Tackling Dirty Money: Dame Margaret Hodge and the Overseas Territories

This article first appeared on the website of the Friends of the British Overseas Territories. https://fotbot.org/tackling-dirty-money-dame-margaret-hodge-loses-patience-with-the-overseas-territories

A couple of All Party Parliamentary Groups have got together to produce a manifesto for the next UK parliament. The manifesto includes a plan to pass legislation requiring the Overseas Territories to ensure that “public registers of beneficial ownership in the Overseas Territories and Crown Dependencies are swiftly implemented with full and free access to company data.”

The manifesto, published in the name of the joint Chairs of the APPG for Anti-Corruption & Responsible Tax, Nigel Mills (Conservative) and Dame Margaret Hodge (Labour), was the latest move in the parliamentary campaign against “Dirty Money”. Published in April, the hard-hitting manifesto says, “Dirty money is a national security threat. It poses deeply harmful and systemic threats to our way of life through the prevalence of fraud and the increase in instances of money laundering underpinning organised crime, including the drug trade and human trafficking. Every year, the UK’s illicit finance problem costs us an estimated £350 billion. That represents almost 15% of our GDP. The City of London and the UK’s network of Overseas Territories and Crown Dependencies continue to act as a home for illicit wealth and a vehicle for economic crime. “

The manifesto is part of an ongoing campaign, by Hodge in particular, and has broad cross-parliamentary support. A pivotal moment was six years ago when Parliament supported an amendment to the Sanctions and Anti-Money Laundering Act 2018, proposed by Hodge and Andrew Mitchell (then a backbench Conservative) to prepare an Order in Council that would require Overseas Territories to introduce publicly accessible registers of the beneficial ownership of companies. Hodge said at the time: “We are, for inexplicable reasons, reluctant to actually meet our rhetoric on money laundering and tax avoidance and financial skulduggery; we allow our overseas territories and crown dependencies – our tax havens – to undermine the security services”.

The Order was published in 2020, but the Government said it would not implement it until the end of 2023. The Government says this deadline is “consistent with both the Act and the Government’s call for all countries to make public registers the global norm by 2023” and that it would allow “sufficient time for such public registers to be initiated”. It said time was needed as not all Territories had the technical ability to introduce them.

In response to a series of questions raised by Hodge in Parliament at the end of 2023, David Rutley, the Overseas Territories Minister, said that work was progressing and that it would be covered by the Joint Communique issued after the next Joint Ministerial Council, but in the end, it wasn’t mentioned. This, to Hodge, is a betrayal of the will of Parliament and she argues that the Order in Council should now be imposed. She said, “This is a scandal for many reasons, not least because this long overdue transparency measure might just help to sink the ‘dark fleet’.” This refers to the armada of oil tankers, of unknown origin, used to breach the sanctions on Russia.

Dame Margaret’s crusade predates the Ukraine war by many years, but she has consistently argued that the lack of financial transparency in the Overseas Territories is a severe national security threat. However, the UK Government has always resisted imposing anything on the BOTs. There has been only one Order in Council since the White Paper governing the relationship between the UK and its overseas territories was published in 2012, and that was an uncontentious move to ensure Russian sanctions were consistent.

The BOTs have now paused progress following a judgement of the EU Court of Justice saying that registers of beneficial ownership may violate the EU’s Charter of Fundamental Rights. For example, The Cayman Finance Minister announced in November that the EU Judgment represented a “material change in circumstance” and that the Beneficial Ownership Transparency Bill going through the Cayman Parliament would not include public access provisions. Access may be granted to certain parties meeting a legitimate interest test. A similar announcement was made by the BVI Government a few weeks later.

In December, the Crown Dependencies jointly announced that they would not make their beneficial ownership registers available to the general public with unrestricted access. They would similarly permit access to information on the registers only to those who can demonstrate a “legitimate interest” in the requested information.

But Hodge is not backing down. Her campaign has led to complaints of constitutional overreach by the BOTs, particularly from BVI, and she is aware of this. But she has said that enacting an Order in the Council should proceed. “Given the role that our tax havens play in the world of economic crime, I think implementing that is sort of priority number one,” she said recently. She has also submitted evidence to the forthcoming parliamentary inquiry asking for the Committee’s support.

She told the Committee, “A World Bank review of 213 corruption cases, from 1980 to 2010, found that in over 70% of the cases, wrongdoers relied upon shell entities to conceal beneficial ownership. These entities were registered around the world, but,…if adding together all of entities registered in the Overseas Territories, the UK is number one on that list. In 2018, Transparency International released a comprehensive investigation spanning three decades of economic crime. Their report identified a total of 237 cases of grand corruption that had been enabled by companies based in the British Overseas Territories. Of these entities, 92% were registered in the British Virgin Islands. In total, the cases identified by Transparency International represented an outstanding £250 billion worth of funds which had been diverted via rigged procurement, bribery, embezzlement and the unlawful acquisition of state assets – all flowing through Overseas Territories. To put this into perspective, the scale of the damage caused by these companies is greater than the whole of the UK’s foreign aid budget over the past 20 years (which amounts to £196 billion).

Hodge is due to stand down at the next election, but her campaign has the support of Parliament, even if the Government and FCDO are resisting implementing the Order in Council. This issue dominated the debate on the Foreign Affairs Committee recommendations in 2019 and is likely to again, with BVI leading the charge. Hodge’s response to cries of constitutional overreach is to say there is more coming: “As the Government strives to rid itself of illicit wealth and economic crime, it is likely that further legislation will be required in relation to Britain’s network of Overseas Territories, meaning that without clarity about the UK’s responsibilities, the same obstacles will exist. The Government must deliver a more streamlined, transparent and less ambiguous constitutional and legislative relationship with the Overseas Territories.” The simple translation is: “You ain’t seen nothing yet.”