British overseas territories, including the Cayman Islands and Bermuda, will be forced to lift the veil of secrecy over the ownership of companies based there after the UK approved radical new measures to tackle money-laundering and corruption.
The Caribbean territories have responded angrily to the measures, which will force them to make public the owners of all their regitered companies by the end of 2020, in a significant victory for financial transparency campaigners.
Robert Briant, acting chairman of BVI Finance, which represents the British Virgin Islands’ financial industry, said the UK had “shot itself in the foot”. The move would bring into question “the viability” of the BVI’s financial sector, he added.
The measures were first proposed by David Cameron, the former prime minister, five years ago amid an international wave of political anger over tax avoidance by big companies and wealthy individuals.
But the Conservative government only accepted the transparency measure after a group of its own MPs teamed up with the Labour opposition to amend the anti-money laundering bill being debated in parliament this week.
Global Witness, a campaign group, said the UK measure was “a huge win in the fight against corruption, tax dodging and money laundering”.
Oxfam also welcomed the move, saying: “Ending secrecy in UK-linked tax havens will help developing countries to recoup billions of lost revenue that could pay for much-needed schools and hospitals.”
But Caribbean governments, many of whose economies depend on financial services and often involve low-tax regimes, accused London of imperial over-reach, saying it violated the sovereignty of their own parliaments.
“We vehemently reject the idea that our democratically elected government should be superseded by the UK parliament,” said the BVI government.
David Burt, Bermuda’s premier and finance minister, said the move signalled “a retrograde step” for relations between the UK and overseas territories.
“It is regrettable that we see this ‘about face’ which fails to acknowledge this long history of enshrined democratic freedoms,” Mr Burt added. “We will take necessary steps to ensure our constitution is respected.”
The measure does not apply to Britain’s crown dependencies: Jersey, Guernsey and the Isle of Man.
The Foreign and Commonwealth Office in London was originally opposed to the measure, arguing that imposing public registers on overseas territories would create a “potential constitutional conflict” with them and “disenfranchise their elected representatives”. But the government backed down once it was clear the change had sufficient backing in parliament.
Campaigners have argued that public registers can be used by journalists and other interested parties to uncover tax evasion and other malfeasance, pointing to investigations triggered by the leak of the so-called Panama Papers in 2015.
James Duddridge, a Conservative MP opposed to the measure, predicted companies registered in Britain’s overseas territories would respond by shifting to secretive jurisdictions such as the US state of Delaware.
But Helen Goodman, a Labour MP backing public registers, said overseas territories were allowing “the corrupt to live in comfort”, and that US senators were keen to crack down on Delaware.
She disputed the legislation was an attack on Caribbean sovereignty, noting that money-laundering was a foreign policy issue, within Westminster’s competence.
Currently four overseas territories have set up registers of who are the beneficial owners of companies, but the information is only available on request to British law enforcement agencies.
Information can be obtained “within one hour in urgent cases”, said Foreign Office minister Alan Duncan.
The government had proposed a compromise measure under which Britain’s overseas territories would only have to introduce public registers once such arrangements become the global norm.
But John Bercow, the Speaker of the House of Commons, did not allow the proposal to be debated, pointing out that it had only been put forward on Monday afternoon and published on Tuesday morning.
The UK measure on public registers had been pushed by Margaret Hodge, a former Labour chair of the Commons public accounts committee, and Andrew Mitchell, a former Conservative minister, who rallied almost 20 Tory MPs to defy the government.
Mr Mitchell said overseas territories were “central to [the] nefarious activity” of money-laundering through the UK, which the National Crime Agency estimated at £90bn a year.
The sanctions bill also includes powers for enhanced sanctions against those suspected of involvement in human rights abuses.
The government has agreed to the powers following the Salisbury nerve agent attack in March, which ministers have blamed on Russia.
But in a letter to Mr Mitchell, Fabian Picardo, chief minister of Gibraltar, said: “I cannot emphasise enough to you how unacceptable this is.”
Mr Picardo described the sanctions as “more than retrograde” and an “unacceptable act of modern colonialism”.