LONDON: Leaks from a Panamanian law firm detailing offshore accounts of prominent people are shining a light on the constellation of offshore centers in the last remnants of the British Empire, from Gibraltar to the British Virgin Islands.
The most popular tax haven in the “Panama Papers” was the BVI, where more than 113,000 of the nearly 215,000 companies cited were incorporated, according to the International Consortium of Investigative Journalists, which coordinated media coverage of the documents.Anguilla was also among the 10 most-used offshore havens for law firm Mossack Fonseca & Co.’s clients.
The revelations put Britain in a difficult position. The empire is long gone, but London, to varying degrees, still exercises control over 14 overseas territories and three Crown dependencies. In many of them, offshore finance is the chief industry.
British Prime Minister David Cameron has pitched the U.K. as a global champion in the fight against tax evasion and avoidance. In May, Mr. Cameron plans to host an international anticorruption conference focused on improving financial transparency.
Opposition lawmakers have called for the government to rein in the territories and dependencies.
“Surely there has to be an observance of U.K. tax law in those places,” said Jeremy Corbyn, leader of the main opposition Labour Party.
A survey taken just before the allegations broke showed that Britons mainly agree. Over three-quarters of those polled by ComRes said the U.K. should ensure its territories are more transparent.
The U.K. government has rejected criticism that it hasn’t done enough to crack down on tax havens, saying it has led the way on tackling tax evasion and avoidance. Britain has told its territories that they will be required to publish central registers of beneficial ownership, or the actual owners of an asset that may be hidden inside paper companies. The government said it was close to agreement with Bermuda and Gibraltar on this and that it hoped to reach agreement with the Cayman Islands and British Virgin Islands by May.
The government has also said it has closed loopholes and changed the tax code to tighten up on tax havens. It said the changes have raised more than £12 billion ($17 billion) in public revenue.
Heaping further pressure on Mr. Cameron, U.K. media outlets reported that his late father, as well former and current lawmakers in his Conservative Party, used the Panamanian law firm. Mr. Cameron said on Tuesday that he, his wife and his children don’t benefit from any offshore funds or trusts. A spokesman added Wednesday that they wouldn’t benefit in the future.
Mossack Fonseca said this week that its operations were “beyond reproach.”
The U.K. has 14 overseas territories that include a slice of Antarctica and the remote and tiny south Atlantic island of Tristan da Cunha. The territories also include some of the world’s leading offshore centers: the Cayman Islands, Turks and Caicos Islands, Bermuda, Anguilla, Gibraltar and the British Virgin Islands.
The three dependencies—Jersey, Guernsey and Isle of Man—are essentially self-governing, but Britain represents them in international matters and provides their citizens with passports and the U.K. currency. They have become major centers for the listing of funds and companies.
That doesn’t mean that these companies and funds have broken laws. There are legitimate reasons companies and individuals list assets offshore.
The government of the BVI said that it would examine any accusations of misuse of structures listed on the island. “The BVI plays a lawful, legitimate and important role in facilitating capital flows and foreign direct investment around the globe,” the government said in a statement.
The territories and dependencies say their existence also benefits the U.K., providing pools of capital that flow into the country. The dependencies provided net financing to U.K. banks of $332.5 billion in the second quarter of 2009, according to a report commissioned by the U.K. Treasury.
The Organization for Economic Cooperation and Development, an international body that has helped coordinate the global fight against tax evasion, says many of these havens have made progress toward transparency, though it has singled out Vanuatu as one that hasn’t.
Still, most experts don’t believe the U.K. will force greater reform on its territories and dependencies. Legally, Britain can force its will on the territories. In 2000, it told territories to decriminalize homosexuality, and in 2009 it reimposed direct rule on the Turks and Caicos Islands amid allegations of government corruption.
But some of these territories were encouraged by Britain to turn to financial services in the 1960s and 1970s, given there was little other economic activity and London didn’t want them dependent on U.K. funds.
Over half of the gross domestic output of Cayman and Jersey come from financial services, with most others relying on the sector for over a quarter of their GDP, according to the Treasury commissioned report. That means that the U.K. will likely hold back from pushing reforms onto them.
Geoffrey Robertson, a prominent human-rights lawyer, said that Mr. Cameron has made some progress in improving transparency but that he still has more to do to crack down on tax havens.
“Britain is really the sponsor of a great deal of tax avoidance,” Mr. Robertson said.