Direct rule: UK gov’t urged to consider ‘nuclear option’

Jeremy Corbyn

The U.K. government should consider imposing direct rule on its overseas territories and Crown dependencies if they fail to comply with U.K. tax laws, according to Labour Party leader Jeremy Corbyn.

Jeremy Corbyn
Labour Party leader Jeremy Corbyn

“If the local government is simply going to condone this level of tax avoidance and tax evasion of money that has been made in Britain, then that’s something that has to be considered,” Mr. Corbyn told the BBC on Tuesday.

“They’re not independent territories,” added the Labour leader. “They are self-governing, yes, but they’re British Crown dependent territories. Therefore, surely, there has to be an observance of U.K. tax law in those places.”

The view was first expressed by former Secretary of State for Business Vince Cable on BBC’s “Newsnight” television program. “We can’t send gunboats these days but we can take the small territories under direct rule,” the Liberal Democrat politician said.

“The Cayman Islands is not Panama,” Premier Alden McLaughlin said in response, speaking at the Wednesday start to the Internet Marketing Association’s Impact16 conference.

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Addressing more than 100 people gathered for the marketing conference, the premier defended Cayman amidst the growing Panama Papers scandals and the debate over creating a beneficial ownership registry in Cayman.

“There are some misinformed politicians in the U.K.,” he said. “While the world’s attention has been on places like the Cayman Islands, insufficient attention” has gone to places like Panama that is now the center of a massive data leak documenting how people hid money offshore.

Criminals looking to hide their money, the premier said, “will not readily find a home here.”

British media lapped up the suggestion that direct rule could be used “to put an end to tax havens” among the 14 British territories.

The last time the U.K. took direct control of one of its territories was in the Turks and Caicos in 2009 after allegations of widespread government corruption.

However, former Conservative attorney general Dominic Grieve told The Independent newspaper that imposing direct rule would be “a bit of a nuclear option” and that the autonomy of Britain’s overseas territories should be respected.

“If we’re going to destroy the economy of the British Virgin Islands because we prevent them from providing banking services at all then we’re going to destroy the livelihood of its inhabitants,” Mr. Grieve said later on BBC Radio 4’s Today program.

“We need to consider carefully the consequences of [doing that]. If we were to follow the suggestion that we should effectively remove the autonomy of overseas territories to run their lawful financial services I don’t think we are acting properly towards them. They are entitled to make their own decisions in this.”

Also speaking on BBC radio, Anthony Travers, the chairman of the Cayman Islands Stock Exchange, said Mr. Corbyn’s call to impose direct rule in crown territories was “hopelessly misinformed,” pointing out that Cayman legislation “provides for complete tax transparency for HMRC [Her Majesty’s Revenue and Customs] and the IRS [Inland Revenue Service] and for other EU tax authorities and indeed for law enforcement.”

“So there is no secrecy with regard to transactions in the Cayman Islands whatsoever,” in contrast to Panama and certain U.S. states, Mr. Travers said.

“Tax haven used in the pejorative sense of the non-disclosure of information is a redundant expression when it comes to the Cayman Islands.”

Mr. Travers then addressed the direct rule question again on CNBC saying: “You would require a real international crisis and real fundamentals before you could revoke the constitutional position. I think there would be real difficulty with that because it would be tantamount to 19th century colonialism all over again.”

Mr. Corbyn told the BBC that Prime Minister David Cameron had been “pussyfooting” on tax matters. Asked what action the U.K. government should take, Mr. Corbyn said: “Say to the governments, those that administer, Cayman Islands, British Virgin Islands and a number of other places, hang on, you are a government of a British dependent territory, a crown territory, you must obey U.K. tax law, you must not become a harbor for tax avoidance and tax evasion.”

“Either those governments comply or a next step has to be taken,” he added.
Beneficial ownership

Anti-corruption campaigners Global Witness said the U.K. has the power to require its overseas territories to create public registers of the real owners of companies.

“The U.K. has intervened before when the issue was important enough – it should do so again now,” said Robert Palmer, campaigner at Global Witness.

The organization cited direct rule in the Turks and Caicos Islands and the abolishment of the death penalty and the decriminalization of homosexuality in its overseas through an order in council in 1991 and 2000 as precedents for such a step.

At the Joint Ministerial Council Meeting between U.K. and Overseas Territories government representatives in December 2015, Cayman and other U.K. territories agreed they would implement centralized beneficial ownership registers or “similarly effective systems,” but that access to these systems would not have to be public.

At the same time, Minister of Financial Services Wayne Panton announced that instead of a central register, government is exploring a centralized platform that would enable government officials to access and interrogate the beneficial ownership databases of all financial service providers in Cayman.

Meanwhile, discussions with the U.K. on whether this would constitute a “similarly effective system” are ongoing.

The Cayman Islands Ministry of Financial Services issued a statement Tuesday, stating that during the negotiations with U.K. officials about an agreement on the beneficial ownership issue, “the U.K. reiterated its previous statements that it could impose its preferred approach [of a centralized register] through legal means.”

However, the ministry said, “based upon the advanced nature of the discussions to date, we believe it is possible to agree on an Exchange of Notes that is in line with current global standards.”

The U.K. is planning to have similar agreements with all overseas territories in place before the prime minister’s Anti-Corruption Summit in May.

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  1. Idle posturing that will not happen while so many rich and powerful in the UK and elsewhere, hiding behind nominee companies, hold their wealth in zero tax jurisdictions.
    The UK Chancellor and Prime Minister have said they want to see transparency and registers to show the ultimate beneficial ownership of such companies but this is nothing but a sop to the chattering classes and they do not intend anything will change in BVI or Cayman, while they hide their wealth in and through such places.
    They certainly don’t have the will to go after their citizens for tax the way the US authorities now routinely do with the help of the Cayman authorities.
    The thought of this nuclear option will not stop me from sleeping tonight.

    • While I am a strong supporter of Direct Rule, it will not happen, due to both political, and economic reasons too extensive to fit in this reply. Let me, however, opine that the appropriate Nuclear Option for the UK, with regard to the Cayman Islands is Independence. Give the islands their freedom, please, to sink or swim, in the offshore world, on their own. watch how fast the United States sanctions it.

  2. I will say very little on this, because my thoughts are, that every thing good to eat is not good to talk.
    However first we want to think about who we are, and if we want to remain who we are or take a leap of faith. The UK putting pressure on Cayman in this regards is not going to go down well. Remember “Money walks, and money talks,” and don’t be fooled, Cayman has some very “pretty smart people” who have money and who do not have money.
    So my suggestion is that all the smartness is put together in a “Coconut Shell” and do not be afraid to do what you have to do to protect your money and your island. We are not Panama, end of story.
    When taking into consideration the foreign people who live among us, I admire the British, and that is because in “My dealing with them I have found them to be straight forward even if at times they seem selfish.” and telling it like it is, I say believe it or not for the love of “Mango Season” I cannot understand why the UK is just trying in every way to sink this island. Is it outside influence from another Country? You be the judge.

  3. For the Crown to fully reclaim its jurisdictions harkens back to the days of Britannia. I’d expect a “Boston Tea Party” in George Town should the UK go that direction. The irony, Cayman isn’t the problem but God forbid others look in the mirror. The US should rein in states like Delaware and Nevada, known and growing global tax abusers. Just because the Cayman Islands doesn’t use the same taxing scheme as other nations doesn’t make it a tax haven. Operating a fair, broad and low tax system doesn’t make Cayman guilty of anything. Don’t back down Cayman and conform to other national tax schemes that don’t work and drive businesses away. If the US and UK tax systems are failing, how is that a Cayman problem? Complying to stop money laundering and crime … done. Fixing other nation’s taxing problems … not a Cayman issue.

  4. What else would you expect from a Commie like Corbyn. Even his own party can’t stand his extreme left wing views. They consider him an election liability.

    As for taking direct rule and closing down the financial industry. Well I certainly hope the UK is prepared to send us about $1 billion a year to make up for our lost tax revenue.

    As David correctly said, the US should take care of its own tax haven states, like Nevada and Delaware, before they attack us.
    But of course it has always been US policy to go after small targets they can push around. Especially if those smaller targets can’t vote in US elections!

  5. Oh Norman Linton, you do make me laugh … Corbyn a Commie! I think the term you were searching for in vain is traditional socialist (and, yes, there is a difference).
    Send Cayman £1Bn – no chance … more likely cast Cayman adrift as a serious oncost that has no value to the UK other than a place for the rich and powerful to hide their wealth in a no tax jurisdiction while ordinary UK citizens pay up to 40% tax. Why, you might ask how many Caymanians, in recent years (2007-2014) have served in Her Majesty’s Armed Forces and that will give you an indication of the worth to the UK. (BTW: the answer is zero!)
    If you ask the average man and woman in the street of the UK if they would willingly prop up a zero tax regime and the answer will be a resounding NO.

  6. John I am not an expert in constitutional law but I believe that if the UK takes these islands under direct rule it means they will be just as much a part of the UK as Wales.
    They would have an absolute obligation to subsidize us just as they do Wales.
    Which of course is why Direct Rule is just a silly threat from a politician so left wing that most of his MPs can’t stand him.

  7. Hi Mr Linton. Of course the UK would subsidise Cayman just as soon as Cayman has a taxation system comparable to the UK – I think 20% is the going rate with 40% on earnings above KYD50,000. Oh and add in Capital Gains and Corporation tax and 20% VAT. Once cayman is delivering the required tax revenues, then there will be a subsidy.
    Mind you, there wouldn’t be much to tax as all the financial services will have left and the tourists would cease to come. A few conch fisherman perhaps?