This week David Cameron has an opportunity to strike a blow for popular capitalism. On Thursday he will be hosting an anti-corruption summit in London which happens to coincide with one of the biggest financial and political scandals of the century so far. The Panama Papers have exposed the hidden underbelly of the global financial system, which in turn has embarrassed many rich and powerful individuals, among them heads of state and senior members of the Chinese politburo. Understandably, these scandals received most of the early headlines.
The public anger centres on the sense that there is one rule for the rich and another for the rest. But the leak also reveals how footloose finance moves faster than the ability of law and order to keep pace. Capitalism is under fire and the public’s faith in our economic system is going to continue to be shaken if they think rich elites are using their wealth to either bend taxation rules or conduct outright illegal activity.
The sad truth is that UK-backed territories are at the source of much of this. This week the Panama Papers whistle-blower put it bluntly, describing British tax havens as “unquestionably the cornerstone of institutional corruption worldwide”. Half the companies in the leak are registered in the notoriously secretive British Virgin Islands.
A new revelation from the Mossack Fonseca files has shown the latest victims of the Panamanian law firm’s clients to be not just national coffers but elderly UK shareholders. It turns out that more than a thousand UK investors, many of them elderly, were swindled out of £70m by a network of fake stockbrokers based in tax havens around the world. The work of convicted fraudster Jeffrey Revell-Reade, it was Mossack Fonseca that hosted the registered offices of two of these front companies.
Richard Walker has written for CapX about the merits of the shareholder economy, ignited by Margaret Thatcher’s reforms in the 1980s. Because of these, individual members of the public are invested – literally – in the fortunes of companies and share in the profit and risk of business, erasing the division between capital and labour. Retail investors need all the encouragement they can get, not be defrauded by shady companies hiding in Britain’s offshore jurisdictions.
The good news is David Cameron knows it’s a problem and he has the power to address it. In his 2013 speech at Davos he said:
“Let’s be clear: speaking out on these things is not anti-capitalism, it is not anti-business. If you want to keep tax rates low you’ve got to keep taxes coming in. When some businesses aren’t seen to pay their taxes, that is corrosive to the public trust. When shadowy companies don’t play by the rules, that drives more box ticking, more regulation, more interference and that makes life harder for other businesses to turn a profit.”
The majority of the most secretive tax havens are ours. They are called Crown Dependencies and British Overseas Territories for a reason. To shine a light into their murky depths all the Prime Minister needs to do is hold them to the same rules he’s about to apply to the UK, namely a public register of the ultimate beneficial owners of registered companies. This would help identify the individuals hiding behind anonymous corporate vehicles used for all manner of illegal activity from drug dealing to money laundering. The UK public register, which Cameron advocated for personally, comes into force next month. If it’s good enough for us, why not our territories?
As well as having the power to extend the same scrutiny to our tax havens, David Cameron has the wind of public opinion at his back. In 2014 the Daily Mail reported that 85% of the British public believed off shore corporate tax avoidance to be morally wrong even if it was technically legal. The Panama Papers leaks will only have added fuel to the fire. Cameron also has the support of his party in tackling the secrecy which underpins much of the corrupt practice taking place. In a recent poll , 87% of Conservative voters said that “all companies, whether they are registered in the UK or its Overseas Territories, should be legally required to reveal their ultimate owners.” This figure was higher among Tory voters than the national average. Maybe Conservatives instinctively understand that good business relies on transparency.
Australia and South Africa have already announced public registers of their own and calls have come from developing countries like Nigeria, which, as Cameron noted to the Queen this week, are held back by corruption. Ukraine moved even quicker than the UK, knowing they could never clean up politics or business without it.
The UK Prime Minister won’t have a better chance than this summit to bring much needed transparency to our financial system and end the UK’s role in facilitating corruption worldwide.
In her famous Downing Street speech Margaret Thatcher referenced the words of St Francis of Assisi:
“Where there is discord, may we bring harmony. Where there is error, may we bring truth. Where there is doubt, may we bring faith, and where there is despair, may we bring hope.”
On Thursday David Cameron has the perfect opportunity to deliver on another line from St Francis’ original prayer: Where there is darkness, may we bring light.