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.
“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.
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.
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.