An activist wearing a Panama hat holds fake money while demanding greater trasparency in new legislation following the ongoing Panama Papers affair. Sean Gallup/Getty Images
This month marked a year since the world found out about the eleven
million documents from Panamanian law firm Mossack Fonseca leaked to
German reporter Bastian Obermayer. The Panama Papers revelations
implicated a host of senior politicians across the world from Bashar
al-Assad to Vladimir Putin, and led to the resignation of the Prime
Minister of Iceland. They also raised serious questions about the role
of the UK’s Overseas Territories in the global financial system,
especially that of the British Virgin Islands (BVI) which was involved
in more than half of the transactions described in the leaks.
A year on from the Panama Papers, what progress has been made? Well today, the Lords will be voting on the Criminal Finances Bill which
aims to stop tax evasion, corruption and money laundering. This new
law is an opportunity to extend to the UK’s Overseas Territories the
same rules on financial transparency that apply to the City of London.
The UK’s offshore financial centres have made a business model out of
obstructing transparency and the free flow of information that makes
markets work, providing a haven for criminality, corruption and
As every student of capitalism knows, the free flow of information is
vital to the effective functioning of markets. It was Nobel-winning
Friedrich Hayek who rigorously demonstrated that only when markets
embraced information-openness did they work at their best. Monopolies
seek to suppress information as much as competition. From hedge fund
managers to the individual picking their stocks and shares ISA – and
therefore personally invested in the prosperity of the market system –
they can only make their best decisions when information flows freely.
Financial secrecy is a direct threat to popular capitalism.
Poor transparency is not just a theoretical problem. It has real world
consequences that are all too obvious. Andy Street, the Chief
Executive of John Lewis (now Conservative candidate to be Mayor of the
West Midlands) often criticised the lack of a level playing field with
rival Amazon, notorious for its systematic tax avoidance structures.
Capitalism’s equal opportunity credentials take a hit when bloated
incumbent firms pay millions so that armies of accountants can
construct intricate offshore structures to avoid tax that smaller,
insurgent, rivals have no option but to pay. The Federation of Small
Businesses has raised their concerns about an unfair playing-field
that disadvantages the entrepreneur and small business and lets
multinationals play by different rules.
In the US, a study last year from the Public Interest Research Group
showed that small businesses have to shoulder, on average, an extra
$5,128 in taxes to make up for the revenue lost due to the abuse of
offshore havens by multinationals.
Theresa May has set herself up as the Prime Minister to restore public
confidence in politics. Manifesto pledges are to be honoured, even if
it takes an embarrassing Budget U-turn to do so, and referendum
results are to be delivered. She’s also shown signs of wanting to
restore public confidence in capitalism and its ability to work for
all. At the last Tory Party Conference she declared: “An economy that
works for everyone is one where everyone plays by the same rules.”
So it’s surprising that the government is putting up with a two-tier
system with one set of rules for the City of London, and another set
for the Overseas Territories. The BVI and their ilk are an obstruction
to capitalism and equal opportunity yet the UK continues to tolerate
their market-distorting level of secrecy. If transparency is good for
the UK, then it should be good enough for her Overseas Territories
Joe Ware is a journalist and writer at Christian Aid.