sentiment at Anti-Corruption Week in Singapore. She stated:
“So that’s why you may have already heard our new Prime Minister, Theresa May, expressing her determination to fight against corruption at this year’s G20 in China. Because if you really want to help businesses with a fair and level playing field. If you really want to encourage free trade, open economies and respect for the rule of law. You have to tackle the kind of aggressive tax avoidance that undermines this. And that’s what we want to work, internationally and domestically, to do.”107
67.Strong leadership will be essential to tackling global corruption. We commend the leadership shown by the former Prime Minister, Rt Hon. David Cameron, on tackling global corruption and the positive contribution this has made to shift the global conversation. However, we recognise that comprehensive follow-up action is now needed. We hope that the new Prime Minister, Rt Hon. Theresa May MP, will continue to put anti-corruption measures at the forefront of the Government’s agenda and that this will lead to tangible policy changes across Government.
23 Aid flows from OECD DAC countries stood at US$146.68bn in 2015. (OECD, ODA - USD billion (2015)) ONE estimates that developing countries lose US$1 trillion a year through corrupt activity (ONE, Trillion Dollar Scandal, 2014)
25 Global Witness (TCO0018) para 22. DFID’s bilateral expenditure in DRC is estimated at £164m in FY 2016/17 (see Development Tracker - Congo (Democratic Republic), accessed 12 October 2016)
30 National Crime Agency, International Corruption Unit (ICU), accessed 12 October 2016
31 National Crime Agency, International Corruption Unit (ICU), accessed 12 October 2016
32 National Crime Agency, International Corruption Unit (ICU), accessed 12 October 2016
40 Transparency International UK, Empowering the UK to recover corrupt assets: Unexplained wealth orders and other new approaches to illicit enrichment and asset recovery (March 2016) (reissue)
43 Home Office and HM Treasury, Action plan for anti-money laundering and counter-terrorist finance, April 2016
44 Transparency International UK, The new anti-money laundering action plan: good - if it works, accessed 12 October 2016
45 “Biggest reforms to money laundering regime in over a decade”, Home Office News Story, 21 April 2016
46 Transparency International UK, The new anti-money laundering action plan: good - if it works, accessed 12 October 2016
47 Transparency International UK, The new anti-money laundering action plan: good - if it works, 21 April 2016
49 ‘We’re losing $240bn a year to tax avoidance. Who really ends up paying?’ The Guardian, 10 May 2016
52 Transparency International, Anti-Corruption Glossary: Tax Avoidance/Tax Evasion, accessed 12 October 2016
53 Ms Judith Knott (HMRC Director, Corporation Tax International Anti-Avoidance), cited in House of Commons Library Briefing Paper, Tax avoidance: a General Anti-Abuse Rule, 19 April 2016
54 HMRC, Dealing with HMRC - guidance: Tax avoidance: an introduction, accessed 12 October 2016
55 Oxfam, An economy for the 1%: how privilege and power in the economy drive extreme inequality and how this can be stopped (January 2016)
57 ICAI, UK aid’s contribution to tackling tax avoidance and evasion (September 2016) p. iv
58 Companies House, Persons with significant control, accessed 12 October 2016
59 For example, ONE (TCO0023) p. 3; Global Witness (TCO0018) p. 7; CAFOD (TCO0017) para 2.7; Bond Anti-Corruption Group (TCO0016) p. 3; PWYP (TCO0015) para 47
62 Cabinet Office, Anti-Corruption Summit: attendance list, accessed 12 October 2016
63 Cabinet Office, Beneficial ownership: UK Overseas Territories and Crown Dependencies, accessed 12 October 2016
64 International Development Committee, Fourth Special Report of Session 2016–17, UK implementation of the Sustainable Development Goals: Government Response to the Committee’s First Report of Session 2016–17, HC673, p. 3
65 Shining a light on beneficial ownership: what’s happening in the UK and elsewhere? Briefing Paper CBP07616, House of Commons Library, 17 June 2016
66 As outlined in Oxfam, Ending the Era of Tax Havens: Why the UK government must lead the way (April 2016)
67 HMRC, Policy Paper: Country by country reporting (updated), accessed 12 October 2016
69 HMRC, Policy paper: Country by country reporting - updated, accessed 12 October 2016
70 UK Parliament, Finance Bill: Commons remaining stages, accessed 12 October 2016
71 UK moves forward on Country by Country reporting, Tax Justice Network, 6 September 2016
73 European Parliament and Council Directive 2013/34/EU
76 Ministry of Justice, The Bribery Act 2010: Quick Start Guide, p. 3
77 ‘Standard Bank to pay $25m to settle bribery case’, Financial Times, 30 November 2015
78 David Cameron’s speech to the UN, Prime Minister’s Office, 15 May 2013
79 HMG, UK Anti-Corruption Plan (November 2014)
80 Home Office, UK Anti-Corruption Plan, December 2014, para 1.6
82 HM Government, Anti-Corruption Summit - London 2016 UK Country Statement (undated), accessed 12 October 2016
85 Transparency International UK, The Government’s new Anti-Corruption Champion: time for action, accessed 12 October 2016
93 HMG, Progress Update on the UK Anti-Corruption Plan (May, 2016)
96 HMG, UK Anti-Corruption Plan, para 7.15 & 7.16
98 International Development Committee, First Report of the Session 2015–16, UK Implementation of the Sustainable Development Goals, HC673, para 29
99 ‘OECD’s BEPS proposals will not be the end of tax avoidance by multinationals’, Tax Justice Network Press Release, 5 October 2015
100 ICAI, ‘UK aid’s contribution to tackling tax avoidance and evasion: a learning review’, September 2016, p. ii
101 International Development Committee, Fourth Special Report of Session 2016–17, UK implementation of the Sustainable Development Goals: Government Response to the Committee’s First Report of Session 2016–17, HC673, p. 4
102 Transparency International UK, Why we still need an Anti-Corruption Champion - and what more they need to do, accessed 12 October 2016
103 European Parliament and Council Directive 2013/34/EU
106 G20 Summit: PM Commons statement, Office of the Prime Minister, 7 September 2016
107 ‘”Britain and Singapore are natural allies in the global fight against corruption” says Financial Secretary’, HM Treasury (19 September 2016)
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18 October 2016