Suspect Wealth – A Risk to Stability, Development and Sustainability: The case of Bermuda, the Turks and Caicos Islands, and Anguilla Dominic William Rupert Thomas-James Queens’ College, University of Cambridge This dissertation is submitted for the degree of Doctor of Philosophy July 2018 Supervised by Professor Barry Rider OBE ii DECLARATION This dissertation is the result of my own work and includes nothing which is the outcome of work done in collaboration except as declared in the Preface and specified in the text. It is not substantially the same as any that I have submitted, or, is being concurrently submitted for a degree or diploma or other qualification at the University of Cambridge or any other University of similar institution except as declared in the Preface and specified in the text. I further state that no substantial part of my dissertation has already been submitted, or, is being concurrently submitted for any such degree, diploma or other qualification at the University of Cambridge or any other University or similar institution except as declared in the Preface and specified in the text. It does not exceed the prescribed word limit for the relevant Degree Committee. DOMINIC THOMAS-JAMES iii Suspect Wealth – A Risk to Stability, Development and Sustainability: The case of Bermuda, the Turks and Caicos Islands, and Anguilla Dominic William Rupert Thomas-James Abstract In the global financial architecture, British Overseas Territories in the Caribbean and North Atlantic are of material significance. Post-colonialism, these relatively homogeneous, archipelagic territories with financial centres have been the recipients of soft-domination by metropolitan interests. Through their inalienable right to self-determination and pursuit of autonomous governance and financial independence, many developed offshore financial centres to achieve sustainable development, with UK encouragement. Recently, and exacerbated by the Panama and Paradise papers, these jurisdictions are subject to increased pressure and ongoing perception that their financial centres facilitate criminality by harbouring suspect wealth, due to lack of transparency. This doctoral thesis concerns suspect wealth as a product of economic misconduct like corruption, money laundering, tax evasion, fraud, and the increasingly controversial tax avoidance. It concerns suspect wealth derived from overseas or domestic misconduct, given law enforcement’s response is typically the same irrespective of origin. It focuses on three Overseas Territories: Bermuda, the Turks and Caicos Islands, and Anguilla. Through secondary research into their legal, regulatory and compliance regimes, it sets out to answer three main questions: How viable are international standards on suspect wealth in the context of these three jurisdictions? How willing and able are these jurisdictions to comply with international standards on suspect wealth? And, how can they better prevent their financial centres accepting suspect wealth? Given these standards are envisaged at international levels, the dissertation also considers whether a one-size-fits-all approach to the territories is appropriate. Proceeding on the basis that receipt of suspect wealth is inimical to development, it also discusses its impact on development for both countries from which wealth transits, as well as the overseas territories themselves, many having fundamental development concerns. The research finds that universalism is a desirable aspect of the modern approach to tackling suspect wealth. However, a one-size approach is generally inappropriate for these jurisdictions. Contextual issues pertaining to capacity, resources and underlying considerations like the offshore confidentiality norm, mean that some standards are unviable – or that existing frameworks may be viable alternatives. On a critical evaluation of their legislation, international cooperation and reviews, it is suggested all territories demonstrate willingness to comply with international standards. However, their ability and levels of compliance vary. In summary, Bermuda demonstrates the greatest level of compliance and adherence. Turks and Caicos Islands’ compliance is a product of the last decade’s legislative and institutional reforms following constitutional crises. It is compliant in many ways, but aspects are still under development. Anguilla’s response is the least developed vis-à-vis legislation and institutions, however key anti- money laundering areas have received positive review internationally. This work also shows that fundamental legal protections, like privacy, are often eschewed in favour of transparency standards, some of which remain undefined. The research suggests recommendations to legislators and policymakers aimed at enabling them to better prevent suspect wealth entering their financial centres. In acknowledging the facilitatively harmful role that can be played by these territories, this work draws upon evidence of implication in international cases which indicate a less positive view of the territories. Notwithstanding this, a purpose of this work is to question whether the degree of criticism that these, and other, small jurisdictions have encountered is warranted in light of their apparent willingness to engage in the enactment and administration of internationally- accepted standards and legislation, and cooperate with international mechanisms and institutions. In this regard, the dissertation approaches a series of important issues for development and hopes to facilitate a more constructive, meaningful discussion. iv ACKNOWLEDGMENTS First, I wish to thank my supervisor, Professor Barry Rider OBE, for his unstinting support and supervisory guidance in writing this thesis. His vision for facilitating meaningful international cooperation and deeper understanding of economic misconduct issues has greatly inspired this work. I am most grateful for his mentorship, belief in me, and friendship. Second, I wish to thank Sir Ivan Lawrence QC, who has been a source of great encouragement and who called me to the Bar in 2016. Third, my dear parents, Sarah and Rupert, who have given me the profound gift of education and the encouraging wisdom and motivation to pursue my PhD at Cambridge. Their unwavering love, support and engagement with my doctoral work has been truly appreciated and I am proud to have shared this experience with them. Fourth, my partner, Margarita whose love and companionship has resolutely motivated me in writing this thesis. I am grateful for her steadfast intellectual and dialectic support. Finally, my colleagues and friends at Queens’ College, Cambridge and the Centre of Development Studies, thank you for your support and for providing an unparalleled intellectual environment in Cambridge in which to conduct this doctoral research. v ABBREVIATION REFERENCES AC35 The 35th America’s Cup AML Anti-Money Laundering ARBI Anguilla Residency by Investment BDA Business Development Agency (Bermuda) BEPS Base Erosion and Profit Shifting BMA Bermuda Monetary Authority BVI The British Virgin Islands C Compliant (FATF) CD Crown Dependencies CFATF Caribbean Financial Action Task Force CFT Counter Financing of Terrorism CRS Common Reporting Standard CSP Corporate Service Provider DD Due Diligence Deb Debate (UK Houses of Parliament) DfID Department for International Development (UK) DNFBP Designated Non-Financial Businesses and Professions DPP Director of Public Prosecutions DTC Double Taxation Convention ECCB Eastern Caribbean Central Bank ECHR European Convention on Human Rights EOI Exchange of Information EU European Union FAC Foreign Affairs Committee (UK) FATF Financial Action Task Force FCO Foreign and Commonwealth Office (UK) FCPA Foreign Corrupt Practices Act (US) FI Financial Instructions (Bermuda) FIA Financial Intelligence Agency FSC Financial Services Commission FSI Financial Secrecy Index GDP Gross Domestic Product GDPR General Data Protection Regulation HC House of Commons HMRC Her Majesty’s Revenue and Customs (UK) IBC International Business Company ICIJ International Consortium of Investigative Journalists ICRG International Co-operation Review Group IMF International Monetary Fund LC Largely Compliant (FATF) MER Mutual Evaluation Report (FATF) ML Money Laundering MLA Mutual Legal Assistance MOSSFON Mossack Fonseca MP Member of Parliament NAO National Audit Office (UK) NC Non-Compliant (FATF) NCA National Crime Agency (UK) NGO Non-Governmental Organisation NRA National Risk Assessment OAD Overseas Association Decision OECD Organisations for Economic Co-operation and Development vi OFC Offshore Financial Centre OT Overseas Territory PAC Public Accounts Committee (Anguilla) PC Partially Compliant (FATF) PDM People’s Democratic Movement (TCI) PEP Politically Exposed Person PLP Progressive Labour Party (Bermuda) PNP Progressive National Party (TCI) PSC Persons with Significant Control POCA Proceeds of Crime Act SAMLA Sanctions and Anti-Money Laundering Act SAR Suspicious Activity Report SFO Serious Fraud Office (UK) SIPT Special Investigation and Prosecution Team (TCI) STEP Society of Trust and Estate Practitioners TCI Turks and Caicos Islands TF Terrorist Financing TI Transparency International TIEA Tax Information Exchange Agreement TJN Tax Justice Network UK United Kingdom UKPC United Kingdom Privy Council UNCAC United Nations Convention Against Corruption UNODC United Nations Office on Drugs and Crime US United States of America UWO Unexplained Wealth Order 1MDB 1 Malaysia Development Berhad vii For Sarah and Rupert viii TABLE OF CONTENTS Declaration ii Abstract iii Acknowledgments iv Abbreviation References v Dedication vii Chapter 1 Introduction 1 1.1 Suspect Wealth: An Introduction 1 1.2 Research Questions 5 1.3 Methodology 5 1.4 Overview of Conclusions 7 1.5 Contributions to Research 8 1.6 Background Concepts 10 1.6.1 Integrity Objective – A Starting Point 10 1.6.2 Conflations and context 11 Chapter 2 Concerns about Economic Misconduct, Suspect Wealth and Development 16 2.1 Introduction 16 2.2 International Concerns and Impact on Development 18 2.2.1 Concerns about Corruption and Development 26 2.2.2 Concerns about Money Laundering and Development 29 2.2.3 Concerns about Tax Evasion and Avoidance 34 2.3 Economic Misconduct: Ambivalence 39 2.4 Attitudes to the City of London 46 2.5 Summary 47 Chapter 3 The British Overseas Territories and Tax Havens: Sunny Places for Shady People? 49 3.1 Jurisdictions Under the Microscope: Offshore Financial Centres 49 3.2 The British Overseas Territories 54 3.2.1 Law in the Overseas Territories 57 3.2.2 Importance of the Overseas Territories 58 3.3 Sunny Places for Shady People? 63 3.4 Capacity Issues in the Overseas Territories 70 3.5 Overseas and Crown Dependencies: The differences 71 3.6 Selected Jurisdictions: Introductory Statistical Comparators 72 Chapter 4 Bermuda 75 4.1 Bermuda: An Overview 75 4.2 Economy and Development as an Offshore Financial Sector 78 4.3 Bermuda’s Role in Economic Crime and Suspect Wealth 82 4.4 Bermuda – More Sinn’d Against Than Sinning? 87 4.5 Harmful Tax Practices and the Court of Public Opinion 91 4.6 Bermuda’s Response to Suspect Wealth 94 4.6.1 Beneficial Ownership Regime and Company Law 94 4.6.2 AML Regime 98 4.6.2.1 Compliance with FATF Recommendations 103 4.6.2.2 National Risk Assessment 104 4.6.3 Anti-Bribery Regime 106 4.6.4 Tax Information Exchange and Cooperation 109 4.6.5 Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports 112 4.6.6 Economic Substance Legislation 113 4.7 Remaining Social Concerns – Another Side of the Tax Haven Story? 114 4.8 Summary 116 ix Chapter 5 The Turks and Caicos Islands 118 5.1 TCI: An Overview 118 5.2 Economy and Development as an Offshore Financial Centre 122 5.3 Domestic Corruption and Impact upon Development 124 5.4 TCI’s Offshore Financial Sector and its Role in International Suspect Wealth 131 5.5 TCI’s Response to Suspect Wealth 134 5.5.1 Mutual Legal Assistance 134 5.5.2 R v Misick and Others 135 5.5.3 Anti-Bribery Regime 138 5.5.4 AML Regime 142 5.5.5 Company Law Reform, Beneficial Ownership and Transparency 148 5.5.6 Civil Recovery Programme 150 5.6 Natural Disasters and Development Concerns 152 5.7 Characterising the UK’s Relationship with TCI 154 5.8 Summary 157 Chapter 6 Anguilla 159 6.1 Anguilla: An Overview 159 6.2 Anguilla’s Development as an Offshore Financial Centre 162 6.3 Anguilla’s Role in International Economic Crime 163 6.4 Anguilla’s Response to Suspect Wealth 170 6.4.1 AML Regime 170 6.4.2 Regulatory Environment 173 6.4.3 Beneficial Ownership, Transparency & Company Law Reform 174 6.4.4 Anti-Bribery Regime 177 6.5 Remaining Legal Considerations 180 6.6 Development Concerns 182 6.7 Summary 184 Chapter 7 Privacy, Confidentiality and Increasing Transparency 185 7.1 Introduction 185 7.2 Privacy: A Right? 185 7.3 Confidentiality and Privacy in the Context of Financial Affairs 188 7.3.1 Confidentiality 189 7.3.2 Legal Privilege 189 7.3.3 Confidentiality Norm in Offshore Financial Centres 191 7.3.4 Bank Secrecy 195 7.3.5 Confidentiality in Financial Matters and its Limits 196 7.3.6 Transparency and the ‘Nothing to Hide’ Conjecture 197 7.4 International Standards for Increasing Transparency: Beneficial Ownership Information and Exchange 198 7.4.1 Section 51, SAMLA 200 7.4.2 International Positions on Beneficial Ownership Registers 202 7.4.3 The UK’s Register 204 7.5 Remaining Paradoxes 207 7.6 Implications for Future Political and Governance Concerns 208 7.7 Summary 210 Chapter 8 Concluding Remarks 212 8.1 Summary of Arguments and Conclusions 212 8.2 Issues for Further Consideration and Recommendations 220 Appendices 230 Appendix I 230 Appendix II 231 Appendix III 235 Bibliography 238 1 CHAPTER 1 INTRODUCTION This chapter introduces the dissertation’s theme, relevance of the subject, and its research aims. It poses the research questions and sets out the methodology and tools used in dealing with the issues and answering these questions. Other important background concepts will be noted. 1.1. Suspect Wealth: An Introduction In the field of development studies, much has been written on the cases and causes of the world’s poorest. Whether for the endeavour of eradicating poverty, housing more people, building better roads and schools, striving for legitimate governance, or creating business links transcending cultural borders: the field is as broad as it is long. Epitomising the interdisciplinary nature of development studies, I come to this field as a lawyer and criminologist interested in economic misconduct. The subject of financial crime, or ‘white- collar crime’1 is somewhat present in the field’s discourse. A good example is recent work undertaken by departmental colleagues on corruption’s impact on international development.2 However, research into the concept of suspect wealth and the response of small jurisdictions, is lacking. Suspect wealth is more extensive in scope than singular instances of predicate criminality, such as corruption or investment fraud. As recent data-breaches emanating out of Bermuda, Panama and the Bahamas demonstrate, suspect wealth does not derive exclusively from criminality. It goes further than simply the proceeds of crime. While there is no universal definition for it, I define it broadly as: wealth attributable to criminality or to controversial, yet perhaps legal, conduct. The former could include wealth derived from corruption, money laundering (‘ML’) and tax evasion and would therefore be ill-gotten. This type of wealth can emanate from all manners of serious crime.3 Tax evasion is now classified as a predicate offence for ML.4 Suspect wealth relating to controversial conduct includes wealth fleeing some type of civil, societal, legal or matrimonial injunction – with the most 1 A phrase coined by sociologist and criminologist, Edwin Sutherland: Sutherland, E. (1949) White Collar Crime, New York: Holt, Rinehart and Winston. 2 See, for example, Kerusauskaite, I. (2018) Anti-Corruption and International Development, London: Routledge. 3 For a non-exhaustive list of serious crimes often committed due to financial motivations, see Schedule 1, UK Serious Crime Act 2007. Examples include drug trafficking (s1); people trafficking (s2); money laundering (s6); fraud (s7); bribery (s9) and counterfeiting (s10). 4 This follows the European Commission 4th Anti-Money Laundering Directive (2015) (EU) 2015/849. 2 relevant in the context of this work being through tax avoidance. While fiscal planning is permissible by law, aggressive forms are increasingly perceived as immoral and treated similarly to tax evasion in social-science discourse, particularly in the context of international development. The Panama and Paradise papers data-breaches,5 which comprised 24.9m documents from offshore law firms, were as much to do with suspect wealth emanating illicitly as legally.6 Suspect wealth is a problem on both domestic and international levels. I am interested in jurisdictions known as offshore financial centres (‘OFCs’) or, commonly, tax havens. Such jurisdictions are significant in the global financial architecture, but also perceived to be the destinations of suspect wealth. There is corpus evidence suggesting many are facilitators or recipients of transiting illicit wealth from foreign jurisdictions. Within the UK Proceeds of Crime Act (‘POCA’) 2000 definition of criminal property, mirrored in other common law jurisdictions,7 for property to be deemed criminal it is immaterial who carried out the conduct.8 Moreover, suspicion that property constitutes the benefit of criminal activity is the same as knowledge thereof. Domestic corruption and lack of controls in a jurisdiction, coupled with a disregard for accountability, contributes to, and enables this problem. However, there is a level of prejudice directed indiscriminately towards all OFCs. Such does not account for whether their facilitative conduct is a matter of deliberate activity, innate stubbornness, wilful blindness, or unintended consequences. It is commonly put that London and New York are tax havens because historically these centres have offered fiscal incentives to non-residents in a similar way to the more stereotypical OFCs offering various incentives, such as privacy or ring-fencing.9 The underlying political pressures, doubtless fuelled by competition concerns, will be considered in this work. Regardless, tax havens carry the perception that wealth there, or the clients which use its services, are either innately criminal or the product of ‘tax dodging’. It is an inescapable fact that (anonymous) shell companies, nominee services, trusts and foundations, lack of registers, limited commercial activity requirements and lack of regulatory controls can facilitate international criminality and the laundering of its proceeds. Negative perceptions 5 Two unprecedented breaches of confidential information from offshore law firms, Mossack Fonseca in Panama, and Appleby in Bermuda. 6 The Guardian (5 November 2017) ‘Paradise papers leak reveals secrets of the world elite’s hidden wealth’ is one of the main articles breaking news about the Paradise papers. In this article, the phrase “tax avoidance” is mentioned twice, “tax evasion” once, with “corruption”, “money laundering” and “crime” not mentioned. 7 Proceeds of Crime Act 1997 (Bermuda), section 42A(2). 8 Proceeds of Crime Act 2002 (UK), section 340(4). 9 Antoine, R-M. (2005/2013) Offshore Financial Law: Trusts and Related Tax Issues (2nd ed), Oxford, OUP, [122]. 3 towards OFCs, exacerbated by the Panama and Paradise papers, have replaced any sort of positive reputation they might once have had, as is the case with legitimate fiscal efficiency. In a development context, the perception is that the very presence of such jurisdictions is harmful to the global economy and particularly to the world’s poorest countries.10 Offerings in the offshore world can be used by criminals, corrupt officials or indeed by ordinary people to conceal or invest wealth. Moreover, structuring one’s assets offshore to conceal them from spouses is being increasingly seen in high-value divorce cases.11 In Akhmedova v Akhmedov and others [2018], the United Kingdom’s (‘UK’) highest-value divorce case, Haddon-Cave J averred that the respondent was engaging in a “continuing campaign to defeat [the applicant] by concealing his assets in a web of offshore companies”.12 Suspect wealth is closely aligned to the concept of unexplained wealth – the inference being that the wealth is somehow suspicious and should be explained. This transcends to an important philosophical debate surrounding proprietary rights, the right to privacy and other notions of freedom to maximise wealth and protect assets. The broader subject of asset recovery has seen significant scholarly and practitioner appetite.13 In 2017 the UK enacted Criminal Finances Act 2017, containing extended civil recovery powers in the form of unexplained wealth orders (‘UWO’).14 My interest in UWOs directed focus away from purely substantive criminality to the theme of suspicious and unexplained wealth – and its facilitative element. Suspect wealth, and the design of standards to disrupt it, is not confined to criminality – as has been demonstrated by each recent data-breach from the offshore world. While there is corpus evidence pointing to the harmful role of tax havens, this work will consider some of the mischaracterisations, misunderstandings and conflations which confuse, rather than clarify, thinking in this area. For example, adverse thinking about the status of tax havens tends to be rooted in them being known as zero-tax jurisdictions. However, just because a jurisdiction does not collect direct taxes (i.e. income or corporate tax) does not make it a zero-tax jurisdiction. Moreover, negative sentiments might be due to attention being placed on the wrong issues – i.e. facilitative frameworks versus predicate crimes. For example, a despot stealing money from his own citizens and keeping them in 10 For example: Oxfam (2016) ‘Tax Havens serve no useful economic purpose: 300 economists tell world leaders’; and, Eatwell, J., and Taylor, L. (2000) Global Finance at Risk: The Case for International Regulation, New York: The New Press, [23] for explanation of the risks of light regulation in OFCs. 11 Young v Young [2013] EWCA 3637 (Fam). 12 Akhmedova v Akhmedov and others [2018] EWFC 23 (Fam), Haddon-Cave J, [20]. 13 For example: Gray, P., and Nooree, M. (2016) ‘The Practical Issues in Tracing and Freezing in the Context of Civil Recovery Proceedings’, and Cassella, S.D. (2016) ‘Civil Asset Recovery: The American Experience’, in Rider, B.A.K. (2016) (ed) Research Handbook on International Financial Crime, Elgar. 14 Thomas-James, D. (2017) ‘Unexplained wealth orders in the Criminal Finances Bill: a suitable measure to tackle unaccountable wealth in the UK?’, Journal of Financial Crime, 24(2): 178-180. 4 abject poverty is highly concerning, international focus tends to be on his ability to launder the wealth elsewhere – rather than focusing attention on legal, regulatory or governance reforms to disrupt the predicate criminality (in this case, theft, corruption or embezzlement). Similar is seen in the tax evasion-avoidance debate. More attention is being placed on fiscally efficient products and vehicles on offer in tax havens, than reform of tax legislation and enforcement efforts in larger countries. Not that greater importance should be placed on one or the other, but the way things stand in the discourse relating to the jurisdictions this work concerns, tends to focus on problematic facilitation rather than dealing with the issues at source. Additionally, the definition of, and obligations of, transparency keep changing. Despite supranational standards tending to be predicated on the basis of universalism in acceptance and application, it is interesting that the global community frequently change international transparency standards. To tackle suspect wealth, there is an increasing emphasis placed upon greater transparency, with the statuses of various legal safeguards like privacy and confidentiality being questioned. This thesis considers an important category of OFC: the British Overseas Territories (‘OTs’). These are not to be confused with Crown Dependencies (‘CDs’) which have a fundamentally different relationship with the UK, despite prima facie commonalities such as being OFCs. Those OTs with financial centres tend to be relatively homogeneous, often archipelagic islands in the Caribbean or North Atlantic. Specifically, the dissertation selects three territories: Bermuda, the Turks and Caicos Islands (‘TCI’), and Anguilla. What is often neglected, or perhaps omitted in the discourse relating to suspect wealth and the facilitation thereof by the OTs, is the developmental stages, efforts and challenges of these small jurisdictions. For example, while Anguilla is regarded as a tax haven and middle-income country, it has significant issues with drinking water, healthcare and connectivity.15 On the institutional side, its constitution is outdated and various economic crises such as the collapse of its two indigenous banks, have hindered development. Similarly, TCI faces profound development concerns, such as the ongoing civil recovery programme of mis-sold crown land, proneness to natural disasters, yet have been too wealthy to qualify for UK development aid, like Anguilla and other OTs.16 These OTs (and many OFCs) are small, micro-population islands which rely largely on tourism, financial services and property development. As the hurricanes which devastated Anguilla, TCI and the British Virgin Islands (‘BVI’) in 2017 demonstrated, disasters of this kind can temporarily eradicate significant aspects of the islands 15 Anguilla Government London Office (2017) ‘Anguilla & Brexit: Britain’s forgotten EU border’. 16 DfID Overseas Territories Department (2012) ‘Operational Plan 2011-2015’, [3]. 5 economic sources, and more permanently threaten development. Discourse around these territories often omits these challenges and only focuses on OFCs, which fuels negative perceptions about the jurisdictions as a whole.17 1.2. Research Questions This dissertation concerns the ability of small jurisdictions to meet the expectations of the international community in addressing the threats presented both to themselves and others by their innocent, or otherwise, facilitating of laundering the proceeds of legally- recognised misconduct. I discuss the extent to which the actual, or perceived, involvement in these processes is harmful to the stability and development of the countries concerned, and to the wider international community. Albeit, given the nature of this dissertation focusing on the capability of these jurisdictions to meet international standards, I have taken the proposition in the preamble to the United Nations Convention Against Corruption (‘UNCAC’)18 which underlines the damage to stability, development and security that corruption, ML and other serious crimes threatens. The principal jurisdictions this dissertation focuses on are OFCs and, specifically, UK OTs. The discussion proceeds on the basis that receipt of suspect wealth is inimical to development. In chapter 2, I explore this in more detail including demonstrating the impact it has on development in the context of both foreign jurisdictions and the OTs themselves. With this central idea, this dissertation sets out to answer three main questions. First, how viable are international standards on suspect wealth in the context of these three jurisdictions? Second, how willing and able are these three jurisdictions to comply with international standards on suspect wealth? Third, how can these three jurisdictions better prevent their financial centres accepting suspect wealth. Alongside these, the thesis also sets out to consider whether a one-size-fits-all approach to the OTs in this context is appropriate. 1.3. Methodology This dissertation adopts the qualitative research method and involves the analysis of both primary and secondary resources. Given the legal orientation of this dissertation within the broader interdisciplinary subject of development studies, primary resources include case law, legislation, treaties and other legal instruments in the international and domestic law 17 Murphy, R. (7 September 2017) ‘Hurricane Irma & the UK’s Caribbean tax havens’, Tax Research UK. 18 UNCAC, Preamble. 6 contexts. In the case of legislation and case law, consideration will be given to those principally from common-law jurisdictions, given the jurisdictions this thesis concerns have the common law legal tradition. Additionally, soft-law resources will be used and evaluated, such as mutual evaluation reports (‘MERs’) by international anti-money laundering (‘AML’) and counter- terrorist financing (‘CFT’) groups like the Financial Action Task Force (‘FATF’) and its Caribbean body (‘CFATF’). With regards to secondary resources, a review of the relevant literature in important selected fields is undertaken. Within law, literature in the fields of criminal law and criminal justice, financial regulation and compliance, international law, European Union (‘EU’) law, media law, tort law, tax, jurisprudence and legal theory will be considered. Literature in development studies, including both domestic and international development, politics, tax policy, economics and international relations, will also be examined. Rather than a dedicated literature review (given the wide-ranging, yet relevant, fields) information drawn from secondary resources will be utilised throughout the thesis. Additional to academic literature, functional literature will also be utilised such as reports and papers from non-governmental organisations (‘NGOs’), legal commentary and briefings, government policy, white papers, Parliamentary inquiries, and impact assessments. News media and law reports will be considered extensively, particularly in relation to the selected jurisdictions on which little scholarly research has been done to date. As documentation editor at the Centre for International Documentation on Organised and Economic Crime for the Cambridge Symposium, I have compiled and edited several compendia of documents relevant to the theme of suspect wealth, which will be utilised as a research resource. Complementing this approach, I also conducted informal interviews and discussions with a range of officials and experts attending the 34th and 35th Symposia on Economic Crime at Jesus College, Cambridge, various other conferences, and through my professional associations. The purpose of these informal discussions was primarily to inform me as to pertinent issues to consider and to access directly, or indirectly, material that is not publicly available. For example, in a discussion with an OT law officer, I was made privy to background information, that would not be published, concerning the justification for, and passage of, a piece of legislation. Discussions took place at locations including Cambridge, London, Bermuda, Jersey – in person, by telephone, and exchange of emails. I have listed most of the individuals to which this relates, at Appendix III. These discussions were conducted on a non-attributable basis and their content remains confidential. They were helpful in informing the arguments made in this thesis, ensuring my research remained up- to-date, and educating me about developments in this fast-changing field. In some instances, 7 where information was shared on a non-restricted basis, I have referred to this as “insight provided” at points in the thesis. 1.4. Overview of Conclusions The thesis concludes by suggesting a one-size-fits-all approach to the OTs in this context is inapposite, given the fundamental nuances identified in this work. These pertain to the territories’ different developmental stages, and their challenges with regards to implementation of international standards. As to the viability of the present anti-economic misconduct standards in the context of the territories, it is concluded that many are viable – such as the requirement on territories to engage with regional AML initiatives. However, it will also be shown that some rules and requirements stand at odds with the nuances identified in certain territories, for example the prima facie irreconcilability between public registers of beneficial ownership and the confidentiality norm in offshore jurisdictions. As to their will and ability to comply and implement standards, it will be shown that Bermuda demonstrates the most compliant record. There is demonstrable application of the international transparency regime vis-à-vis tax information exchange agreements (‘TIEAs’), the keeping and sharing of beneficial ownership of companies’ information, modern legislation, AML/CFT monitoring, and visible successes with regards to accountability and enforcement. By comparison, TCIs recent history encompasses various development-hindering challenges. Its record in the context of international suspect wealth has been traditionally less comprehensive than Bermuda’s because factors such as domestic corruption and drug trafficking have hindered its governmental and institutional development, and enabled foreign suspect wealth to enter its financial system. By contrast, in the last decade, TCI has reformed important legislation, engaged in a risk-based AML approach, created an integrity commission to enhance public- life standards, and complied with international standards on beneficial ownership information. Anguilla is the least-developed of the three jurisdictions, and its response to suspect wealth contains striking gaps, despite relatively positive ratings by regional organisations. Anguilla’s development needs are also different and far more severe to Bermuda’s and TCIs. Anguilla has demonstrated commitment and willingness to comply with international standards, such as committing to implementing a central beneficial ownership register and being amenable to the creation of public registers, yet has struggled to date with implementation and strengthening of important institutions, such as its public accounts committee. 8 This work also acknowledges the profound concerns about suspect wealth and its impact on development. It will be shown that not only does predicate criminality in a jurisdiction, and the necessity to dispose of its proceeds offshore, have the potential to adversely affect that jurisdiction’s development, but also the development of OFCs. With regards to the three jurisdictions, it will be shown that their financial centres have each been implicated to different degrees in allegations and cases worldwide as facilitating criminality or disposing of the proceeds of crime. This has resulted in international blacklisting, reputational harm and other sanctions. The viability of international standards in the context of these jurisdictions is largely dependent upon their capacity. This work also discusses some important legal and philosophical questions pertaining to privacy versus transparency. Given the emphasis placed on confidentiality in offshore jurisdictions, this impacts their willingness and ability to comply with standards, but also questions the viability of them in such circumstances. In addition to the conclusions made, some recommendations and observations are given for the purposes of protecting the jurisdictions’ sovereignty, advancing development, enhancing awareness, and various steps which, if implemented, ought to better protect them from receiving suspect wealth and enhance the UK-OT relationship. External interventions, while inescapably necessary in certain circumstances, warrants careful thinking in the context of OTs that are exposed to a panoply of development challenges. 1.5. Contributions to Research In seeking to answer the questions posed, it is hoped a greater understanding of the territories is provided. This thesis contributes to an important present discussion. It is set within the theme of tax havens and their perceivably harmful role as judged by the international community, and regularly exposed by investigative journalists. This work takes three small islands which have financial centres and, to differing degrees, have an impact in the international financial architecture. Often subject to negative perceptions, since April 201619 rarely a week goes without adverse press relating to UK OTs. Not only are they subject to soft domination by metropolitan interests, but they are recipients of ever-changing international standards and externally dictated controls – the viability and appropriateness of which is questioned in this thesis. Moreover, they are obliged to address, or implement, standards set by increasingly powerful soft-laws and NGOs. This work examines the concerns about these jurisdictions as well as the global push towards transparency as the context for 19 When the first news-stories on the Panama papers broke. 9 such pressure. In studying three very different territories, the case will be made for more nuanced thinking about the OTs. While many criticisms against them are warranted, and evidence supporting these will be acknowledged and analysed, many are not. Some criticisms bring the phrase ‘Physician … heal thyself’20 to mind. Interestingly, there has been little scholarly work in relation to these islands. Various explanations for this could be their relatively small share of the global offshore financial sector, or the fact that many are micro-populated, or that many do not have universities therein to provide the bases for such research. Conversely, these islands are strategic and important in their own ways. Bermuda is one of the world’s largest and most important (re)insurance markets. TCI is the fastest growing tourist destination in the Caribbean, and Anguilla occupies an under-utilised geographical location in a shipping super-highway. This work shall directly examine the legal, regulatory and compliance frameworks of the three territories. It does so in line with international standards on suspect wealth, including anti-bribery, AML/CFT and tax transparency, and considers the extent to which their internal frameworks meet these standards. Some recommendations offered intend to have a transposing effect and will be of interest to similar jurisdictions. One of the clear problems identified in this thesis is that some OTs have traded in a culture of unaccountability. With this, the nexus between international suspect wealth and its ability to enter OTs via corruption and lack of controls manifests. This has not only harmed, and continues to harm others, but significantly stints the territories’ institutional development. Therefore, promoting and achieving integrity is not only an essential development strategy, but also for complying with international obligations. A balance between enhancing international reputation to attract legitimate business, and not being overly burdened in a way that disproportionately affects sustainability is a constant concern for OTs. A good example are suspicious activity reporting (‘SAR’) requirements. These represent a significant risk-area identified in many OTs AML/CFT national risk assessments (‘NRA’) given their low amount in certain sectors. However, when drugs, homicides and gang crimes are heavily prevalent, it is perhaps understandable why certain international standards might be under- resourced, or otherwise a lower priority. Law enforcement resource challenges are not problems confined to OFCs, but equally (perhaps more problematic) in larger metropolitan states which struggle to properly fund modern policing.21 20 A proverb found in the Gospel According to Luke, 4:23. Its moral is to attend to one’s own defects before criticising those of others. 21 BBC News (1 November 2018) ‘Focus on violent crime not misogyny, says police chief’. 10 Much original scholarly writing on certain OTs pertains to their initial formation as OFCs and challenges in transitioning from barter-based economies to world-leading financial services providers22 – much like similar, timely research on Commonwealth Caribbean countries entering the same markets.23 Such work often suggests that these jurisdictions did not enter the offshore market for nefarious purposes, rather as a means of achieving sustainable development.24 Financial independence and economic prosperity are the mainstays of OTs which have been reliant on tourism and financial services. It is hoped this work will provide governments, policymakers, legislators, practitioners and researchers alike with increased knowledge and understanding about these under-researched jurisdictions. In order to achieve meaningful cooperation with countries that have been judged by some in the international community as pariahs, reasonableness is needed. It is indisputable that some criticisms are warranted, and that some jurisdictions are less compliant than others, even deviant or wilfully blind. However, in order to achieve the implied ethos underpinning international standards –understanding and adherence by all – reasonableness must be a central feature of any discussion, recommendation or conclusion. It is hoped the arguments made in the following pages are undertaken with this in mind. 1.6. Background Concepts 1.6.1. Integrity Objective – a starting point From the early 2000s, there was a unique development in the UK financial industry. The financial regulator was tasked with a statutory obligation of reducing financial crime. This role was linked towards the stability and sustainability of capital markets. Following the failings identified in the financial industry following the 2007/8 global financial crisis, the regulator’s role was refined in the Financial Services Act 2012 to place fighting financial crime firmly in the context of the UK economy and stability of the markets. The regulator’s ‘Integrity Objective’ as a statutory mandate for this is a useful framework to apply in the context of small jurisdictions: 22 See, Freyer, T.A. and Morriss, A.P. (2013) ‘Creating Cayman as an offshore financial centre: Structure and Strategy Since 1960’, Arizona State Law Journal, 45:1297, 1297-1398. 23 For example, Ali, S. (2003) Money Laundering Control in the Caribbean, Netherlands: Springer. 24 Freyer and Morriss (2013) supra 22. 11 Figure 1: Section 1D, “Integrity Objective” Financial Services Act 2012. The general approach of the regulator has been established for some years.25 Their mandate with regards to economic crime is to avoid financial institutions being victims and address the risk of them being used as facilitators of others misconduct, while at the same time promoting effective competition.26 A financial market is different to a country, yet, given the OTs focused on rely upon financial markets for their sustainable development and stability, the regulator’s approach in terms of promoting stability and integrity to prevent economic misconduct is a worthwhile reference. 1.6.2. Conflations and Context With many OTs and OFCs being viewed as pariah states, it is important to first outline some prejudices. An increasingly interesting issue is how legal protections are, at times, being undermined in favour of moral arguments. For example, arguments pertaining to the immorality of tax havens often side-lines their legitimate use.27 It is unclear whether in the literature those critics of tax havens are more concerned about OFCs facilitating criminality, or tax avoidance – a legal concept. The fallout from the Panama and Paradise papers implied multinational tax dodging in the same harmful category as illicit flight capital from despots of oil-rich nations. It might be the case that these arguments simply divert attention away from larger states’ own problematic tax and company legislation, which contains loopholes still being exploited. Such a view also gives context to the increasing demands on small states to 25 As per the Financial Services and Markets Act 2000, amended by the 2012 Act. 26 Section 1E, Financial Services Act 2012: ‘The Competition Objective’. 27 TJN (2012) ‘The Price of Offshore Revisited’. 12 act as global tax collectors for larger states that have problems with enforcement effectiveness. Standards are increasingly aimed at collectively disrupting both criminal activity, like tax evasion, but also legitimate activity, like tax avoidance. The general rhetoric about tax havens is regrettable from a scholarly standpoint. This is because policy, knowledge and understanding is driven on the basis of confusing aims, misunderstandings and mischaracterisations. In other words, the narrative often presents the proceeds of crime and fiscal matters indiscriminately. No matter how morally dubious tax avoidance might be, it is manifestly not the same as evading it – despite the inherent similarities, such as both acting to widen tax gaps. When public services in the UK are subject to austerity, and other countries are dependent upon UK foreign aid, it is unsurprising that any conduct perceived as greed-driven is scrutinised. However, there are many government- encouraged tax avoidance schemes, like individual savings accounts with increasing allowances not accruing any income or capital gains tax. While what one pays in tax is a matter of law rather than morals, and given that legitimate fiscal planning is a well-established legal doctrine,28 it is interesting that the concept of wealth-maximising through tax structuring attracts so much revulsion, as was seen in the Panama and Paradise papers fallout. Saving money in a climate of record low interest rates squarely undermines so many basic taught principles of the importance of saving, which gives rise to the imperative of investment. Despite their size, the OTs comprise some well-known OFCs. They have great impact on the international movement of money and global financial architecture,29 yet occupy a relatively small share of the global offshore services market.30 In the domestic development context, many also have their own profound issues, such as with corruption, improper selling of Crown land, poverty, healthcare and violent crime. This is almost always omitted when criticising them. In stark contrast to their fiscal paradise imagery seen in some commentaries, such as Shaxson (2011),31 the development and sustainability of these territories represents ongoing concern. Analysis of their compliance with international standards requires understanding of their contexts. Given the UK brands itself as a global leader in the fight against corruption, economic crime,32 good governance and transparency, their network of OTs and CDs are under all the more scrutiny. OTs are not immune to crises – environmental, economic, political or social. As the ravages of the 2017 hurricanes demonstrated, they are 28 IRC v Duke of Westminster [1936] AC 1, Lord Tomlin at [19]. 29 Gordon, R. and Morriss, A.P. (2014) ‘Moving Money: International Financial Flows, Taxes and Money Laundering’, Hastings International and Comparative Law Review, 37(1): 1-123, [2]. 30 TJN Country Reports for the OTs. 31 Shaxson, N. (2011) Treasure Islands: Tax Havens and the Men who Stole the World, London: Bodley Head. 32 See: UK Anti-Corruption Summit (2016); and, Sharman, J.C. (2017) Despots Guide to Wealth Management, Ithaca, New York: Cornell University Press[1]. 13 prone to severe devastation, which highlights the problem of reliance on their narrow economies. Their financial centres are a material factor for sustainable development. In the same way that the proceeds of crime and the proceeds of controversy are considered indiscriminately when it comes to the concerns about suspect wealth, OTs are relentlessly viewed in the same light – often negatively.33 The Panama and Paradise papers occurred when writing this thesis and, since then, formidable sentiment has been directed at the OTs and their clients. The publications shone an indefatigably bright spotlight on the scope and scale of offshore business and extent to which offshore services can be used to hide or maximise wealth. Indeed, if awareness-raising was a main goal, then the aptly named perpetrator of the Panama papers John Doe succeeded.34 Governmental and international interventions have accelerated and criticism towards the jurisdictions has intensified – not least with the UK recently imposing transparency legislation on the OTs. There was significant media programmes, of negative tonality, about the offshore law firm Appleby and the Paradise papers. The Guardian and BBC acted as major platforms for stories emanating directly from one data breach.35 The media have a critical role in holding governments and officials to account, often justified and enabled under the freedom of the press. This sacrosanct function is one which ensures democracy is upheld. A good example was seen with the Pentagon Papers – an unprecedented leak of a United States (‘US’) government-classified Vietnam war report. The effect of the report, which, following its leak was published in the media, was to discredit the government’s public Vietnam war account36 by demonstrating that Congress had been manipulated into supporting it.37 The media’s role in publishing this was one of holding government accountable over a specific event – which can be viewed as a clear manifestation of press freedom. However, the Pentagon leak and publication of classified information differs to that of the Panama and Paradise papers. This is because these were as much to do with holding governments to account as they were about exposing the fiscal business of wealthy actors, athletes or musicians38 not accountable to anyone, other than law enforcement if they have committed crimes.39 In a society concerned with preserving the rule 33 BBC Panorama (6 November 2017), ‘Britain’s Offshore Secrets Exposed’. 34 I emphasised the awareness-raising function of the data-breach during my presentation: ‘The Panama Papers: business as usual?’ Thirty-Fourth Symposium on Economic Crime, Jesus College, Cambridge, 8 September 2017. 35 BBC Panorama (10 November 2017), ‘Offshore Secrets of the Rich Exposed’. 36 Quint, P.E. (1981) ‘The Separation of Powers under Nixon: Reflections on Constitutional Liberties and the Rule of Law’, Duke Law Journal, Vol 1981(1): 1-70, [9] 37 McGovern, G., and Roche, J.P. (1972) ‘The Pentagon Papers – A Discussion’, Political Science Quarterly, 87(2): 174-177. 38 The Guardian (6 April 2016) ‘From Kubrick to Cowell: Panama Papers expose offshore dealings of the stars’. 39 HC Deb (7 November 2017) Vol. 630, Col. 1439, Dame Margaret Hodge. 14 of law, there has to be a line drawn with regards to the media’s objective in publishing misappropriated confidential information and its purpose. Public interest, or holding government to account are sensible justifications, whereas to expose fiscal dealings of the wealthy descends to a more hazardous function. Indeed, as Leveson LJ noted in the Leveson Inquiry (2012), while certain modifications exist in law which give the press greater latitude within the law than is afforded to others, it “does not mean recognition within the law that, as a matter of general principle, the press possesses any entitlement or expectation to be indulged, in the national interest, in special exemption from observing the requirements of the law”.40 The data was relatively untargeted. The searchable data-bases contain legitimate confidential information, which the International Consortium of Investigate Journalists (‘ICIJ’) concede. As such, those tasked with exposing and publishing it have to come into contact with confidential information of innocent people that have, effectively, had their private data stolen. What is more concerning is that all the information has not yet been disclosed to law enforcement, which seems counterintuitive to their objectives.41 Moreover, there have been reports of governments and enforcement bodies not wishing to access or review the data due to evidential and ethical implications relating to confidentiality.42 With a growing deference towards transparency, it is necessary to re-examine values and principles of law which today seem under attack. Rights protected by law, such as privacy, are often not given due consideration in light of political pressures. As Nakajima (2017) notes, “a fundamental question we might ask ourselves is that even if we have nothing to hide, do we not wish to retain a certain level of confidentiality … the global move for transparency might be infringing our ‘right to privacy’ which is one of the fundamental human rights”.43 This is all the more pertinent in the context of increasing surveillance seen in the push towards global financial market regulation. Finally, there is the issue of whether suspect wealth is actually a problem for the selected OTs. In competitively striving for financial independence and economic sustainability, are the OTs accepting of the realities that criminals use their services? Or, does the legitimate activity outweigh the illegitimate activity, the former of which these jurisdictions rely upon for their development. If this is correct, then this intensifies the need to examine the 40 Lord Justice Leveson (2012) ‘An inquiry into the culture, practices and ethics of the press’, para 5.10. 41 The Guardian (12 January 2018) ‘HMRC ‘struggling to deal with fallout of Paradise Papers leak’. 42 For example: Politico (4 June 2016) ‘Panama Papers pose ethics issues for U.S. prosecutors’; and SWI (27 January 2019) ‘Switzerland rejects German Panama papers offer’. 43 Nakajima, C. (2017) ‘The international pressures on banks to disclose information’, in Booysen, S. A. and Neo, D. (eds) Can Banks Still Keep a Secret? Bank Secrecy in Financial Centres around the World, Cambridge: CUP. 15 viability of global anti-economic misconduct standards in the context of these small jurisdictions, their willingness and levels of adherence, but also their successes and challenges in tackling suspect wealth. This is the crux of what this thesis now sets out to explore. In the coming chapter, the impact and concerns about suspect wealth on the development of the OTs and of others will be discussed. 16 CHAPTER 2 CONCERNS ABOUT ECONOMIC MISCONDUCT, SUSPECT WEALTH AND DEVELOPMENT Summary The dissertation proceeds on the basis that suspect wealth is inimical to development, and this chapter considers the concerns about this in the context of both the source and host jurisdiction of the wealth. This chapter considers those which have manifested at international and supranational levels which have provided the bases upon which modern approaches to tackling financial crime are based. This chapter draws upon scholarly work in this area, as well as secondary resources from governments, NGOs and other international organisations. 2.1. Introduction Economic misconduct is arguably one of the more concerning inhibitors, and possibly barriers, to the development of the world’s poorest countries.44 Moreover, it threatens the development (particularly institutional), stability, sustainability and reputation of developed and developing jurisdictions alike.45 Contrary to the misconception, it is not simply an issue confined to corrupt kleptocracies, nor high-rise financial centres, but an unfortunate inevitability of the human conditions of greed, desire, temptation and deviance.46 As such, it is present in all countries and is something we shall endure so long as humanity gives effect to human tendency. Short of complete cultural overhaul, or reinstatement of the importance of religious teachings such as Christ’s refusal of Satan’s temptations of hedonism, egoism and materialism while fasting in the Judean Desert,47 it is likely that so long as we occupy a world filled with humanity’s mad inhuman noise, we shall never rid ourselves of the scourge of acquisitive crimes, like corruption. For similar reasons, we are also unlikely to eradicate actions which reside in a grey area, like legally trying to pay less tax – although there is increasing momentum to target aggressive avoidance schemes like the ‘double Irish, Dutch 44 Many chapters highlight this in Rider, B.A.K. (ed) (2015) Research Handbook on International Financial Crime, Cheltenham: Elgar. See also: Budima, G. (2006) ‘Can corruption and economic crime be controlled in developing economies, and if so, is the cost worth it?’ Journal of Financial Crime, 13(4): 408-419. 45 PWC ‘Adjusting the Lens on Economic Crime’ Global Economic Crime Survey 2016 [10]. 46 Rider, B.A.K. (ed.) (1997) Corruption: The Enemy Within, Kluwer Law International, [1] 47 For account of this, see the Gospels of Matthew 4:1-11; Mark 1:12-13; and Luke 4:1-13. 17 sandwich’.48 Any scholar conducting research to end corruption or ML will face insurmountable challenge,49 however necessary the endeavour. Globalisation has produced constantly evolving technologies encompassing cryptocurrency and complex software by which international financial activity is increasingly easy to conduct. This makes the challenge even more laborious.50 Until recently, companies have been able to establish viable offices in low-tax jurisdictions with the help of modern communications, sufficient to comply with tax laws which have seen only protracted reform.51 Failures in the fight against economic crime are not necessarily due to lacklustre political will, or indeed the efforts of enforcement. As the FATF MERs demonstrate of many jurisdictions, sound progress is being made in respect of engagement with evaluation processes and associated initiatives, acceptance of internationally-prescribed rules and adherence to best AML/CFT practices. With adoption of multi-stakeholder initiatives, like NRAs, jurisdictions are applying a risk-based approach to AML compliance advocated by international monitoring bodies. While FATF is arguably the universally-accepted ‘soft-law’ standard bearer,52 their methodology has incurred criticism. For instance, Halliday, Levi & Reuter (2014) suggest the 3rd Round MER “does not articulate its objectives sufficiently precisely for reliable evaluations … instead reliance was placed on the prima facie plausibility of the claim that adherence to the Standards would help reduce ML”.53 However, it is interesting to consider the increasing prevalence and legitimacy of soft- law standards which do not hold the same status as domestic or international law, yet lack of engagement with them gives rise to adverse reputational harm. No matter how well-regulated a particular environment is, criminal proceeds will find where it is darkest.54 So long as the temptations of wealth exist, traditional methods of criminal justice and civil enforcement will be acting retrospectively, not preventatively. While civil recovery has seen much development recently, the fact remains that crime is profit-driven and ‘getting ahead’ is socially-desirable. Indeed, while the stereotype fiscal palm-treed island 48 The ‘double Irish, Dutch sandwich’ is a tax avoidance technique used by large corporations for transferring profits to low or no-tax jurisdictions via Irish and Dutch subsidiary (or shell) companies. 49 Saleh, S. (2014) ‘Challenges in Combatting Corruption and Fixing Accountability: In Iraq’s Perspective’, International Journal of Business and Social Science, 5(13): 64-70. 50 See Bryans, D. (2014) ‘Bitcoin and money Laundering: Mining for an Effective Solution’, Indiana Law Journal, 89(1): 441-472 [449] which outlines challenges faced by enforcement bodies like the FBI; and, Brenig et al (2015) ‘Economic Analysis of Cryptocurrency backed money laundering’, Twenty-Third European Conference on Information Systems, Münster, Germany, 2015. 51 UK Committee of Public Accounts (2013) ‘Tax Avoidance: the role of large accountancy firms’, [11]. 52 Sharman, J.C. (2016) ‘Solving the Beneficial Ownership Conundrum: Central registries and licenced intermediaries’, Report for Jersey Finance, [4]. 53 Halliday, T.C., Levi, M., and Reuter, P. (2014) ‘Global Surveillance of Dirty Money: Assessing Assessments of Regimes to Control Money-Laundering and Combat the Financing of Terrorism’, Centre on Law & Globalisation, [5]. 54 HC Deb (1 May 2018) Vol. 640, Col. 203, Geoffrey Cox QC MP. 18 paradise is often associated with economic misconduct, the reality is that developed countries also facilitate industrial-scale financial crime which, perhaps, is more of a pressing issue for their stability and the development of other jurisdictions. Three examples spring to mind. For example, the extent of ML in British Columbia casinos was considered in a report by German (2018) which found that for some time they served as laundromats for the proceeds of organised crime – exacerbated by a sense of denial in the industry.55 Similarly, Sharman (2017) noted the attractiveness for corrupt Papua New Guinea politicians to launder money into Australia through the real-estate market.56 Sharman avers the importance of a lack of motivation, rather than a lack of capacity in Australia’s response.57 Thirdly, London’s luxury real-estate market is widely-acknowledged to be a vehicle for laundering suspect wealth.58 For the three OTs this dissertation concerns to better protect themselves and comply with international obligations, it is important to contribute greater knowledge about them. Labelling and mischaracterisation is common. There are conflations of important distinct concepts, like privacy and secrecy, and vagueness surrounding the law and morals with regards to fiscal practices. The international response tends to push uniformity and standardisation of laws, rules and practices. UNCAC and the FATF Recommendations are two good examples. However, while many of the principles contained therein are doubtless effective, such as bilateral TIEAs, deference needs to be given to the principle that one size does not always fit all. In the context of small islands, this message could not be any more crucial to their development. 2.2. International Concerns and Impact on Development As Benjamin Franklin wrote, tricks and treachery are the practice of fools, that have not wit enough to be honest.59 Trickery and treachery, deviance and dishonesty, covetousness and skulduggery are all characteristics of misconduct for which the sole purpose is wealth acquisition. However, many modern perpetrators of economic misconduct are increasingly sophisticated rather than injudicious. Transgressors tend to use more complex, harder to monitor methods to effectuate and subsequently conceal their wrongdoing. The costs of implementing AML/CFT controls, for example, are significant yet yield little in terms of 55 German, P. (2018) Dirty Money: An Independent Review of Money Laundering in Lower Mainland Casinos conducted for the Attorney General of British Columbia. 56 Sharman (2017) supra 32, [151-160]. 57 Ibid, [168]. 58 For example: Global Witness, (2017) ‘UK Property: A Safe Haven for Dirty Money’; and, TI (2015) ‘Corruption on your doorstep: How corrupt capital is used to buy property in the UK’. 59 Franklin, B. (1739) Poor Richard’s Almanac. 19 results relative to suspect flows. Some scholars have perceived such initiatives as an “ideological vision of the regulators which is often not accompanied by identifying criminal activity – just vague weaknesses in systems”.60 Interventions of the kind required by the AML regime presuppose a very significant element of compliance. This is problematic if both financial and human resources are lacking, most pertinently in the case of micro-population jurisdictions. While technology has invariably assisted people to reintegrate illicit wealth into the international financial system, the fact remains that many types of serious crime require little in terms of resources.61 However, for some of the more complex misconducts, such as ML or tax evasion, the assistance of professional facilitators is often needed. This makes regulating the professions increasingly crucial. Despite the notion that economic crime knows no borders and are often multi-party, multi-jurisdictional matters, the underlying motivation perhaps remains the same. Take a few examples. Imagine someone parks in a car-park but does not pay. They have breached the parking contract. This is not particularly deviant, yet they committed a civil wrong. The motivation could be explained by them not having, or wanting to, spend money; or on a rational choice exercise, predicting they will not get caught. This is paradigmatically similar to tax evasion. The evader uses services like roads, waste collection and healthcare, yet does not contribute to their cost. This is contrary to Socrates’ and later thinkers like Hobbes (1651) and Rousseau’s (1762) theoretical work on the social contract,62 which implies that in choosing to live in a society, one accepts its burdens and benefits. The transgressors in these examples breached the social contract and got ahead by unfair, and unlawful means and have disregarded rules. Misconduct like this has flawed humans ever since Eve took the bite of the serpent’s apple.63 Economic misconduct has a dark side. It facilitates wars, fuels rebel groups, funds terrorist organisations, sustains human, drug and organ trafficking, and the dark-economy. As such, it furthers the amount of unexplained wealth in the world, the increase of which has been linked to growing inequality.64 While there is consensus about the effects of economic crime on development, there is difficulty in measuring its truest extent or cost. This is not helped by the fact there is no official taxonomy of economic crimes despite overlap between 60 Saperstein, L., Sant, G., and Ng, M. (2015) ‘The Failure of Anti-Money Laundering Regulation: Where is the cost-benefit analysis?’, Notre Dame Law Review Online, 91(1): 1-11, [2]. 61 See Levi, M. and Reuter, P. (2006) ‘Money Laundering’, Crime and Justice, 34(1): 289-375 [289]. They make the point that modern terrorists do not need much money to operate, which is noticeable in considering ISIS-inspired attacks where terror-cells use primitive, low-resource means. 62 Plato (2012) Apology, Crito and Phaedo of Socrates, Kent: Renaissance Classics; Hobbes, T. (1651/2017) Leviathan, Penguin Classics; and, Rousseau, J.J. (1762/1998) The Social Contract, London: Wordsworth. 63 Rider (1997) supra 46, for use of Eve’s temptation in the context of economic crime. 64 Oxfam (2018) ‘Reward Work Not Wealth’. 20 predicate and facilitative offences. The following example demonstrates its scope: A public official accepts a bribe of $1m for a contract not to be tendered. He launders this through a series of transactions, including property purchases in three jurisdictions through a complex network of shell companies incorporated in three separate OFCs. He re-mortgages one of the properties, charges a loan to one of his companies to release capital and rents out the properties for an undisclosed income. In this complex example, he has committed several serious offences including abuse of office, corruption, ML, tax evasion, mortgage fraud and failing to disclose financial interests, across 7 jurisdictions. This example shows that many types of economic misconduct operate transnationally and in tandem. Conflating legitimate practises that are perceived to be wrong, such as tax avoidance, with conduct which is inherently criminal, like tax evasion, does not help clarify thinking in the field or responses to certain conduct. This practice is also noticeable in the context of recent legislation. An architect of the ‘Hodge-Mitchell’ amendment in the UK Sanctions and Anti-Money Laundering Act 2018 (‘SAMLA’),65 characterised the necessity of opening beneficial ownership registers to tackle both “corruption and tax avoidance”.66 When the ICIJ engaged in the endeavour of exposing offshore activity in recent data-breaches, a visible outcome was to shine a bright light on the world of offshore business, rather than pure criminality, to further the negative connotations surrounding tax avoidance. The jurisdictions that were criticised had to defend their regulatory regimes and emphasise that much of the compromised data pertained to legitimate matters. They also focused blame on the source countries for not adequately enforcing their laws to prevent citizens evading or avoiding tax.67 If the ICIJs motivation stemmed from an increasing emphasis on tax justice, then it is quite easy to see why OFCs have been targeted as the publications certainly demonstrated widespread tax avoidance. There is a growing prevalence of social-arguments on this, particularly about tax fairness. The social contract formulation provides a compelling prism through which to view a system of taxation, given the concept of paying tax is collegial. However, it is difficult to see what the correct test would be if determining tax was a moral exercise. While the idea of citizenship presupposes a society in which there are contributory obligations, this is not the case in many developing countries and is more pertinent in countries with high volumes of social welfare. The revelations from the Panama papers reputationally damaged the offshore world. The targeted law firm, Mossack Fonseca (‘MOSSFON’), closed down due to reputational 65 Section 51. 66 BBC News (14 November 2017) ‘Paradise papers: government urged to tackle tax avoidance in budget’ 67 Balani, H. (2017) ‘Paradise papers or Panama papers? Any change to the global financial system?’, Accuity Insights. 21 damage and there have been criminal cases, political scandals, and intensified blacklisting campaigns by the EU and other countries. On the other hand, the revelations demonstrated the scale of offshore business – the implication being that company incorporation and associated corporate services are big business to the offshore community,68 something which they would not refute. As such, it might be the case that suspect wealth entering an OFC by way of vehicles like shell companies, may not produce any visible harm to the jurisdiction itself – despite there being clear evidence that this can harm the jurisdictions from where the wealth originates. However, for the offshore jurisdictions, the damage can manifest in several forms. For example, as will be shown, some jurisdictions have lost sovereignty over misconduct allegations. Or, it can manifest from the consequent reputational harm from published revelations. Or, negative attention as a result of legal actions implicating the jurisdiction’s services. Moreover, damage can ensue when international AML monitoring bodies produce bad reviews if certain standards are lacking. Indeed, sanctions may follow or provide the basis upon which other organisations or countries blacklist jurisdictions found to have regulatory deficiencies. In circumstances where financial institutions are increasingly de- risking, this presents a serious threat to offshore jurisdictions. Notwithstanding the difficulty in measuring the extent of economic crime, some reported figures illustrate its global scale. The UN Office on Drugs and Crime estimates that between $800bn and $2tn are laundered annually. Despite the gaping range this represents, even the mean value at $1.4tn exemplifies the significant magnitude of ML. Contemplating the wider picture, ML facilitates other serious crime such as corruption, fraud, terror and tax evasion. The figure certainly places laundering in an industrial context, epitomising the acquisitive motivations behind it. The range represents between 2%-5% of world Gross Domestic Product (‘GDP’) – which is the cumulative GDP of Hong Kong, Sweden and Belgium. Other figures include those estimating tax evasion and avoidance. Notwithstanding the difficulty in measuring these to any degree of certainty, a study completed by Cobham & Jansky (2017) for the UN World Institute for Development Economics Research estimated that global multinational corporations’ tax avoidance is $500bn annually, based on research published by International Monetary Fund (‘IMF’) Researchers, Crivelli et al (2016). In the UK, Her Majesty’s Revenue and Customs (‘HMRC’) estimate a tax loss of £5.3bn from tax evasion and £1.7bn from avoidance. While this seems relatively small, compared to the 68 Chaikin, D. ‘The Law Enforcement Implications of the Panama Papers’, in Chaikin, D., and Hook, G. (eds) (2018) Corporate and Trust Structures: Legal and Illegal Dimensions, Australian Scholarly, 108-121, [109]. 22 overall tax gap in 2016-2017 being £33bn, which is 5.7% of UK tax liability,69 it is still a sizeable sum as it is over half the annual UK police budget which was £12.3bn in 2018/19. In the US, the Internal Revenue Service estimated the annual gross tax gap as $458bn between 2008 and 2010.70 Similarly, in 2012, the European Commission referenced a study which estimated €1tn in public money is lost due to evasion and avoidance each year.71 Notwithstanding the debate about the legality or morality of tax avoidance, these figures represent a serious issue suggesting domestic tax authorities are losing significant taxable income due to avoidance mechanisms and illegal evasion. The statistics on tax gaps also include other matters contributing to broader tax losses, such as genuine errors, failing to take reasonable care, and criminal attacks on the system such as VAT-repayment fraud. In the context of the UK’s tax gap, more tax is lost through errors despite the taxpayer taking reasonable care (£3.2bn) than through avoidance. HMRC observes: “there has been a steady downward trend in the avoidance tax gap, from £4.9bn in 2005-06 to £1.7bn in 2016-17”.72 In the context of suspect wealth, the tax gap statistics also demonstrate a problem in terms of tax revenue losses via hidden economies – where entire income is unknown to authorities. In the UK’s case, the tax gap loss from the hidden economy was estimated at £3.2bn. The relationship between underground economies and tax evasion has been considered by various scholars.73 According to Schneider & Enste (2002), the size of underground economies as a portion of GDP has been suggested to range between 14-16% in developed economies and even higher in developing ones at 25-45%.74 India has a substantial underground economy and, while there appears to be consensus that it is decreasing,75 scholars like Sharma (2016) have estimated that in 2013 the underground economy represented 52% of India’s GDP.76 Interestingly, Italy has developed a reputation as having one of Europe’s largest underground economies. While hidden, or underground, economies are not the same as criminal ones, they present problems given the large amounts 69 HMRC (14 June 2018) Measuring tax gaps 2018 edition: Tax gap estimates for 2016-2017, [5]. 70 IRS (April 2016) Report: Tax Gap Estimates for Tax Years 2008-2010. 71 EU Commission Memo (6 December 2012), and the referenced report: Murphy, R. (2012) ‘Closing the European Tax Gap: A report for Group of the Progressive Alliance of Socialists and Democrats in the European Parliament’, Tax Research LLP, [23]. 72 HMRC supra 69, [6]. 73 Blackburn, K., Bose, N., and Capasso, S. (2011) ‘Tax evasion, the underground economy and financial development’, Journal of Economic Behaviour & Organization, 83(2): 243-253. 74 Schneider, F., and Enste, D.H. (2002) The Shadow Economy: Theoretical Approaches, Empirical Studies and Policy Implications, Cambridge: CUP. 75 Indian Express (2 July 2017) ‘Indian ‘shadow economy’ to shrink to 13.6 per cent of GDP by 2025: ACCA’. 76 Sharma, C. (2016) ‘Estimating the Size of the Black Economy in India’, Indian Institute of Management Lucknow, MPRA Paper No 75211. 23 of unaccounted wealth, highlighted by the billions in tax losses as a result of the UK’s own hidden economy. The general concerns about economic misconduct, suspect wealth and its effects on development are largely self-evident. Many social scientists and criminologists, most notably Sutherland,77 have engaged in work regarding why people commit ‘white-collar’ crime. In my criminological work,78 I have previously argued that the commission of financially acquisitive crimes can be explained by reference to various mainstream theories including strain theory,79 rational choice theory,80 and differential association theory.81 In a dissertation on why people commit insider dealing,82 I considered the possibility that transgressors of market abuse could operate in a temporary autonomous zone, a concept developed by Bey (1991).83 Scholarly work on the causes of offending is important for understanding motivations behind the generation of suspect wealth. In many crimes under English law, it is not only necessary to demonstrate the accused had the actus reus (guilty act) but also mens rea (guilty mind). Despite its importance, there still remains a relatively sparse amount of scholarly work in this area.84 There is also demonstrable concern about flight capital85 – money fleeing a jurisdiction through misconduct like tax evasion or rulers stealing public funds. This typically occurs in poorer countries and many NGOs have published reports detailing serious cases. For example, Oxfam (2016) found that Malawi’s development is being significantly harmed by flight capital, and with those in power utilising tax havens to conceal ill-gotten gains, Malawians are being deprived of public services.86 Similarly, Global Witness (2009) reported that the ruling family of Congo utilised shell companies in tax havens to funnel public oil 77 Sutherland (1949) supra 1. 78 Thomas-James, D. (2015) ‘The Prosecution of Insider Dealing in the UK: Is there a need for criminal justice reform?’, dissertation for the degree of Master of Philosophy, University of Cambridge. 79 Merton, R. (1938) ‘Social Structure and Anomie’, American Sociological Review, 3(5): 672-682. 80 Cornish, D., and Clarke, R. (1986) ‘Situational Prevention, Displacement of Crime and Rational Choice Theory’, in K. Heal and G. Laycock (eds) Situational Crime Prevention: From Theory into Practice, London: HMSO. 81 Sutherland (1949) supra 1. 82 The trading of securities on the basis of material, non-public, price-sensitive information. 83 Bey, H. (1991) The Temporary Autonomous Zone, Brooklyn NY: Autonomedia. Bey suggests individuals can operate in a space in which there are no rules, no supervision and a freer framework within which to operate. I likened this to trading floors, in which environmental rules and norms could take priority over laws of the state. 84 One example of someone achieving an international reputation within this field is Professor Mike Levi of Cardiff University who is regarded as one of the most authoritative commentators on economic crime from a criminological standpoint. The fact of his pre-eminence supports the importance of an interdisciplinary approach to this subject. 85 Kar, D. and Spanjers, J. (2015) ‘Illicit Financial Flows from Developing Countries: 2004-2013, Global Financial Integrity. 86 Oxfam (2016) supra 10. 24 revenue for personal gain.87 Sharman (2017) gives many examples of kleptocrats transiting illicit wealth through financial centres.88 It is acknowledged that tax havens can facilitate the concealment of suspect wealth. However, Malawi has also faced many challenges89 and its lack of development can also be attributed to its government. Corruption became so problematic there that the UK suspended development aid in 2012/2013 and concluded that public money was unsafe in its government’s hands. Focusing solely on the facilitative role tax havens can play ignores the reality that people of such jurisdictions are first and foremost victims of theft and, while theft necessitates a place to conceal stolen gains, the proverb “once a thief, always a thief” should be borne in mind when considering solutions. It is estimated that some $1.1tn flowed illicitly out of developing nations in 2013 as a result of misconducts like corruption and tax evasion.90 Statistics containing the words billions or trillions often inflate arguments inaccurately. So much of the true picture relies upon information we simply do not, and cannot, know. The National Crime Agency (‘NCA’) estimated that ML represents between £36-90bn in the UK.91 While this invites sensationalism,92 the fact remains that the real figure is unknown and estimates should be treated indicatively. Forstater (2016) has written extensively about the need to attribute caution when considering such figures: “some of the most influential numbers which shape perceptions of the scale of the problem … are mistakes and misunderstandings.”.93 There are also claims surrounding mismatches in trade pricing and invoicing, specifically under errors and omissions allowances in the context of trading and balance of payments. Indeed, this is often regarded as a platform for ML and illicit financial flows.94 As Sharman recently observed, while it might be attractive to view trade errors and omissions as an economic crime conspiracy, the likely explanation in most cases is simply an issue of different accounting processes between countries.95 87 Global Witness (2009) ‘Undue Diligence: How banks do business with corrupt regimes’, [7]. 88 Sharman (2017) supra 32. 89 For example, Tambulasi, R.I.C. (2010) ‘The public sector corruption and organised crime nexus: The case of the fertiliser subsidy programme in Malawi’, African Security Review, 18(4): 19-31. 90 Kar and Spanjers (2015) supra 85. 91 See: UK Government 2017-2022 Anti-Corruption Strategy, [16]; and, NCA National Strategic Assessment of Serious and Organised Crime 2016, [28] for method. 92 Financial Times (11 December 2017), ‘Plan to crack down on £90bn City money laundering’. 93 Forstater, M. (2016) ‘Making sense of the cost of tax avoidance’, Tax Journal, 12-14. 94 See, Altinkaya, Z., and Yucel, O. (2013) ‘The Effects of International Trade on International Money Laundering from the Perspectives of International Law and International Trade in Turkey’, European Scientific Journal, 1: 116-124, [122]; and, HM Treasury & Home Office (2015) ‘UK national risk assessment of money laundering and terrorist financing’, [72]. 95 Panel discussion at a screening of The Spider’s Web: Britain’s Second Empire (2017) produced by Michael Oswald and John Christensen, at Jesus College, Cambridge, (13 July 2018). 25 Emphasising the universal acceptance that suspect wealth impacts development, UN Sustainable Development Goal 16, which concerns ‘Peace, Justice and Strong Institutions’, explicitly references that corruption, bribery, theft and tax evasion costs developing countries $1.26tn per year.96 It also refers to the importance of strong institutions, including the rule of law, and that without these, sustainable development cannot be achieved. A recent example demonstrating the scale of suspect wealth’s impact on development is the case of 1Malaysia Development Berhad (‘1MDB’), and the investigation of its consultant, Jho Low.97 1MDB is an insolvent Malaysian state-owned economic development sovereign-wealth fund. Allegations of embezzlement and findings of billions of dollars in irregular transactions98 led to international investigations resulting in the former Malaysian Prime Minister being charged with corruption, criminal breach of trust and ML.99 It is alleged that $681m was diverted into his personal accounts.100 Charges were also filed against Goldman Sachs relating to raising money for 1MDB in advising on 3 bond offerings, and against employees in relation to bribing officials to win business. One employee pleaded guilty to conspiring to launder money and violating the Foreign Corrupt Practices Act (‘FCPA’), forfeiting $43.7m proceeds of crime.101 US authorities allege that between 2009-2014, “billions of dollars were misappropriated and fraudulently diverted from 1MDB”. Several individuals including Jho Low have also been charged in the US with conspiring to launder billions of dollars and to commit bribery.102 It is alleged that these funds paid for Low’s lavish lifestyle and assets including a mega-yacht, which US authorities have seized. Reports also detailed alleged connections between Low, the funds and the financing of Hollywood films, ironically including Wolf of Wall Street.103 This case is important from a development perspective, given the complex network of transnational players, companies and transactions. Politically, the scandal contributed to the Malaysian Prime Minister’s election defeat. 96 United Nations Development Programme, Sustainable Development Goal 16. 97 For background: Wright, T., and Hope, B. (2018) Billion Dollar Whale: The Man Who Fooled Wall Street, Hollywood, and the World, New York: Hachette Books. 98 Washington Post (17 December 2018) ‘The Story of Malaysia’s 1MDB, the Scandal that Shook the World of Finance’. 99 This Week in Asia (11 February 2019) ‘Trial of former Malaysian prime minister Najib Razak on corruption charges delayed pending outcome of appeal’. 100 Bloomberg (2 April 2019) ‘Najib Faces a Laundry List of Charges as 1MDB Trial Kicks Off’. 101 US Department of Justice (1 November 2018) Press Release: ‘Former Banker Tim Leissner Pleaded Guilty to Conspiring to Launder Money and to Violate the Foreign Corrupt Practices Act Related to 1MDB’. 102 US Department of Justice (1 November 2018) Press Release: ‘Malaysian Financier Low Taek Jho, Also Known As “Jho Low,” and Former Banker Ng Chong Hwa, Also Known As “Roger Ng,” Indicted for Conspiring to Launder Billions of Dollars in Illegal Proceeds and to Pay Hundreds of Millions of Dollars in Bribes’. 103 A film depicting the investment fraud and market-manipulation of trader Jordan Belfort who, as part of his sentence, was subject to a $110m restitution order. 26 Developmentally and economically, billions in embezzled public money was diverted from jobs creation and enhancing green energy. This ongoing matter demonstrates how billions in development funds can be misappropriated and transited from developing countries into major financial markets. Moreover, it shows corruption, embezzlement, abuse of office, and professional facilitation on a magnificent-scale. 2.2.1. Concerns about Corruption and Development Concerns about the effects of economic misconduct on development are perhaps best articulated, and most visible, by reference to corruption. Corruption gives rise to suspect wealth because the functional side of the transaction (the bribe) is a proceed of crime and will likely remain unaccounted. Corruption can occur in various circumstances – something modern anti-bribery legislation acknowledges.104 It can include kleptocracies, civil servant corruption, rent-seeking activities, grand corruption,105 and corporate bribery. Unhelpfully, there is no universally-accepted definition. However, there have come to be normative illustrative ones. The World Bank defines corruption as “abuse of public office for private gain”. The Organisation for Economic Co-operation and Development (‘OECD’) illustrates some examples: “It could be the multinational company that pays a bribe to win the public contract to build the local highway, despite proposing a substandard offer … It could be the public official embezzling funds for school renovations to build his private villa. It could be the manager recruiting an ill-suited friend for a high-level position. Or, it could be the local official demanding bribes from ordinary citizens to get access to a new water pipe”.106 They note that those hurt most by corruption are the world’s weakest. The problem extends to the ability for corrupt monies to be moved and consequently concealed.107 Responding to corruption is not a simple case of targeting one or the other. The foremost international treaty instrument for fighting corruption, and associated misconduct, is UNCAC. Its foreword describes corruption as an “insidious plague that has a wide range of corrosive effects on society”.108 UNCAC points to corruption inhibiting development and sustaining poverty.109 Given it facilitates organised crime, wars and 104 For example, section 6 UK Bribery Act 2010 deals with bribing a foreign public official. 105 See: TI (19 August 2016) ‘Grand Corruption Legal Definition’; and, for example, Rose-Ackerman, S. (1997) ‘Democracy and ‘grand’ corruption’, Trends in Organized Crime, 2(4): 9-12, [9]. 106 OECD (2014) ‘The Rationale for Fighting Corruption’. 107 This was the premise of Oxfam (2016) supra 10 and TJN (2012) supra 27. 108 This phrase has been used extensively, seen in UNCAC foreword by Kofi Annan. 109 Gupta, S., Davoodi, H., and Alonso-Terme, R. (2002) ‘Does corruption affect income inequality and poverty?’, Economics of Governance, 3: 23-45, [24]. 27 terrorism, it is charged as being the cause of so many global problems and is often labelled a “cancer”.110 In UNCACs General Assembly Resolution, the impact of corruption on the development of institutions is clearly emphasised. It states that parties are “concerned about the seriousness of problems and threats posed by corruption to the stability and security of societies, undermining the institutions and values of democracy, ethical values and justice and jeopardizing sustainable development and the rule of law”.111 As former World Bank President, James Wolfensöhn, noted: “the causes of financial crisis and poverty are one and the same … If [countries] do not have good governance [and] if they do not confront the issue of corruption … their development is fundamentally flawed and will not last”.112 What is most problematic is when certain conduct becomes systemic within a society. An example being police corruption in some countries113 where officers regularly take bribes for not reporting crime, such as drug dealing114 or illegally demanding business rents. While reprehensible, it might be normative in a particular jurisdiction. Such conduct reverberates through institutions and departments making the whole system less efficient and unconscionable for users. Contrarily, it is interesting to consider certain services jurisdictions might offer, such as a fee for express passport renewal service, compared to the normativity in some countries of paying a bribe to process it. The end results are prima facie not dissimilar. Associated forms of corruption have been regularly seen in OFCs particularly during key stages of their development. As will be discussed in chapter 5, public sector corruption in TCI, including the improper disposal of Crown land enriching domestic officials and foreign investors, led to political and constitutional crisis, economic hardship and loss of sovereignty. Corruption is also closely-associated with kleptocracy and embezzlement. The former is a government ruled by thieves and the latter is theft of trusted property.115 It is a criminal violation of trust, rather than a strict breach which might ordinarily be seen in a civil law context. The example of former President of Zaire (Democratic Republic of Congo), Mobutu Sese Seko, has shaped consequent policy in this area.116 At one stage, Seko’s personal and family allocation of the national budget was 17%. In real terms this was more than was spent 110 Remarks of UK Prime Minister David Cameron at the 2016 Anti-Corruption Summit. 111 UNCAC, [2]. 112 James Wolfensöhn, President of the World Bank Group, Address to the Board of Governors of the World Bank Group, Joint Annual Discussion, 28-30 September 1999, Press Release No. 2, [5]. 113 There is presently work being undertaken by colleagues at the Centre of Development Studies. See, Lee, G.C.M. (2018) ‘Police corruption: a comparison between China and India’, Journal of Financial Crime, 25(2): 248-276. 114 Lamani, R.B., and Venumadhava, G.S. (2013) ‘Police Corruption in India’, International Journal of Criminology and Sociological Theory, 6(4): 228-234, [229]. 115 Green, G. S. (1993) ‘White-Collar Crime and the Study of Embezzlement’, The Annals of the American Academy, 525: 95-106, [95]. 116 Sharman (2017) supra 32, [26]. 28 on his citizens’ education, healthcare and welfare.117 The impact of this on development is self-evident and clearly demonstrates the problematic interrelation of corruption, kleptocracy and embezzlement. It also evidences the concerns raised at the international level through instruments like UNCAC and the 2016 Global Anti-Corruption Summit. When aid is being stolen by corrupt governments, the domestic debate about development aid reignites. Corruption’s consequences do not end there, however, as the wealth often needs to transit somewhere. An elaborate illustration of this is the spending spree of the Equatorial Guinea’s Vice President, Teodorin Obiang. Despite an official salary of $80,000,118 between 2004-2011 he spent $314m including an $80m Paris property, $30m Californian property, $38.5m jet, luxury cars and $5m of wine.119 This evidences a two-sided problem: a government run by thieves, and his ability to internationally move and access ill-gotten gains over long duration. It is paradoxical that something which appears to have consensus, still lacks a universal definition. It could be explained by the ever-evolving nature of bribery. Another explanation could be that different cultures view corruption differently, or place different emphasis on the nature of gifts and favours. This is particularly concerning in the private sector and it would be naive to assume that corruption is confined to public officials. Private gain is a vague concept unclearly considered in normative definitions. It assumes an enriching element. It could mean a favour, indebtedness, influence, corporate hospitality or gifts.120 However, if corruption is culturally nuanced,121 or a series of evolving behaviours, perhaps a lack of definition is unsurprising. The lack thereof has become itself normative, with the UK government’s Anti-Corruption Plan conceding that there is no universally-accepted definition.122 Corruption has been described as a catch-all phrase.123 Transparency International’s (‘TI’) definition goes further: “the abuse of entrusted power for private gain”, which the UK’s Department for International Development (‘DfID’) has widely used. While veering away from the public sector context, these definitions do not acknowledge corruption’s complexity. Take a common, less obvious example. A commercial agent bribes customers to secure business for his principal, thus breaching his obligations under regulation 3(1) Commercial Agents (Council Directive) Regulations 1999 and common-law fiduciary 117 Hartman, J.M. (1997) ‘Government by Thieves: Revealing the Monsters behind the Kleptocratic Masks’, Syracuse Journal of International Law and Commerce, 24: 157-175, [159]. 118 Sharman (2017) supra 32, [4]. 119 Ibid. 120 Financial Times (19 April 2016), ‘Fund Managers Warned to Stay Off Golf Course’. 121 Henning, P.J. (2001) ‘Public Corruption: A Comparative Analysis of International Corruption Conventions and United States Law’, Arizona Journal of International and Comparative Law, 18(3): 793-856. 122 UK Government Anti-Corruption Plan, December 2014 [9]. 123 International Development Committee, Oral Evidence ‘Tackling Corruption Overseas’, HC 809, Tuesday 22 March 2016, Professor Paul Heywood, Q1. 29 duties not to make private kick-backs. Thus, normative definitions might not account for corrupt acts which might be less typical. 2.2.2. Concerns about ML and Development As the aforementioned examples of despot regimes demonstrate, ML is intrinsically linked to corruption. Like the ability to evade tax for fiscal benefit, or the ability to set up anonymous shell companies to conceal wealth, ML is a facilitative type of economic crime which sustains crime’s profitability. As well as providing a vehicle to conceal or use ill-gotten gains, it also finances future criminality. Laundering is now considered a predicate offence for tax evasion. Like corruption, the concerns about ML and development are also self-evident. The IMF suggests “money laundering can threaten the stability of a country’s financial sector or its external stability more generally”.124 The principal organisation tasked with international AML regulation is FATF and its regional affiliates, such as CFATF. FATF has set the international standards on combating ML and TF by creating 40 AML recommendations and 9 CFT recommendations.125 They have become unparalleled and unchallenged global soft-law rules.126 They define ML as the “processing of criminal proceeds to disguise their illegal origin”,127 which aligns with other definitions including the International Compliance Association’s.128 It is probably one of the more easily recognisable economic crimes – perhaps due to its depiction in popular culture.129 Often, legitimate businesses are used as laundering fronts. A well-known example was the US Pizza Connection trial, whereby a Mafia-run drug trafficking operation utilised independent pizza restaurants to launder money to Italy, resulting in 21 convictions.130 The principal objective of a criminal laundering money, or a facilitator, is to create the perception the wealth was legitimately acquired. For example, using 124 IMF (2016) ‘The Fight Against Money Laundering and the Financing of Terrorism’. 125 FATF Recommendations 2012. See Appendix I for table of FATF Recommendations. Reference to the Recommendations henceforth should be cross-referenced with Appendix I. 126 Sharman, J.C. (2016) supra 52, [4]. 127 FATF (2016) ‘Money Laundering’. 128 International Compliance Association (2018) ‘What is Money Laundering?’. They define it as: “the “process by which criminals disguise original ownership and control of the proceeds of criminal conduct by making such appear to have derived from a legitimate source”. 129 For example, money laundering has been a theme in films and television shows, such as Wolf of Wall Street (2013); HBO’s Wizard of Lies (2016); Netflix’s Ozark (2017-); Sky’s Riviera (2017-), and Showtime’s Billions (2016-). 130 For further information on the Pizza Connection trial, see Kelly, R. ‘The Pizza Connection: Selling Dough and Dope’, in Kelly, R. (1999) The Upperworld and the Underworld – Case Studies of Racketeering and Business Infiltrations in the United States, New York: Kluwer Academic, [119-134]. 30 a restaurant’s quiet periods to absorb criminal money into otherwise legitimate trade. Unless investigators laboriously survey the restaurant, this is an effective laundering strategy. Concerning consequences of ML are the effects it can have on financial stability or the integrity of a financial market. In July 2018, reports of ML allegations totalling $8.3bn involving Denmark’s largest bank, Danske, caused their share price to fall 3 percent.131 Elsewhere, Deutsche Bank were reported as being involved in this scandal, with their share price falling 3.4 percent.132 In 2012, allegations were made by the New York Department of Financial Services that Standard Chartered bank had breached US sanctions in scheming to hide thousands of Iranian government transactions.133 The allegation, involving $250bn illegally-moved money in the financial system, risked the bank losing its ability to trade in the US. Its shares immediately fell 6 percent following the initial report, and 24 percent the following day.134 In real terms, £11.5bn was wiped off the bank’s market value since the allegations. In 2016, following HSBCs significant $1.9bn enforcement fine for violations of AML controls, sanctions and for assisting “drug kingpins and rogue nations”,135 the US House Committee on Financial Services published a report detailing the extent to which HSBC was, effectively, “too big to jail”. This showed that US officials did not prosecute HSBC due to concerns that enforcement would cause a “global financial disaster”.136 Interestingly, given HSBC is headquartered in London, the report detailed that the then-UK Chancellor, George Osborne “intervened in the HSBC matter by sending a letter to Federal Reserve Chairman … to express the UK’s concerns regarding US enforcement actions against British banks” and that prosecuting HSBC could have “very serious implications for financial and economic stability, particularly in Europe and Asia”. While it might be difficult to determine the impact dirty money has on a financial system once it has been integrated therein, it is clear from the above examples that the reputational harm caused by allegations of ML against well-known financial institutions can cause financial instability in the markets, as well as the ramifications for innocent third-parties like share-holders, employees and the public. The ‘too big to jail’ reality is troubling given the revocation of trust in banking institutions following breaches of AML controls and allegations of facilitating criminality. In a US Senate Investigation, it was found that HSBC and its US 131 Financial Times (4 July 2018) ‘Danske Bank shares fall on money laundering allegations’. 132 CityAM (6 December 2018) ‘Deutsche Bank shares drop to new all-time low after report ties it closer to Danske scandal’. 133 The Guardian (7 August 2012) ‘Standard Chartered bank accused of scheming with Iran to hide transactions’. 134 The Guardian (7 August 2012) ‘Standard Chartered shares slump amid Iran allegations’. 135 BBC News (11 December 2012) ‘HSBC to pay $1.9bn in US money laundering penalties’. 136 BBC News (12 July 2016) ‘HSBC avoided US money laundering charges because of ‘market risk’ fears’. 31 affiliate exposed the US financial system to a “wide array of money laundering, drug trafficking, and terrorist financing risks due to poor anti-money laundering controls”.137 The investigation averred that HSBC serviced high-risk affiliates, disregarded terrorist financing (‘TF’) links, offered bearer share accounts and cleared suspicious bulk travellers checks. It was alleged that HSBC’s US bank, HBUS, offered “correspondent banking services to HSBC Bank Mexico, and treated it as a low risk client, despite its location in a country facing ML and drug trafficking challenges, high risk clients, high risk products like US dollar accounts in the Cayman Islands, a secrecy jurisdiction, and weak AML controls. The Mexican affiliate transported $7bn in physical US dollars to HBUS from 2007 to 2008, outstripping other Mexican banks, even one twice its size, raising red flags that the volume of dollars include proceeds from illegal drug sales in the US”.138 This demonstrates that lack of implementation of AML controls can be seen in even the most renowned financial institutions. Mere reports of their involvement in ML may be enough to cause financial instability, let alone any meaningful enforcement action involving the criminal justice system which, based on the HSBC example, carries the perception that financial turmoil may ensue. For OFCs, the occurrence of ML through its financial institutions, or controls being assessed as lacking, adversely affects their financial sectors, such as reputational stigma, sanctions from failing assessments, or de-risking by institutions. The IMF views combatting ML as both a moral imperative and economic necessity. While ML victims are hard to ascertain (in that there might not be a direct nexus between the process and the harm it causes anyone) it is nonetheless a serious crime139 warranting a serious response. Holistically, there are victims further down the chain, like a teenager buying heroin, or communities with neglected public transport due to embezzlement. Such victims are certainly imaginable. More specifically, the aforementioned banking fines evidence the point that it undermines financial institutions.140 The IMF emphasises that the adversities of ML are not simply domestic, but global and that those seeking to abuse the complexity of the global financial system are often attracted to countries with lesser, ineffective controls to operate undetected. With a remit of promoting transparency, TI has raised some potent concerns about the relationship between ML, tax offending and development.141 In an open letter to the G20, 137 US Permanent Subcommittee on Investigations, (16 July 2012), ‘HSBC Exposed U.S. Financial System to Money Laundering, Drug, Terrorist Financing Risks’, Press Release. 138 Ibid. 139 Schedule 1, Serious Crime Act 2007. 140 Simser, J. (2012) ‘Money laundering: emerging threats and trends’, Journal of Money Laundering Control, 16(1): 41-54. 141 TI (2010) ‘Exploring the Relationship Between Corruption and Tax Revenue’. 32 blaming the global financial architecture, TI stated: “When a global financial system allows billions of dollars of corrupt or stolen money to flow unchecked around the globe, something is wrong. When the poor of this world see the wealth of their countries slip beyond their borders, something must be done”.142 TI called on the G20 to “ensure multinational corporations publish information on a country-by-country basis on revenue, profits and taxes paid so that citizens can scrutinize where money is earned and where it may be going missing”.143 While this call resembles a ‘control first’ theory of regulatory intervention,144 it demonstrates the seriousness of thought attached to the question of suspect wealth and its impact on development. It is also seen in the EU 5th AML Directive.145 Increased public scrutiny is being advocated by campaigners and governments. However, the Panama and Paradise papers exposed not only widespread use of OFCs and many instances of economic misconduct, but also a calamitous leak of confidential information relating to legitimate activity. Considering such information from an enforcement perspective might therefore be better left to competent government authorities rather than the public, of which more in chapter 7. While ML is inherently serious, as the above concerns denote, it is the facilitation process by professionals, financial institutions and certain jurisdictions alike which is equally problematic. This includes making use of bank secrecy laws, shell companies and professionals who know the law – or, rather, its wriggle-room. Shell companies are common legal entities used as transactional vehicles146 often acting as intermediaries in transactions without creating value. They do not typically engage in any traditional commercial activity.147 A common excuse for money flowing in and out of a shell company is “consultancy fees”.148 There is significant literature on shell companies, with prominent work conducted by Findley, Nielson and Sharman (2014) who conducted a study about the willingness of corporate service providers (‘CSP’) to incorporate shell companies under certain circumstances.149 The reality 142 Ibid. 143 Ibid. 144 Gordon and Morriss (2014) supra 29. 145 Council of the EU (2018) Press Release 242/18, ‘Money laundering and terrorist financing: new rules adopted’. Also, European Commission (2016) Proposal for a Directive of the European Parliament and of the Council amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing. 146 Garner, B.A. (2009) Black’s Law Dictionary, West. 147 Nefsky, R.L. (1977) ‘Federal Income Taxation and Real Estate Development: Death Knell for Shell Corporations?’, Nebraska Law Review, 56(3): 659-675. 148 Gordon, R.K. (2009) Laundering the Proceeds of Public Sector Corruption, Washington DC: World Bank, [18]. 149 Findley, M.G., Nielson, D.L., and Sharman, J.C. (2014) Global Shell Games: Experiments in Transnational Relations, Crime, and Terrorism, Cambridge: CUP. 33 is, as Alldridge posits, secrecy costs less than disclosure.150 Shell companies can facilitate laundering the proceeds of grand corruption, tax offending, terrorism and corporate crime.151 This does not only take place in jurisdictions like the ones the Panama and Paradise papers exposed. Rather, laundering can be achieved equally, if not more effectively through major financial markets. The study by Findley et al (2014) clearly evidences this conclusion. One of their findings, after soliciting some 3,700 CSPs, was that “tax havens that have long been suspected to be weak links in the global financial system are among the most law-abiding countries anywhere in the world when it comes to beneficial ownership standards”.152 They found CSPs in tax havens were “significantly more likely” to comply with rules than providers in OECD countries.153 Surprisingly, they suggest that OECD countries are the least compliant compared to poorer, developing countries.154 This supports the idea that in larger institutions or jurisdictions, control deficiencies might be more vulnerable particularly for small transactions which might go undetected. It has long been recognised that even highly-developed jurisdictions face difficulty bringing economic crime prosecutions. Certain controls have severe regulatory and legislative deficiencies, such as the unverified nature of the UK’s persons with significant control of companies register (‘PSC’). For example, the Law Commission (2010) branded corporate liability laws “inappropriate and ineffective”.155 Prior to the new corporate liability legislation in the UK, the government stated in 2015 that under the existing law it was extremely difficult to hold corporations to account for the criminal actions of their agents.156 Notwithstanding the deficiencies identified in regulatory regimes,157 it is a paradox to which caution should be attributed when criticising smaller jurisdictions for their failings. It also evidences the pressure smaller jurisdictions have long faced to increase regulatory controls. 150 Alldridge, P. (2001) ‘Money laundering: emerging threats and trends’, Journal of Money Laundering Control, 16(1): 41-54, [280]. 151 Sharman, J.C. (2010) ‘Shopping for Anonymous Shell Companies: An Audit Study of Anonymity and Crime in the International Financial System’, Journal of Economic Perspectives, 24(4): 127-140, [127]. 152 Ibid, [170]. 153 Findley et al (2014) supra 149. 154 Ibid. 155 Law Commission (2010) Consultation Paper 195, ‘Criminal Liability in Regulatory Contexts’, para 5.84. 156 UK Government (2015) Consultation on a New Corporate Offence of Failure to Prevent Tax Evasion. 157 See: TI (2015) ‘Don’t Look, Won’t Find: Weaknesses in the Supervision of the UK’s Anti-Money Laundering Rules’; and, TI UK (2014) ‘National Risk Assessment of Money Laundering and Terrorist Financing’, Submission for HM Treasury and Home Office, May 2014, [3]. 34 2.2.3. Concerns about Tax Evasion and Avoidance Tax evasion and avoidance represents a category of conduct for which there is deep concern – particularly about the widespread effects it is seen to have on development.158 I call it a category because they have become notionally and normatively conjoined. Tax Justice Network (‘TJN’) calls this category “tax cheating”.159 Confusion has emanated, in part, due to the classification of many types of complex fiscal dealings as falling within a grey area between evasion and avoidance. In some English cases, judges have distinguished tax avoidance from tax planning and mitigation.160 The problem was articulated by Devereux et al (2012) who noted, “reasonable people can take different views of which category certain transactions fall into and only the highest court can give a definitive answer”.161 With this manifests a growing disquiet towards the tax practices of the wealthy and multinational corporations.162 The concept of ‘fair share of tax’ is an embodiment of this disquieting sentiment,163 and tax justice advocates are gaining increasing momentum in the fight against avoidance.164 However, there is consensus in the literature that no theory of taxation exists that has been able to conclude what the optimal level of taxation should be.165 First, a remark on definitions. The characteristic distinguishing tax evasion and tax avoidance is illegality.166 Specifically, one is criminalised and one is not. Famously, Lord Tomlin in IRC v The Duke of Westminster [1936] identified that legitimately ordering one’s affairs to pay less tax may render dissatisfaction and lack of appreciation by one’s fellow taxpayers or the tax authority.167 There is a clear rationale for criminalising tax evasion, rooted in its dishonesty element. Indeed, the mens rea requirement is that the evader has to deliberately and knowingly fail to disclose income or the correct level of income and thus not pay some or all tax due. It is similar to fraud or theft, as dishonesty is integral to the offence 158 UN Conference on Trade and Development (2015) ‘World Investment Report: Reforming International Inequality Index’ 159 TJN (2018) ‘Tax Avoidance’. 160 For example, Commissioners of Inland Revenue v Willoughby (1st and 2nd Appeals) (Consolidated) [1997] Opinions the Lords of Appeal for Judgment in the Case, per Lord Nolan. 161 Devereux, M.P., Freedman, F., and Vella, J. (2012) ‘Tax Avoidance, Paper 1’, Oxford University Centre for Business Taxation, [3]. 162 TJN (2012) supra 27. 163 Datt, K.H. (2014) ‘Paying a fair share of tax and aggressive tax planning – A tale of two myths’, eJournal of Tax Research, 12(2): 410-432, [410]. 164 BBC News (14 November 2017) ‘Paradise papers: government urged to tackle tax avoidance in budget’. 165 Tanzi, V., ‘Tax systems in the OECD: recent evolution, competition, and convergence’, in Albi, E., Martinez-Vasquez, J.(eds) (2011) Elgar Guide to Tax Systems, Cheltenham: Elgar, [11-37], [32]. 166 For a complex review of theoretical and practical models characterising tax evasion and tax avoidance see: Slemrod, J., and Yitzhaki, S. ‘Tax Avoidance, Evasion, and Administration’, in A. J. Auerbach and M. Feldstein (eds) (2002) Handbook of Public Economics, Vol 3, Elsevier Science B.V., [1425-1442], [1428]. 167 Supra 28, [19]. 35 and distinguishes it from avoidance. On a philosophical level, it is a cardinal ‘social contract’ offence. While tax evasion is clearer to understand (because it might be clearly defined as illegal under a country’s criminal code), there remains no universally-accepted definitions of tax evasion or avoidance. This might exacerbate the grey area between them. Mr Justice Holmes articulated this principle in Bullen v Wisconsin [1916]: “When the law draws a line, a case is on one side of it or the other, and if on the safe side is none the worse legally that a party has availed himself to the full of what the law permits. When an act is condemned as evasion, what is meant is that it is on the wrong side of the line”.168 TI defines tax evasion as “the illegal non-payment or under-payment of taxes usually by deliberately making a false declaration or no declaration to tax authorities”. 169 For example, someone not declaring weekend income. However, tax avoidance uses legitimate structures, legal entities and sometimes complex financial transactional frameworks, usually for the purpose of paying less tax. HMRC recently issued guidance on what tax avoidance is and suggests it “involves the bending of the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage. It involves operating within the letter but not the spirit of the law”.170 TJN suggest that “tax avoidance is probably the most misunderstood and misused word in the field of tax”,171 as a lot of what we think of as tax avoidance actually resides in a grey area. Trying to understand the distinction is unsurprisingly difficult – particularly given the complexity of certain actions resembling evasion and avoidance. As Xuereb (2015) acknowledges, the distinction question is not a new phenomenon as the differences have been contested since 1900.172 The distinction was recognised by the Royal Commission on the taxation of profits and income (1955) (‘The Radcliffe Commission’): “It is usual to draw a distinction between tax avoidance and tax evasion. The latter denotes all those activities, which are responsible for a person not paying tax that the existing law charges upon… Tax avoidance [is] understood as some act by which a person so arranges his affairs that he is liable to pay less tax than he would have paid for the arrangement”.173 This principle is enshrined in English law, that no one is obliged to pay more tax than is otherwise due. It was 168 Bullen v Wisconsin [1916] 240. U.S. 625, Justice Holmes at [630]. 169 TI UK Anti-Corruption Glossary, sv. tax evasion/tax avoidance. 170 See: HMRC (2016) ‘Guidance: Tax Avoidance – an introduction’, for reference to the spirit and letter of the law. Also, Bulbuc, C., (2016), ‘Where is the dividing line between acceptable and unacceptable tax planning for corporates’, Tax Journal; and, Xynas, L. (2010) ‘Tax Planning, Avoidance and Evasion in Australia 1970-2010: The Regulatory Responses and Taxpayer Compliance’, Revenue Law Journal, 20(1): 1-37, [19]; and Nagato, T. (2017) ‘A General Anti-Avoidance Rule (GAAR) and the Rule of Law in Japan’, Policy Research Institute, Ministry of Finance, Japan, Public Policy Review, 13(1): 35-70, [47]. 171 TJN (2018) supra 159. 172 Bullivant v AG [1900], AC 196. 173 Xuereb, A. (2015) ‘Tax avoidance or tax evasion?’, Symposium Melitensia, 10: 217-229, [217]. 36 first espoused by Lord Tomlin in the Duke of Westminster [1936] case: “Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow tax-payers may be of his ingenuity, he cannot be compelled to pay an increased tax”.174 The spirit of the law is a dubious concept, because it is about perceived intention. As Garcia et al (2014) note, ordinary people will not always know the exact information and rationale behind any given law. They suggest, “Even lawmakers themselves may well forget the exact intention of any given law [and] … the construal process – how people perceive any situation, person, or target – is itself highly subjective”.175 In the context of spirit, it is also fair to say that when considering the perceived intention of legislatures, it is not helped if legislatures are regularly embroiled in moral scandal such as the 2017-18 sexual harassment scandal in the UK Parliament, or the 2009 Members of Parliament (‘MP’) expenses scandal. Society also encourages various fiscally beneficial schemes such as the multi-million pound “duty free” retail industry at UK airports. Second-guessing Parliament’s intention is not a pre-requisite for operating within the letter of that law. As one commentator noted in relation to the expenses scandal “extravagance, genuine mistake, sly acquisitiveness and outright criminal fraud are now jumbled together in the national mind as though there were no moral differences”.176 The Panama and Paradise papers exposed significant tax evasion and avoidance worldwide and have raised awareness of this global phenomenon. They have propelled issues of transparency into the forefront of government policy.177 More traditionally, the evasion- avoidance debate typically concerned relevant professionals, such as specialist accountants and lawyers.178 However, ‘tax justice’ as a subject of activism, has been increasing in potency, particularly from NGOs and charities. The Lima Declaration (2015) articulates the nexus between tax justice and human rights.179 There have also been several recent books addressing the issue of international tax justice, which is indicative of the momentum in this field.180 As Hearson (2017) observes, the shift in the literature on tax justice appears to have graduated 174 Supra 28. 175 Garcia, S.M., Chen, P., and Gordon, M.T. (2014) ‘The letter versus the spirit of the law: A lay perspective on culpability’, Judgment and Decision Making, 9(5): 479-490, [480]. 176 Sunday Times (23 May 2009) ‘Kick them – but don’t kick all the stuffing out’. 177 For example, Clause 6, Sanctions and Anti-Money Laundering Bill (UK). 178 Hearson, M. (2017) ‘The challenges for developing countries in international tax justice’, Journal of Development Studies, [1]. 179 Lima Declaration on Tax Justice and Human Rights 2015. 180 For example, Kohonen, M., and Mestrum, F. (2009) Tax Justice: Putting Global Inequality on the Agenda, London: Pluto Press; and, Zucman, G., (2015) The Hidden Wealth of Nations: The Scourge of Tax Havens, Chicago: University of Chicago Press. 37 from a micro-level country-based approach heavily focused on the relationship between tax and development,181 towards a global focus given the evolving international financial architecture. The antithesis of tax justice is tax competition, which is under formidable scrutiny. Important work on this issue can be found in Dietsch (2015) where the problematic aspects of tax evasion and avoidance are considered. Dietsch highlights the concerns of NGO activists, by contending that “tax evasion and the shifting of profits to low-tax jurisdictions represent egregious forms of free-riding on the part of capital owners and one of the most blatant injustices of modern economic societies”.182 His thesis supports the moral imperative of tax justice, arguing that the current tax competition winners have a moral obligation to compensate the losers and that tax competition undermines the fiscal self-determination of states, and that it widens inequality. These views are not uncommon amongst those engaged in anti-tax competition and tax justice thinking.183 A significant theme in tax justice literature is the status of tax havens. The presupposition is that they victimise developing countries.184 Many tax justice solutions over the last decade centre on globalisation and tax harmonisation, calling for tax competition to be globally regulated, for example, by creating a global tax institution capable of enforcing universally-accepted tax rules. In other words, tax harmonisation. TJN (2012) claims that “at least $21 to $32tn as of 2010 has been invested virtually tax-free through the world’s still-expanding black hole of more than 80 “offshore” secrecy jurisdictions.”185 They suggest the scale of the offshore economy is “large enough to have a major impact on estimates of inequality of wealth and income; on estimates of national income and debt ratios; and – most importantly – to have very significant negative impacts on the domestic tax bases of key “source” countries”.186 The impact on the developing world is also well-documented. Developing countries lose at least $100bn annually through corporate tax avoidance.187 TJN suggest that the serious harms caused by the offshore system chronically affects “many of the world’s poorest countries”.188 Oxfam (2018) claim that developing countries are losing at least $170bn each year in “foregone tax revenues from 181 For recent empirical work on tax and development, see: Brauner, Y., and Stewart, M. (2013) Tax, law and development, Cheltenham: Edward Elgar; Fuest, C., & Zodrow, G. R. (2013) Critical issues in taxation and development, Cambridge, Massachusetts: MIT Press; and, Brautigam, D., Fjeldstad, O-H., and Moore, M. (2008) Taxation and state-building in developing countries: capacity and consent, Cambridge: CUP. 182 Dietsch, P. (2015) Catching Capital: the ethics of tax competition, Oxford: OUP, [229]. 183 Zucman (2015) supra 180. 184 Hearson (2017) supra 178. 185 TJN (2012) supra 27, [5]. 186 Ibid. 187 Oxfam (2016) ‘Tax Battles: The dangerous global Race to the Bottom on Corporate Tax’, [3]. 188 TJN (2012) supra 27, [11]. 38 corporations and the super-rich”,189 and that at least $7.6tn is being hidden from tax authorities, facilitated by a network of tax havens. These concerns represent a real problem in the context of illicit flows depriving countries of tax revenues to help their development.190 There is significant evidence indicating corrupt politicians are engaged in illicit capital flows as a result of bribery, ML and associated crime,191 notwithstanding profit-shifting by large multinationals. In respect of the latter, profit-shifting, controlled transactions, intra-firm debt or transfer pricing mechanisms, combined with use of offshore networks, can facilitate this. This is attracting concern, perhaps moreso than tax evasion, given multinationals’ income and global participation. There have been several recent high-profile reports of large-scale profit shifting, such as Google’s use of companies in the Netherlands and Ireland to transit billions in profit to Bermuda, through the popular double Irish, Dutch sandwich avoidance mechanism.192 When the concerns mentioned below demonstrate the suffering caused by evasion and avoidance, it is unsurprising that these scholarly arguments are gathering momentum. With regards to the jurisdictions perceivably facilitating this, data-breaches have sought to expose the perceivably shady activities of the offshore world. Away from the media’s contribution, there is prevalent scholarly work trying to unearth who actually owns the wealth hidden offshore.193 There is consensus that this is increasingly difficult to measure in a globalised world, where the financial interests of the rich are often complex and multi- jurisdictional.194 Alstadsæter et al (2017) conducted a recent analysis of new macroeconomics statistics about measuring household wealth owned by OFC jurisdictions, and questioned whether the wealth is owned by ultra-rich households, corrupt elites or a broader section of the population. They found that 10% of global wealth is held offshore and that in certain regions a far greater share is held offshore. They found, for example, that around 60% of the wealth of the richest households in Russia is offshore. They suggest that offshore wealth is likely to have major implications for the concentration of wealth in many of the world’s developing countries,195 which demonstrates the impact this can have on the stability of others. 189 Oxfam (2016) supra 10, [12]; Also, Zucman (2015) supra 180. 190 Fuest, C., and Riedel, N. (2010) ‘Tax Evasion and Tax Avoidance in Developing Countries: The Role of International Profit Shifting’, Oxford University Centre for Business Taxation WP 10/12. 191 For example, the conviction of Pakistan’s former Prime Minister, as explained in chapter 3. 192 The Guardian (3 January 2019) ‘Google shifted $23bn to tax haven Bermuda in 2017, filing shows’. 193 Alstadsæter, A., Johannesen, N., and Zucman, G. (2017) ‘Who Owns the Wealth in Tax Havens? Macro Evidence and Implications for Global Inequality’, NBER Working Paper 23805, 1-19. 194 Ibid. 195 Ibid, [19]. 39 2.3. Economic Misconduct: Ambivalence As alluded to above, particularly in the context of tax evasion and avoidance, but also corruption, there is significant ambivalence about these types of misconduct. There are differences in how people, societies, cultures and governments view and deal with them. For example, corruption is viewed by many as a “cancer”, but by others as essential to obviate bureaucracy if timely project implementation is a development goal, for instance in post- conflict zones. Some OT leaders have engaged in such behaviour to implement projects, yet some have suggested this amounts to rule-breaking rather than corruption,196 despite breaching fiduciary duties. One of the responses is transparency, of which there is an increasing prevalence emerging towards openness particularly in the context of corporate ownership. There seems to be a move to a ‘control first’ theory of financial market regulation,197 particularly prominent since the global financial crisis. To this effect, the compliance sector has increased to an industrial scale. It is civilised western jurisdictions which have become more widely accepted as playing host to flight capital from poor nations.198 Major financial markets and institutions are now perceived to be the centre of abuse, as cases like the HSBC fine demonstrate. Other imagery is that it occurs “in the suites”199 or, contrastingly, in tropical Caribbean islands.200 Corruption and associated misconduct has been seen at the highest levels. Prominent examples include the 2015 FIFA corruption scandal and ML investigations; the recent conviction of King Felipe VI’s brother-in-law, the former Duke of Palma de Mallorca, for embezzlement; and the Watergate scandal which led to the resignation of US President Richard Nixon in 1974. Many economic misconducts are inherently deviant and malum in se. For example, dishonestly persuading people to invest savings in a fraudulent scheme, such as that perpetrated by Bernard Madoff.201 However, the ambivalence sets in when the conduct is less inherently deviant. For example, legally setting up a service company to benefit from low corporation tax, or committing inside-trading because someone provides a tip, or not 196 In the closing remarks to the Commission of Inquiry (2016), Jerome Lynch QC, representing former Bermuda Premier Ewart Brown, submitted that if a rule or two had to be bent when awarding government contracts, then it had nothing to do with corruption and everything to do with redressing the balance, The Royal Gazette (1 December 2016) ‘Brown’s lawyer: Rules were ‘bent’’. 197 Gordon and Morriss (2014) supra 29, [4]. 198 Otusanya, O.J. (2012) ‘The role of OFCs in elite money laundering practices: evidence from Nigeria’, Journal of Money Laundering Control, 15(3): 336-361, [336]. 199 For example, Sutherland (1949) supra 1. 200 For example, Shaxson (2011) supra 31. 201 The investment manager convicted of perpetrating the largest Ponzi-scheme in history. 40 disclosing part-time work on a tax return. Through the latter part of the 20th century, some types of acquisitive misconduct were viewed as victimless.202 Manne’s (1985) work on insider dealing and market abuse demonstrates this point.203 He observed that in the latter part of the 20th century, legal and economic scholars began to view insider dealing in a less emotively- charged manner. By contrast, events of the last two decades, such as the global financial crisis, have increased public outrage about corporate greed, corrupt elites and multinationals’ tax avoidance. Exemplifying this were the lack of convictions of any financial executives following the worst recession in recent history caused by irresponsible risk-taking and lending practices.204 Discontent is understandable when considering the financial industry bonus pool was approximately $30bn in 2013, and executive pay averaging $15m.205 It appears that the perceived perpetrators of such misconduct206 fit Sutherland’s definition, who may have anticipated those who would cause global recessions. Economic misconducts raise legitimate questions, such as: when is a gift a bribe? When does corporate hospitality fall within the purview of anti-bribery legislation? Who are the victims of ML? At what point is aggressive fiscal planning the same as tax evasion?207 Is insider dealing harmful?208 Is rule-bending acceptable if for the greater good? These questions add to the confusion and may explain the difference in the way certain behaviours are viewed in different jurisdictions. For example, there is disparity between the way nations have ratified international conventions advocating best practices (e.g. OECD Bribery Convention and UNCAC). If these instruments are meant to epitomise universally-accepted responses to tackling economic crime and suspect wealth, then it is surprising to see such differences in countries’ approaches. A good example relates to unexplained wealth. UNCAC recommends countries to criminalise illicit enrichment,209 a significant increase in the assets of a public official that they cannot reasonably explain in relation to their lawful income. Many countries 202 Brody, R.G. and Kiehl, K.A. (2010) ‘From white-collar crime to red-collar crime’, Journal of Financial Crime, 17(3): 351-364, [364]. 203 Manne, H. (1985) ‘Insider Trading and Property Rights in New Information’, Cato Journal, 4(3): 933- 957. Manne makes bold claims questioning the rules against insider dealing. 204 Zales, J.L. (2016) ‘$22 Trillion Lost, Zero Wall Street Executives Jailed: Prosecutors Should utilize Whistle-blowers to Establish Criminal Intent’, Notre Dame Journal of International and Comparative Law, 6(1): 167-188. 205 Attorney General Eric H. Holder, Jr., Remarks on Financial Fraud Prosecutions at NYU School of Law (7 Sept 2014). 206 Calhoun, C. (2013) ‘Occupy Wall Street in perspective’, British Journal of Sociology, 64(1): 26-38. 207 Goodall, A (2013) ‘Cameron questions distinction between tax evasion and aggressive tax avoidance’, Tax Journal, Iss. 1158. 208 Manne (1985) supra 203. 209 Article 20, UNCAC. 41 have implemented this, including Lithuania,210 Romania,211 Argentina212 and India.213 However, others utilise civil asset recovery laws, rather than the criminal law, to meet the spirit of the recommendation. This is due to various reasons including the possibility that criminalisation could undermine fundamental human rights, such as the right to a fair trial or presumption of innocence.214 Reverse-burden shifting in the criminal context is seldom desirable, save for exceptional circumstances like pleading a defence of diminished responsibility. Ireland, Australia and the UK have implemented UWOs legislation. It places a rebuttable presumption on the asset holder (usually a politically exposed person (‘PEP’), someone involved in serious crime, and their associates) that the asset was funded by ill-gotten gains. The recipient can obviate this by providing a factual explanation as to its legitimate source. False statements can give rise to criminal liability.215 Therefore, even for something like unexplained wealth, where a conviction of bribery is not necessary, there is still disparity between the way some jurisdictions respond, even those within same political unions. It will be interesting to monitor this recent development in the UK, particularly given that the Home Office predicted that after the implementation period, 20 would be obtained annually.216 In Ireland it has been perceived as a welcomed tool, whereas in Australia it has been perceived as less successful.217 Interestingly, and notwithstanding the recent ML allegations relating to the Estonian branch of Danske bank,218 the Estonian government recently rejected UWO- style legislation on the grounds that it was not specific enough.219 The Legal Affairs Committee averred it did not want to cause anxiety to honest people. Some have suggested that the success of UWOs will invariably be “country, context and content specific”,220 rather than something more harmonious. Based on differences in approach, there is merit in this thinking on a broader scale. 210 Article 189-1 Criminal Code. 211 Article 267 Criminal Code. 212 Article 286 Penal Code. 213 Article 13 Prevention of Corruption Act 1988. 214 Article 6, ECHR. See, Thomas-James (2017) supra 14. 215 326E Criminal Finances Act 2018. 216 UK Home Office (1 November 2016) Criminal Finances Bill – Unexplained Wealth Orders Impact Assessment, [3]. 217 Reurts, N. (2017) ‘Unexplained Wealth Laws: The Overseas Experience’, Bright Line Law (14 March 2017). 218 The Guardian (4 October 2018) ‘Danske Bank faces US investigation into money laundering’. 219 KYC360, (18 January 2019) ‘Anti-money laundering: Estonia rejects plans for ‘unexplained wealth orders’. 220 Reurts, N. (2017) supra 217, [18]. 42 Disparity is also seen with AML. There is consensus that targeting criminal property removes crime’s profitability and, in consequence, disrupts criminal activity.221 The international AML campaign has seen a push towards universalism,222 demonstrating a shared appreciation of risks and adverse consequences. All EU member states criminalise ML, however there has been stark differences in legislation and case disposal. For example, the mens rea requirement is different between states. Until recently, there had not been an EU- wide minimum or maximum penalty for those convicted of laundering offences. According to the European Commission study on Criminal Sanctions Legislation and Practice in Respect of Member States (2014), this could explain the differences in the way states deal with ML cases.223 This has wider ramifications for enforcement efforts and the partnership of nations vis-à-vis intelligence sharing and investigations involving multiple jurisdictions. Given that the EU calls for shared values and responses, if there is visible disparity, then cross-border efforts and judicial cooperation may be jeopardised.224 The EU itself has still not ratified the Warsaw Convention,225 yet in furtherance of this and complementing the 5th AML Directive, in June 2018 the Council and Parliament agreed to the Countering Money Laundering by Criminal Law Directive.226 This will require members to implement agreed standards such as establishing a minimum maximum ML sentence of 4 years, minimum standards for aggravated cases, and liability for legal entities.227 If adopted, members will have 24 months to implement the proposals into domestic legislation. The fact that this source of law comes as an EU directive means individual states can go further as it simply sets the bar with the aim of increasing cooperation. The EU stated: “the lack of uniform definitions and penalties currently allows criminals to exploit these differences and commit crimes where penalties are the lowest”.228 This is concerning particularly when faced with an EU Commission estimate 221 Gordon, R.K. (2011) ‘Losing the War Against Dirty Money: Rethinking Global Standards on Preventing Money Laundering and Terrorism Financing’, Duke Journal of Comparative and International Law, 21: 503-565, [505]. 222 FATF Recommendations demonstrate this emphasis on internationally-accepted soft-law standards. 223 For example, in the UK the maximum prison sentence for money laundering is 14 years. In Italy it is 12 and in Lithuania it is 7. In Denmark, legislators are currently raising the maximum sentence from 6 to 8 years. 224 See European Commission Security Union (21 December 2016) Proposal for a Directive on Countering Money Laundering by Criminal Law – Questions and Answers. 225 Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds of Crime and on the Financing of Terrorism, Warsaw, (16 May 2005). 226 European Commission, Proposal for a Directive of the European Parliament and of the Council on countering money laundering by criminal law, Brussels, 21 December 2016, 2016/0414. 227 Council of the EU, Press Release 320/18, 7 June 2018: ‘EU agrees new rules to make sure money laundering criminals are punished’, and Ibid Article 7. 228 Ibid. 43 that in some member states as much as 70% of laundering cases consist of some cross-border element.229 The ambiguity is also well-voiced in scholarship. One observation I have alluded to which is seen in the development literature, is that corruption can be perceived as a facilitative tool, such as during post-conflict re-development.230 This is particularly pertinent if bureaucracy is excessive, and exacerbated if corruption is systemic in society.231 The idea of obviating unnecessary bureaucracy for rebuilding efforts to help development, might make corruption seem more justifiable than objectionable. This is easier to envision in circumstances of emergency, such as housing people. These features are important to note, particularly when academic participation in this area is relatively limited.232 There is also ambiguity in the tax debate and conflation between evasion and avoidance. Despite similarities, I have advanced important differences between the two. Unsurprisingly, many governments have voiced their opposition to aggressive tax avoidance.233 Viewing the two indiscriminately, however, is not simply a habit confined to politicians and the media, as Alldridge notes.234 Many phrases look similar: ‘tax cheating’, ‘tax escaping’, ‘tax dodging’, ‘aggressive tax avoidance’, ‘estate planning’,235 ‘fiscal planning’, and ‘tax mitigation’.236 TJN blamed “offshore tax shenanigans” as being a significant source of global inequality.237 However, English courts have been seen to distinguish avoidance from tax planning, as was emphasised by Lord Hoffmann in MacNiven v Westmoreland Investments [2001].238 The phrase ‘fair share of tax’ is problematic because it suggests that any innovation which diverts away from the conventional tax-paying exercise is immoral and unfair. Whether tax has a moral basis or a legal basis is a question which sets many legal scholars and social scientists aside.239 The phrase itself is idiosyncratic as it depends on many variables and nuances between tax systems, government spending agendas, cultures and values. Is it fair that in the UK, the top 1% paid just below 27% of all UK income tax in 229 Ibid. 230 Glanville, M. (2016) ‘Corruption and Public Policy in Post-Conflict States’, in Rider (2015) supra 44, [435-443]. 231 Chayes, S. (2016) ‘Corruption and terrorism: the causal link’, in Against Corruption: a collection of essays, 10 Downing Street Policy Paper. 232 Huberts, L.W. (1996) ‘Expert View on Public Corruption Around the Globe’, PSPA Publications, Department of Political Science and Administration, Amsterdam, Vrije Universisteit. 233 HC Deb (11 Feb 2015) Vol. 592, Col. 776, Prime Minister Cameron: “I do feel strongly about tax evasion and aggressive tax avoidance”. 234 Alldridge, P. (2017) Criminal Justice and Taxation, Oxford: OUP, [35]. 235 TJN (2017) ‘Tax avoidance and evasion - the scale of the problem’. 236 Devereux et al (2012) supra 161, [3]. 237 TJN ‘Inequality and Tax Havens’. 238 MacNiven v Westmoreland Investments [2001] UKHL 6, at [257]. 239 Prebble, Z., and Prebble, J. (2010) ‘The Morality of Tax Avoidance’, Creighton Law Review, 43: 693-746, [745]. 44 2016-17,240 yet 15% in 1991.241 The fairness question also applies to multinationals like Apple who paid less than 1% corporation tax in Ireland242 despite the standard rate being 12.5%. Following an EU Commission investigation, Apple was ordered to pay €14.3bn in Irish taxes. Apple averred that it complies with tax laws in the countries it operates in.243 The Commission, however, found that the below 1% tax amounted to illegal state aid. Apple is appealing the decision. When multinationals consider themselves among the world’s largest taxpayers, perhaps they have no moral qualms about legally reducing tax liabilities – if such arrangements are finally deemed legal by the courts. There is a moral imperative to being a taxpayer. This is because law is not the only normative domain in society, as other things guide and influence behaviour, such as religion or ethics.244 Yet, it is a longstanding principle in jurisprudence that a law, and corresponding observance, stands irrespective of whether the law is morally justified or a good law.245 For example, one might view abortion as reprehensible, yet be obliged to pay tax despite it funding abortion treatment. However, important legal concepts risk being conflated through the prism of tax justice. Tax justice presupposes a level of harmonisation and anti-tax competition. As Christians (2014) notes, “creating a single tax compliance framework with which to build a single message about the integral role of morality in taxpayer behaviour”.246 Christians’ thinking examines the policy response in light of the impact of morality-based offensives directed at tax avoidance. However, other scholars like Freyer & Morriss (2014) have extrapolated dissatisfaction with the way influential left-leaning organisations are trying to push ideological view of tax fairness. Some scholars have argued that tax evasion and avoidance should be considered as “one phenomenon”.247 Many have suggested that only the rich can engage in avoiding tax,248 due to the motive of wealth-maximisation and being able to afford to utilising professional advisors. Schakowsky makes the claim that “the world’s rich, well-connected elite play by a different set of rules from everyone else”.249 While the Panama and Paradise papers exposed 240 The Telegraph, (19 March 2017), ‘Tax burden on the wealthy has trebled since the 1970s, Telegraph analysis shows’. 241 UK Government (30 April 2014, updated 25 May 2018) National Statistics: Table 2.4 ‘Shares of total Income Tax Liability’. 242 BBC News (18 September 2018) ‘Apple pays disputed Irish tax bill’. 243 BBC News, (10 January 2018) ‘Apple pays extra £136m in tax after HMRC investigation’. 244 Kelsen, H. (1934/2009) Pure Theory of Law, (2nd ed) New Jersey: Lawbook Exchange. 245 Hart, H.L.A. (1958) ‘Positivism and the Separation of Law and Morals’, Harvard Law Review, 71(4): 593-629. 246 Christians, A. (2014), ‘Avoidance, Evasion, and Taxpayer Morality’, Washington University Journal of Law and Policy, 44(1): 39-59. [39]. 247 Prebble & Prebble (2010) supra 239, [745]. 248 The Guardian, (7 April 2016), ‘If you’re rich, you can avoid paying taxes. That’s got to change’. 249 Ibid. 45 many wealthy and powerful people making use of offshore services, it is a dangerous misconception that only the wealthy engage in it. There are many people engaged in low- level tax evasion and avoidance, and there is a platitude of socially-encouraged tax-avoidance schemes. For example, in 2017/18, HMRC dealt with a record 3809 tax evasion cases.250 The argument that only the elites can afford to avoid tax indicates a prejudice towards the unaffordability, rather than the supposed immorality, of avoiding tax. In other words, loopholes are unfair because only the rich can use them. If tax avoidance is immoral or the law needs reforming, then it should not matter who can or cannot afford it. Given the desirability of wealth-maximisation, it would be interesting to measure whether more people would avoid tax if it was inexpensive.251 This is similar to the argument some scholars have made that insider dealing is harmful because of the unfairness that most of us are outsiders.252 Some economists have argued that tax should be paid by the wealthy because communal services that taxes pay for, like roads and education facilities, contributed to their wealth- generation.253 This quite easily refutes the ‘tax is theft’ argument, which has also been widely discounted. However, tax avoidance is legal and, jurisprudentially, it is important to maintain a distinction between that which is legal and that which is illegal. On insider dealing, scholars like Mann (1985) defended insider dealing by arguing that the opposition to it centres on unfairness. Indeed, Rider talked about whether the outrage emanates from jealously, bitterness or something similarly base.254 The unfairness rationale is hardly a sound basis worthy of invocation of the criminal law. However, the toxicity associated with tax avoidance has intensified recently. For example, the racing driver Lewis Hamilton allegedly avoided £3m VAT on his jet, to which Dame Margaret Hodge MP claimed he should not receive a knighthood and “hold his head in shame”.255 Similarly, the Queen was found to have made offshore investments in Cayman, and was criticised heavily.256 Notwithstanding the illogicality of suggesting there is something improper about a country’s monarch investing therein, not 250 FT Advisor (14 June 2018) ‘HMRC tax evasion cases reach record high’. 251 Many media outlets have published advice for legally saving tax, for example: Which? (2017) ‘30 Ways to Save on Tax’; and, Financial Times (10 February 2017) ‘15 Ways to Reduce your Tax Bill’. Following the Paradise papers, financial commentator Martin Lewis conducted an online survey, receiving 16,700 responses, asking: “If a builder offered you a discount for cash, being pretty clear it meant they would (illegally) evade tax on it, what would you do?” 57% said they would “Grab the discount” while 31% said they would “Pay cash but want invoice” and only 7% would “Refuse to use them”. While the poll was non-representative, it illustrates the earlier point that the notion of ‘getting ahead’ makes the tax avoidance issue far from clear. 252 Rider, B.A.K., and Ashe, M. (1993) Insider Crime, Bristol: Jordans, [1]. 253 Chang, H-J, (2011) 23 Things They Don’t Tell You About Capitalism, London: Penguin. 254 Ibid. 255 HC Deb (7 Nov 2017) Vol 630, Col. 1441. 256 See, The Guardian, (5 November 2017), ‘Revealed: Queen’s private estate invested millions of pounds offshore’. 46 least given Cayman’s stability, there was no tax incentive to the investment which challenges the popular misconception that all offshore investments carry such incentive. The UK government has implemented legislation aimed at failing to prevent the criminal facilitation of tax evasion257 –aimed at the facilitative chain, such as professional enablers. This epitomises not only the concern about tax evasion, but recognises increasing instances where liability can reside with professionals, or in larger corporations for control deficiencies or lacking good corporate governance. The UK government emphasised that “the new corporate offence therefore aims to overcome the difficulties in attributing criminal liability to relevant bodies for the criminal acts of employers, agents or those that provide services for or on their behalf”.258 2.4. Attitudes to the City of London When dealing with perceptions about economic crime and resulting ambiguity, it is worth commenting on the City of London. The City is a major global hub for financial services,259 and while different to the financial centres this thesis concerns, the fact of its scale makes it hugely important in the context of suspect wealth and consequent impact on development. In evidence to a recent Parliamentary report, Keatinge (2019) noted: “As a leading global financial centre, the UK will be dealing with dirty money” and that light-touch regulation had contributed to the UK receiving more than a fair share of suspect wealth.260 There are two distinct sides of the City: the functional and the institutional sides. The former is the financial sector and professional organisations supporting it. The latter is the traditional side which is perhaps the most visible, yet less, understood. This is seen through the City of London Corporation, Mayoralty, and Livery Companies. Regrettably, the complexity of the City is lacking in much of the discourse about economic misconduct.261 Most of those involved in the City Corporation and Livery have little to do with the City’s financial side. However, given the City’s global scope, some suggest that the offshore dimension of international finance is a heinous plot created by secret cabals within the City which is the linchpin of a strategic network of jurisdictions like Jersey and Bermuda, to 257 Part 3, Criminal Finances Act 2017. 258 HMRC (2017) ‘Tackling tax evasion: Government guidance for the corporate offences of failure to prevent the criminal facilitation of tax evasion’, [3]. 259 House of Commons Treasury Committee (2019) Economic Crime – Anti-money laundering supervision and sanctions implementation, [7]. 260 Ibid, remarks of Tom Keatinge, [5]. 261 Its complexity was the subject of Stephen Fry’s 2013 film Key to the City about the Livery Companies and ancient City traditions. 47 resurrect British financial imperialism based on some hidden power-elite in British society.262 The Spider’s Web film portrayed the City’s Annual Lord Mayor’s parade akin to imperial territorialism. While making some important points, it focused its attention on this type of sensationalism, which demonstrates confusion and has wider implications given its educational platform. There are 110 Livery Companies, often styled ‘Worshipful’, which include Vintners, Carpenters, Scriveners and Pattenmakers. Members have municipal voting rights to elect officials like the Lord Mayor. Most Livery Companies have largely charitable functions. For example, the Pattenmakers funds research and design of bespoke orthopaedic footwear for injured service-personnel. At the centre of the apparent conspiracy envisaged by contributions like The Spider’s Web is the Lord Mayor – at the helm of Britain’s “second Empire”. While many come from financial backgrounds, a recent former Lord Mayor, Sir Andrew Parmley, is a school teacher. The Livery Companies collectively donate over £40m to charities each year. Much of the criticism of this side of the City is rather superficial and not worthy of detailed rebuttal. Contrastingly, the City in its functional form has provided opposition to various developments designed to strengthen the approach to certain economic misconducts – particularly those initiatives directed at facilitators and professionals. This is perhaps where the criticism ought to lie. A few examples include the historic opposition to insider dealing legislation, modern bribery legislation, and to the recent failure to prevent offences. Professional firms therein have also been implicated in facilitating large-scale tax avoidance, as found by the UK Committee for Public Accounts in its 2013 inquiry into tax avoidance and the role of accountancy firms.263 2.5. Summary This chapter has considered the impact of suspect wealth and economic crime on development, together with concerns about corruption, ML, tax evasion, and the increasingly stigmatic tax avoidance. It has considered scholarly and functional literature and presented concerns which have manifested at international and supranational levels. It has also briefly introduced the effects domestic economic crime can have on small island jurisdictions. It found that suspect wealth threatens the stability of financial markets and institutions – particularly seen in ML cases implicating large financial institutions. In the development 262 Supra 95. 263 UK Committee of Public Accounts (2013) supra 51, [3]. 48 context, concerns about these economic misconducts pertain to their effect on countries which eventually lose public revenue through corruption, flight capital, ML, tax evasion and theft. There is, however, a degree of ambiguity about certain behaviours – such as the way corruption is viewed in different countries, the way ML cases are disposed of, and the ambivalent debate about tax evasion and avoidance. Having detailed the concerns about such misconduct, chapter 3 introduces and considers the role of tax havens, specifically OTs, in facilitating suspect wealth via their OFCs. 49 CHAPTER 3 THE BRITISH OVERSEAS TERRITORIES AND TAX HAVENS: SUNNY PLACES FOR SHADY PEOPLE? Summary The previous chapter explored the concerns about suspect wealth and its impact on development. It identified that there is an internationally perceived problem comprising corruption, ML, tax and other misconduct which leads to the transiting of, and disposal of, proceeds of crime. This chapter seeks to contextualise the broad group of jurisdictions known as ‘tax havens’ or OFCs, perceived to facilitate economic misconduct and harbour suspect wealth via their offshore services. Through analysing aspects of the Panama and Paradise papers data-breaches, this chapter shows that OTs have become targeted for their perceivably harmful role as tax havens. It outlines some important background information about them, particularly in relation to capacity issues giving rise to resource-allocation questions, as well as their relationship with the UK. Its aim is to put the jurisdictions into context prior considering three specific territories, but also to demonstrate the important role of OFCs in the global financial architecture. It makes the case that the activity therein can have legitimate utility and that some of the conceptions towards them fails to take this into account. 3.1. Jurisdictions Under the Microscope: OFCs The concerns about international suspect wealth are visible in both legislation (hard and soft law) and policy.264 While the problems identified in chapter 2 relate largely to the criminality itself, there is almost a greater problem with where criminal wealth ends up. Case law discussed later in this work demonstrates that OFCs are often used to conceal and dispose the proceeds of crime, as well as enabling the sustainment of lavish ill-gotten lifestyles, through property purchases for example. As Sharman (2017) avers, seldom is public money looted from archipelagic islands in the Caribbean and stashed in developing Africa265 – rather, the other way around. As a result of the sustained interest in tax havens following the Bahamas, Panama and Paradise papers, such jurisdictions are facing increasing pressure about their 264 For example, the UK Bribery Act 2010 is seen as the gold standard in anti-corruption legislation. It has been emulated and followed by many countries reforming their bribery laws, including Bermuda. 265 Sharman (2017) supra 32. 50 perceivably harmful role in the world economy. To this end, there have been many longstanding and recent attempts to impose changes to how they operate.266 So what are these jurisdictions? A useful starting point is to consider the term ‘tax haven’. As Sharman (2006) notes, no two lists of tax havens contain the same countries and no clear definition exists as to what a tax haven is.267 Two good examples evidencing the inconsistency are the 2018 EU black and grey-lists, and the subsequent 2018 Netherlands blacklist of non-cooperative tax jurisdictions. These jurisdictions are often stereotyped as fiscal island paradises located in the Caribbean. There are also those which have existed as tax havens in some form long-before the establishment of Caribbean or Middle Eastern tax havens. Sharman gives the example of European tax havens which exist in association with larger neighbouring countries, such as the CDs to the UK; Andorra to France; and, San Marino to Italy.268 For example, Switzerland is a country that has been identified by many as being active in offshore finance longer than any other.269 Another example of an OFC which is not offshore to anything is the Principality of Monaco – the sovereign micro-state located in the South of France which also commands a fervent tax haven reputation, and has been placed on blacklists in its history.270 Additionally, the Principality of Lichtenstein, is nestled between Switzerland and Austria. Consulting TJNs list of the world’s tax havens and OFCs shows that many are either landlocked or attached to land. It is interesting how the terminology used by governments, organisations, charities, scholars and commentators is technically misplaced. There are fundamental differences in the journeys various countries have taken in becoming OFCs. Former British colonies in the Caribbean entered the OFC industry due to various factors including reliance on being consumption or barter-based economies, or encouragement from the UK to become financially sustainable by providing offshore services. By contrast, as Palan (1998) notes, the European-based tax havens did not set out to become tax havens,271 rather they were sufficiently autonomous to resist pressure from their neighbours, who themselves were substantially increasing their taxation and regulations. Jurisdictions like Monaco and Liechtenstein, municipal areas like the City of London, or US states like Delaware and Nevada have been labelled as tax havens by different organisations.272 This thesis focuses on tax havens that happen to be UK OTs. Of the 14 266 For example, s51 SAMLA and recent blacklisting efforts by the EU (2018) and the Netherlands (2018). 267 Sharman (2006) Havens in a Storm, Ithaca, New York: Cornell University Press, [21-22]. 268 Ibid. 269 Zucman (2015) supra 180, [8]. 270 Including: OECD 1998, 2000, April 2009; FATF 2000/2002; TJN 2005; IMF 2000. 271 Palan, R. (1998) ‘Trying to Have your Cake and Eating it’, International Studies Quarterly, 42(4): 625-643. 272 TJN ‘Identifying Tax Havens and OFCs’. 51 OTs, the relevant ones in this context are those with financial centres: Anguilla, Bermuda, BVI, Cayman, Gibraltar, Montserrat and TCI. What is not very well understood is that the OTs are fundamentally contrasting jurisdictions that have different economies, cultures and histories with varying nuances in their constitutional relationships with the UK. They are also at significantly different stages of development. However, these jurisdictions attract stigma for being tax havens and any use of them attracts stigma towards the user. The blacklisting exercise of labelling harmful tax jurisdictions has existed for decades, with the OECD undergoing campaigns against them in the 1990s and 2000s.273 In 1999, the OECD started compiling a list to ‘name and shame’ tax havens on the basis of harmful tax practices.274 Ahead of its Report in 2000, Bermuda and Cayman (among others) committed to reforming laws in line with OECD standards, such as information exchange with OECD member states. In the report, 35 jurisdictions were named including Anguilla, BVI, Gibraltar, Montserrat and TCI, as well as Guernsey, Isle of Man and Jersey.275 Since then, blacklists and greylists of harmful tax jurisdictions have been produced by many organisations on bases including secrecy, transparency, cooperation and tax practices, with the most recent coming from both the EU and the Netherlands in 2018. These jurisdictions are subject to common and interchangeable phrases used to describe them. These are: ‘OFC’, ‘tax haven’ and ‘secrecy jurisdiction’. Indiscriminate use of these phrases is problematic for various reasons and it is worth considering them further. ‘Offshore’ has become something of a misnomer – traditionally denoting something not connected to land, now an industry which provides financial and business services in an alternative jurisdiction. Services include company incorporation, offshore banking, trusts and management services. These, as well as anonymous shell companies, bearer shares, or bank secrecy can and have been used for tainted purposes. There are, of course, a plethora of legitimate uses of offshore services – for privacy, asset protection or wealth-increasing transactions.276 Gordon & Morriss (2014) talk about the importance of increasing the volume of legitimate wealth-maximising transactions, which may utilise the offshore world due to the internationality of money movements.277 It is a complex phenomenon which involves a variety of interrelated, interlinked, overlapping and sometimes interdependent products and vehicles. Whatever one’s scepticism about offshore business, the provision thereof has become a major source of economic activity and sustainability for many OTs. While some scholars 273 See: OECD (1998) ‘Harmful Tax Competition – An Emerging Global Issue’; OECD (2000) ‘Towards Global Tax Co-operation. Progress in Identifying and Eliminating Harmful Tax Practices’. 274 Sharman (2006) supra 267, [15]. 275 OECD (2000) supra 273. 276 Gordon and Morriss (2014) supra 29, [7]. 277 Ibid. 52 such as Russell & Graham (2016) claim they are in denial as to how problematic their offerings have become,278 it is an inescapable fact that metropolitan jurisdictions like the UK and US were instrumental and encouraging of such jurisdictions to become self-sufficient by establishing as OFCs.279 Interestingly, larger economies regularly use offshore jurisdictions to invest public money – an example being some UK public sector pensions.280 Freyer and Morriss (2013), in their comprehensive appraisal of Cayman’s development as an OFC, emphasise that its journey was one of collaborative policymaking and highlight the important role played by British officials.281 The combination of tax policy and economic development in the 1950s and 1960s in the UK, together with the post-war decolonialisation campaign, enabled various jurisdictions under British control to establish themselves to take advantage of fiscal and economic opportunities emanating from increased taxes and capital controls in the UK. In doing so, they could move toward securing futures with less control asserted upon them.282 There are well-founded concerns about the phrase ‘tax haven’, not simply coming from those subject to its label. The phrase is almost always used negatively.283 While officials in such countries unsurprisingly denounce it, there are few scholars who give emphatically positive views about tax havens.284 The phrase itself is stigmatic, exacerbated by agendas of transparency groups and data-breaches highlighting increasingly controversial, rather than exclusively illegal, activity therein. Tax havens adversely impact development through facilitation of certain types of misconduct285 – not simply in their own jurisdictions, but in the jurisdictions from which suspect wealth originates. The phrase conjures imagery of shadiness, dishonesty and cheating – all characteristics of economic crime generally. Moreover, tax havens can facilitate terrorism, serious organised crime and are used to evade fiscal obligations.286 Therefore, perhaps negative use of the phrase is unsurprising and even, at times, justified. However, while some havens may be culpable of such misconduct, as the 278 Russell, D. and Graham, T. (2016) ‘The Panama Papers’, Trusts & Trustees, 22(5): 481-486, [481]. 279 For example, in relation to Anguilla, see: HC Deb (4 March 1994), Vol 238, cc25-8W. 280 See: The Guardian (8 June 2016) ‘Public sector pension funds put millions in tax haven-linked PFIs’; and, Financial Times (7 November 2017) ‘Westminster pension fund holds offshore investments’. 281 Freyer, T., and Morriss, A.P. (2013) supra 22, [1297]. 282 Kudrle, R.T. (2016) ‘Tax Havens and the Transparency Wave of International Tax Legalization’, University of Pennsylvania Journal of International Law, 37(4): 1153-1182, [1155]; and Freyer and Morriss (2013) supra 22, [1296]. 283 TJNs publications demonstrate this. See also: Oxfam (2018) supra 64. 284 For example, Mitchell, D.J. (2008) ‘Why Tax Havens Are a Blessing’, Cato Institute. 285 Both Zucman (2015) supra 180, and Shaxson (2011) supra 31, highlight the impact tax havens have on the development of other countries, particularly in Zucman’s technical inquiry into hidden wealth. 286 Workman, D.J. (1982) ‘The Use of Offshore Tax Havens for the Purpose of Criminally Evading Income Tax’, Journal of Criminal Law and Criminology, 73(2): 675-706. 53 Panama papers sought to demonstrate, the phrase itself cannot be equally applied with the same underlying bases to all OFCs. Most of the negative arguments surrounding tax havens points to taxation, including the perception that they are no-tax jurisdictions. This is a rather different point than the concerns about secrecy services which, if international concerns about ML, corruption and flight capital are correctly weighted, ought to be a greater development problem. For example, bank secrecy ensures client anonymity at “all costs”.287 Whereas just because a jurisdiction is low-tax or has an indirect taxation system as per its right to fiscal sovereignty, this does not necessarily mean it is a tax haven or secrecy jurisdiction. On that argument, given Hong Kong is often referred to as a tax haven, surely the UK is one given corporation tax is 2% higher than in Hong Kong. Compared to the US, in which corporation tax was until recently 35%, it would have been fiscally beneficial to locate corporate affairs in the UK rather than the US if fiscal factors were a commercial priority. Many OFCs, including the OTs, collect significant public revenue in the forms of payroll tax, import duties and other levies. These taxes might be as arduous for their citizens as traditional direct taxes are for people in countries like the UK. Of course, there are practices including offering preferential tax rates to certain people, such as non-residents or foreign companies, which perhaps more suitably trigger the tax haven label. Yet, as this thesis will demonstrate, many OTs actively exchange information on tax matters and do not operate preferential tax practices like ring- fencing. The other interchangeable phrase is ‘secrecy jurisdiction’. In other words, a jurisdiction which has practices, legislation and a culture of anonymity with regards to financial affairs. Formerly prevalent in the banking industries of many OFCs, secrecy can also relate to ownership of entities and accounts. Typically, those OTs and OFCs which have engaged in TIEAs based on OECD model frameworks, do not have bank secrecy legislation. TJN’s Financial Secrecy Index (‘FSI’) defines a secrecy jurisdiction as one which provides facilities that enable people or entities to escape laws, rules and regulations of another jurisdiction using secrecy as its main tool. On this definition, many OTs would fall short. Many are well-regulated environments which have been positively reviewed by AML monitoring organisations like CFATF. Moreover, many are engaged in the Common Reporting Standard (‘CRS’) under which exchange of information (‘EOI’) requests are automatic. Given a haven presupposes something is safe, if tax havens and secrecy 287 Switzerland was famous for this approach prior to radical overhaul following insurmountable pressure from the US and international community. 54 jurisdictions store and readily exchange information with other countries, such conduct clearly falls short of keeping something secret. However, TJN suggests such jurisdictions are used to escape something, such as financial regulation, criminal laws, fiscal obligations, rules of society such as inheritance tax, corporate governance and responsibility.288 They add the concept of ‘elsewhere’ to the characterisation.289 In a recent Australian case, a Supreme Court judge went as far as suggesting such jurisdictions are precisely where one goes to shelter criminality.290 Interestingly, it is often the OFC which is subject to the most stringent regulations compared to metropolitan states.291 Avoiding societal responsibilities strikes against the philosophy of the social contract and undermines the notions of participatory democracy. It is somewhat like street littering. It does not necessarily harm anyone to any significant degree – but most people would agree that it makes society a worse place to live. With such concerns about secrecy jurisdictions and tax havens, it is unsurprising that such a stigmatic label is rejected by many.292 3.2. The British Overseas Territories Amidst the tax haven conceptualisation lie those OFCs which are OTs. Given their constitutional link, the UK is responsible for the OTs and therefore, by extension, the UK is perceived as a facilitator of some of the problems addressed in chapter 2. Some OTs are blamed for almost even existing,293 despite once being encouraged to follow this path to financial independence. Exacerbated by the data-breaches, there are continued constitutional threats to their sovereignty, such as the UK Parliament legislating for them or the threat of direct rule.294 In the context of the dissolving post-war British Empire, small jurisdictions created a sustainable development strategy modelled on financial products and service offerings – encouraged by the UK. For example as Freyer and Morriss (2013) note: “Cayman constructed a financial regulatory system that enabled the territory to achieve more economic development and diversification than its peers, bringing it the highest per capita wealth in the 288 TJN FSI (2013) ‘What is a secrecy jurisdiction?’ 289 Shaxson (2011) supra 31. 290 Trio Capital Limited (Admin App) v ACT Superannuation Management Pty Ltd & Others [2010] NSWSC 286, Palmer, J, [22]. 291 Findley et al (2014) supra 149. 292 Sharman (2006) supra 267, [21]. 293 The Guardian (4 April 2016) ‘Tax havens don’t need to be reformed: They should be outlawed’, makes the point: “the Panama papers lay bare another national disgrace: Britain’s longstanding role at the centre of the offshore web”. Another example is Oxfam (2016) supra 10. 294 Successive UK Opposition Leaders have called for the OTs to be brought under direct rule, such as the present Leader, Jeremy Corbyn MP, as well as the former Leader, Ed Miliband MP. 55 Caribbean and putting Cayman on par with the prosperity of Britain”.295 This model has been replicated by similar jurisdictions for economic diversification and sustainability. The UK’s 14 OTs are Anguilla, Bermuda, British Antarctic Territory, British Indian Ocean Territory, BVI, Cayman Islands, Falkland Islands, Gibraltar, Montserrat, Pitcairn, Henderson, Ducie and Oeno Islands (‘the Pitcairn Islands’), South Georgia and the South Sandwich Islands, Sovereign Base Areas Akrotiri and Dhekelia (on Cyprus), and TCI. The below map of the world demonstrates this far-reaching network. Figure 2: Map of the OTs Source: National Audit Office (‘NAO’) Most are largely self-governing territories with their own constitutions, democratically elected legislatures, courts and the power to enact their own laws. They have a collective population of 250,000. Citizens of these territories are also British. The smallest populated territory is the Pitcairn Islands with a population of 49. Most territories are archipelagos and some are military bases and research centres. Many have vibrant tourism industries, such as TCI which is renowned for having some of the world’s best beaches. Others have world- leading markets, such as Bermuda’s (re)insurance industry. They are home to unique 295 Freyer and Morriss (2013), supra 22, [1300]. 56 biodiversity and environmental features,296 coral reefs and rare wildlife. Whilst many are known as tropical paradises, they are also prone to adverse weather conditions, particularly those in the Caribbean region. Many OTs have had devastating natural disasters, such as the volcano eruption in Montserrat in 1995, or hurricanes Irma and Maria destroying much of Anguilla, BVI and TCI in 2017. The UK government’s present policy towards the OTs is a relationship of mutual benefits and responsibilities. The former UK Prime Minister, David Cameron, emphasised that the balance of benefits and responsibilities must be respected by everyone.297 The basis of the relationship is rooted in shared values and appreciation OTs’ histories. Particularly important is the right of each territory to choose to remain an OT or to seek an alternative future,298 known as the principle of self-determination, their right of which is inalienable. This principle was included in the UK government White Paper (1999) which acknowledged that the UK would willingly grant independence if requested and if it is an option.299 It is but one recognition of their history and a visible move away from their colonial past. The relationship also gives effect to the desirability of the OTs to have, and exercise, the greatest possible autonomy across many aspects of their societies. While there are prevalent independence movements throughout many of the OTs,300 none have yet opted for independence. The UK government’s responsibilities towards to the territories include ensuring their defence and good governance.301 The nature of the relationship was reaffirmed in the 2012 White Paper, which acknowledges the territories transparency achievements.302 As one of its foremost objectives, the UK government has committed to improving the quality and range of support given to the OTs.303 This undertaking will be examined in depth during subsequent chapters. In 2012, the UK Foreign Secretary commented that several challenges faced by the territories and the UK are shared ones.304 Such include cutting public sector deficits and building more diverse and resilient economies, which is particularly important for those territories which rely heavily, or solely, on one or two major economic activities to sustain 296 UK Government Department for Environment, Food and Rural Affairs (2009) ‘United Kingdom Overseas Territories Biodiversity Strategy’. 297 FCO (2012) White Paper, ‘The Overseas Territories: security, success and sustainability’. 298 UK Government, 2010-2015 Policy, ‘UK Overseas Territories’. 299 FCO (1999) ‘Partnership for Progress and Prosperity: Britain and the Overseas Territories’, Cm 4264, [4]. 300 For example, the Free Montserrat United Movement called for independence as an ultimate goal, and the former TCI government regularly expressed longer-term independence ambition. 301 UK Government supra 298, Appendix 9. 302 FCO (2012) supra 297. 303 Ibid. 304 Ibid, Rt. Hon. William Hague MP, [6]. 57 development. Of course, there is the challenge to ensure financial sectors and business activity is effectively regulated. The UK government’s duty is to assist the OTs to observe the same upholding of the rule of law, human rights and integrity as experienced in the UK. With this in mind, the UK has emphasised that it expects high quality public financial management and services regulation in the OTs.305 The UK is determined to tackle corruption and work closely with the territories on issues of governance. Corruption led to political and constitutional crises in TCI where the constitution was suspended in 1986 and 2009 leading to periods of direct rule being imposed. The fact that governance in TCI was in a state of “national emergency”306 questions the effectiveness and nature of the UK’s relationship with the OTs. At the very least, it appears that not enough was done to prevent the national emergency, until the only option was to cure it. That said, generally the OTs have a proud tradition of good governance in line with the traditions of democracy and respect for fundamental human rights. While the UK government has acknowledged that some of the territories outperform comparable states, they make the point that in the context of some of the smaller OTs, challenges are rife such as maintaining the necessary skills to regulate their economies and to meet public expectations for specialist services.307 For example, while the international response to economic crime is calling for greater monitoring of transactions (e.g. through SARs) a small jurisdiction might simply lack the human, technical and financial resources to effectively implement this. Moreover, when resources are an issue, more pressing burdens on public services might be prioritised, such as street-policing to combat gang-crime. 3.2.1. Law in the OTs The concept of how small jurisdictions acquire law is an important one, as are the constitutional and legal statuses of the OTs. They are separate legal jurisdictions from one another and from the UK, although they share the Judicial Committee of the UK Privy Council (‘UKPC’) as their final appellate court. While not part of the UK, they do have a constitutional relationship with the UK. Their primary sources of law are their distinct written constitutions, recognised in UK legislation. While the legal systems in the territories are based 305 Ibid. 306 TCI Commission of Inquiry 2008-2009 into possible corruption or other serious dishonesty in relation to past and present elected members of the Legislature in recent years, Report of the Commissioner, the Rt. Hon. Sir Robin Auld (‘Auld Report’). 307 FCO (2012) supra 297, [51]. 58 on English common law,308 the respective territories place legislative emphasis on their own written constitutions. It is a well-established common law principle that the sovereign has the power to establish constitutions for, and on behalf of, its territories as espoused in Phillips v Eyre (1870).309 This power to legislate, which is theoretically legally unlimited,310 is achieved through Orders in Council. As Hendry & Dickson (2011) observe, various UK Acts of Parliament created the constitutions for the respective territories. The statutory legal bases for TCIs constitution is found in the West Indies Act 1962, with Bermuda’s found in the Bermuda Constitution Act 1967, and Anguilla’s in the Anguilla Act 1980. Convention stipulates that such power only be used in exceptional circumstances, to do with matters concerning defence, security, the judiciary, other non-devolved matters, and extraordinary circumstances such as the suspension of TCIs Constitution following corruption findings.311 The legal landscape in the OTs, particularly in TCI, has seen much legislative development in the past decade, observed in the latest comprehensive account by Hendry & Dickson (2018).312 3.2.2. Importance of the OTs The OTs are important components of the international financial architecture, given the volume of transnational finance and business which occurs therein and through them. As mentioned, Bermuda is one of the world’s leading (re)insurance markets; Cayman hosts one of the world’s largest hedge-fund markets; TCI is the fastest-growing Caribbean tourist destination and has the highest visitor spending per capita in the region; Anguilla is a leading captive insurance domicile; and BVI is a major incorporation centre. While some are significant financial players, many have micro-populations with their own development concerns. The Panama and Paradise, which implicated the incorporation sectors in various OTs like BVI and Bermuda, demonstrates the scale of offshore business. For example, MOSSFON’s client list consisted of 14,153 intermediaries. As Chaikin (2018) suggests, this sheer number of intermediaries demonstrates: “a very large global market for offshore companies and trusts and that offshore corporate structures are an essential feature of global business and finance”.313 With this in mind, a major challenge in certain OTs is transparency and accountability. In other words, the confidentiality norm upon which fundamental 308 Common law is a legal tradition typically derived from judicial precedent. More on this in chapter 3. 309 Phillips v Eyre (1870) LR 6 QB. 310 See, Madzimbamuto v Lardner-Burke [1968] UKPC 18. 311 Auld Report supra 306. 312 Hendry, I., and Dickson, S. (2011/2018) British Overseas Territories Law (2nd ed) London: Hart. 313 Chaikin, D. (2018) supra 68, [109]. 59 components of offshore business are based, finds itself swimming against the increasingly strong flow of transparency. The UK acknowledges that the financial services industry is one of the main economic contributors to Bermuda, BVI, Cayman and Gibraltar and to a lesser extent in Anguilla and TCI.314 Indeed, the UK government urges that adhering to international standards with regards to financial regulation is necessary for the OTs’ long- term development strategy. Regulation of their financial markets needs to promote fair competition and growth while ensuring the stability of their financial systems and to prevent inveiglement by others. Given the world-wide perception on the adverse role the territories play in facilitating economic misconduct, this is particularly important. This is because legislative and policy progression will consistently be met with the territories seeking to alter reputational misunderstandings. Reputational castigation, rather than an evidence-based approach, is more commonly being seen as a basis for legal and policy intervention. The UK Foreign and Commonwealth Office (‘FCO’) has set up a Regional Financial Services Advisor based in the Caribbean at Bridgetown in Barbados, who provides regulatory training and overseas activity in the region. Such technical assistance programmes are valuable tools for promoting integrity in the region, which is a necessary first hurdle in implementing international standards. This sort of support needs enhancing.315 In 2012, the UK government proclaimed that it will “strongly support those Territories that meet international standards. HM Treasury will work in the international arena to ensure that there is no discrimination against well-regulated OFCs”.316 While encouraging in principle, it could be said the UK has failed in this assurance, judging by the fallout from the Panama and Paradise papers. Particularly with the latter, Bermuda was reputationally attacked in an indiscriminate fashion, despite being compliant with many international AML, anti- corruption and transparency standards. The 2012 White Paper acknowledged proactivity from several OTs, for example, Anguilla and Bermuda, in their involvement with the CFATF initiatives who oversee AML/CFT standards in the region. It also acknowledged that the financial services regulators in Bermuda), Cayman and BVI are members of the International Organisation of Securities Commissions, the Group of International Financial Centre Supervisors and the International Organisation of Insurance Supervisors.317 The UK government, in acknowledging that all the Caribbean OTs and Bermuda are members of 314 FCO (2012) supra 297, [58]. 315 However, in 2012 the UK Home Office stated: “We are keen to help … the territories as far as the current financial situation permits, for which reason we seek to recover from the territories the costs of providing our expertise”, see: Home Office (2012) ‘The Overseas Territories and the Home Office’, [3]. 316 FCO (2012) supra 297. 317 Ibid. 60 CFATF,318 have stated that they have high standards of financial regulation.319 This points to proactivity and international involvement, rather than the converse which is often portrayed. The UK is also responsible for the OTs security and defending them is a core function of the UK government highlighted in several White Papers.320 This is particularly important for OTs located between South America and the US, not least due to the transhipment route for narcotics into the US. Some islands have a chequered history of being used to facilitate drug trafficking. This is not assisted by some territories’ geographical faculties – such as being a few hundred miles from Florida, or being archipelagos making it easy to land watercraft. Indeed, in some cases, trafficking has been facilitated by public officials.321 While many OTs are largely self-governing and have devolved legislative powers, they cannot be party to international conventions. Thus, many are not seen as parties to international treaties for fighting corruption and ML such as UNCAC. Rather, they can ratify conventions via extension arranged by the UK. For example, the UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotic Substances 1988 was extended to TCI in 1995 and Bermuda sought extension of UNCAC in 2016. Demonstrating the importance of the relationships, and perhaps the need for a contemporary review, the UK Foreign Affairs Committee (‘FAC’) carried out an inquiry into the future of the OTs in 2018-2019. The inquiry had a broad remit, examining financing, human rights, governance, international representation and the environment. Understanding the territories at an individual level, rather than exclusively as a collective, is both necessary and sometimes lacking. In the context of this work’s theme, SAMLA was a significant issue examined by the inquiry. Under section 51, the UK government has imposed a legislative ultimatum on the OTs compelling them to commit to making public their registers of beneficial ownership of companies by 2020 or face having them imposed via Orders in Council. The legal, constitutional and political ramifications of this will be considered later in this work, but at this juncture it is worth noting the FACs conclusion having received written and oral evidence by various experts and stakeholders about this issue. While acknowledging that SAMLAs obligations put UK-OTs relations under strain, the Committee supports it on the basis that it considers beneficial ownership information is a matter of “national security” and that “the public in the UK and elsewhere have a right to see beneficial ownership information”.322 318 Ibid, [58]. 319 Ibid. 320 See: UK Government 2010 National Security Strategy: Strategic Defence and Security Review; and, UK Government 2015 National Security Strategy and Strategic Defence and Security Review, [23]. 321 New York Times (13 March 1985), ‘In Old Pirate Haunt, Daunting News of Drug Trade’. 322 UK FAC (2019) Inquiry: Global Britain and the Overseas Territories: Resetting the relationship, [3]. 61 Another issue of topical relevance is the question of development aid. The UK government recently announced the intention to provide aid to the OTs as part of the foreign aid budget having secured a change in rules at OECD-level.323 When two category 5 hurricanes devastated several OTs in 2017, they were ineligible to requalify for aid under international rules. Reversing this graduation is a promising policy which re-emphasises the important mandate the UK has in its responsibility to its OT citizens. The question of aid is, however, controversial and has been analysed in the context of growing sentiment against OTs that are considered tax havens. Based on DfIDs criteria, many have been considered ‘middle-income jurisdictions’ and thus ineligible for aid. There is some inconsistency with regards to the development aid provided to the OTs. By comparison, Montserrat, St Helena and the Pitcairn islands receive substantial monies from DfID and are the only OTs supported under the aid programme.324 DfID planned to spend £22.9m on Montserrat financial aid, and £28.7m for St Helena in 2017-2018.325 It is appreciated that policy is heavily influenced by the capacities of these islands. However, given some prevalent concerns raised about hurricane susceptibility, the approach needs re-thinking on an individual needs-basis. In the FCOs most recent strategy for the OTs, it is stated that the “UK’s small and isolated Territories are vulnerable to natural disasters. The main threats to the Territories are hurricanes, volcanos, earthquakes and tsunamis … As such, support to Montserrat, St Helena, Tristan de Cunha, and the Pitcairn Islands in their disaster preparedness is necessary to ensure they can respond well in the event of a crisis or natural disaster”.326 This strategy was published in February 2018, some 5 months after some of the worst hurricanes Anguilla, BVI and TCIs histories, without even their mention. Scholars like Murphy have argued that assisting territories following hurricanes should be conditional on reforming their approach to transparency, suggesting it is precisely the time to remind the OTs that just as the UK will support them through such adversity, they have responsibilities as well.327 Presumably this relates to undefined responsibilities, beyond those which are currently met by many OTs including FATF compliance, bilateral exchange treaties and engaging in modern AML risk- assessments – something many larger jurisdictions have not recently completed. Offering a different view, the former Anguilla Attorney General and British barrister, Rupert Jones, argued that the OTs’ adverse publicity from the Panama papers ought not to cause the UK 323 DfID (1 November 2018) Press Release, ‘UK secures change to international aid rules: Restrictions to Britain’s aid support to countries affected by crises and natural disasters that severely impact their economy are lifted’. 324 DfID (2012) supra 16. 325 DfID (2017) British Overseas Territories Country Profile. 326 FCO (2018) ‘Overseas Territories: objectives 2017 to 2018’, para 4. 327 Murphy (2017) supra 17. 62 government embarrassment so that they distance themselves from the islands at their time of need.328 Aid represents a difficult issue, particularly when faced with statistics on financial support given to other territories. For example, a reported £400m has been spent in Montserrat since the 1995 volcanic eruption and there have been concerns about mismanagement of funds.329 The inconsistencies with the aid budget leads to legitimate questions in light of the fact that the remaining jurisdictions have not been aided since 2003.330 Moreover, when the UK announced £32m across all three territories devastated by Irma, it is understandable why proportionality was questioned.331 The UK’s decision to leave the EU naturally impacts the territories – some of whom, like Anguilla, have borders with French and Dutch neighbours. The negotiations have not concluded at the time of writing. At present, 9 OTs are directly associated with the EU, yet are not distinct EU members and not subject to EU law. They have associate status.332 In 2013, the Overseas Association Decision (‘OAD’) was enacted by the EU333 and went further than the original 1973 link by virtue of the UK joining of the EU. As Clegg (2016) notes, until recently the agreements between the OTs and the EU were ‘lite’ versions of the arrangements in place with the African, Caribbean and Pacific countries.334 Of the 9 which have OAD status, Anguilla, Bermuda and TCI are included. Other than the OAD-associated status afforded to the territories, the past two decades have seen increasing OTs-EU links.335 Clegg’s report outlines the OAD benefits which include policy dialogue, developmental assistance and free access to the EU market.336 With regards to funding, the EU provides financial support for the OTs development strategies which, in the period 2014-2020 amounts to €80m.337 In circumstances where DfID aid was lacking, this has been a beneficial feature of EU-association. With inevitable uncertainty ahead, this presents a growing concern. Benefits like free movement across the EU presents evident travel, work and study opportunities for OTs citizens. This is particularly important 328 The Guardian (12 September 2017) ‘Hurricane Irma has devastated British territories – so why such little aid?’, by Rupert Jones, former Anguilla Attorney General. 329 The Guardian (16 July 2017) ‘Montserrat aid programme comes under fire from UK watchdog’. 330 UK Aid (May 2012) DfIDs Work with the Overseas Territories, [8]. 331 The Guardian (12 September 2017) supra 328. 332 Part IV, Treaty on the Functioning of the European Union. 333 Council Decision 2013/755/EU Association of the Overseas Countries and Territories with the EU. 334 Clegg, P. (2016) ‘The United Kingdom Overseas Territories and the European Union – Part 1 – EU Benefits to the United Kingdom Overseas Territories’, Report for UK Overseas Territories Association, [7]; and Hannibal, I, et al (2013) ‘European Union: Facilitating the OCTs in Brussels, in R. Alder-Nissen and U. Pram Gad (eds) European Integration and Postcolonial Sovereignty Games: The EU Overseas Countries and Territories, Oxford: Routledge, [80]. 335 Clegg (2016) Ibid, [2]. 336 Ibid, [9]. 337 Ibid, [2]. 63 for certain territories which rely on their students going abroad for further education, to then return to work in their jurisdiction.338 Many OTs leaders have espoused great desire to maintain the mutually beneficial relationship with the EU after Brexit.339 In oral evidence to the FAC, TCIs Premier voiced concern about the prospect of post-Brexit loss of funding.340 Contrarily, some leaders have reignited the independence discussion. For example, the former Deputy Premier of Bermuda emphasised: “[If] the external situation affecting Bermuda should change, so that our way of life and business and our ability to feed ourselves is threatened by UK policies, whether inside or outside Europe, then I would not hesitate to go for independence”.341 In a recent report by the Anguilla government, the case is made as to the strategic importance of EU association given it borders France and the Netherlands which provide essential assistance and access to Anguilla.342 The EU is the most significant funder of Anguilla’s capital development, and their government has been vocal about the concerns of life post-Brexit.343 It was concerning that during the EU referendum, neither Remain or Leave campaigns showed visible consideration of the implications for OTs. Concerns relating to access to funding, development aid, trade and borders are all serious matters for the OTs development, yet there seems little meaningful discussion to date, politically or academically.344 3.3. Sunny Places for Shady People? Many tax havens have been labelled as sunny places for shady people. In a recent interview, Prince Albert II of Monaco admitted that this accurately described how Monaco used to be prior to adopting international standards on information exchange and AML regulation.345 While many criticisms of the OTs are justified, such as the fact that if shell companies can be incorporated without there being any record of ultimate owner in place then this gives rise to a significant ML risk, it is axiomatic that many arguments against them often lack substance. 338 Ibid, [14]. 339 Anguilla Government London Office (2017) supra 15, foreword by Anguilla Chief Minister, Hon. Victor Banks, [8-9]. 340 UK FAC, Oral evidence ‘Future of the UK OTs’, HC 1464 (5 December 2018), TCI Premier Sharlene Cartwright Robinson, Q165. 341 The Royal Gazette, (16 September 2016) ‘Independence idea revived amid Brexit’. 342 Anguilla Government London Office (2017) supra 15. 343 Ibid. 344 The Conversation, ( 2 October 2017) ‘Brexit will hit Britain’s overseas territories hard – why is no one talking about it?’. 345 CBS News ‘60 Minutes’ (17 March 2019) ‘Prince Albert II: The Multitasking Monarch’. 64 For example, seldom is there any acknowledgment of the legitimate benefits or utility of offshore investments, such as diversification and risk-taking in new markets. The UK government has utilised offshore funds to invest public-sector pensions, such as those of MPs. Recognising the strength in equities, the Parliamentary Contributory Pension Fund lists investments in multinationals like Apple which have been embroiled in offshore tax avoidance allegations, or HSBC which have been found to have facilitated ML. Of its total £641m assets, 49.3% were overseas equities. Similar companies also make up the BBC’s pension scheme.346 Without questioning the morality issues of with whom such pensions are invested, the fact is that half of MPs pensions are invested outside (or ‘offshore’ to) the UK. At times of volatility, the benefits of diversification are evident. However, while MPs pensions are invested in top-performing multinationals, their investment therein maintains the commercial imperatives of those companies to their shareholders to increase profits. This has been notably achieved by some of these companies using offshore vehicles and jurisdictions to minimise taxes,347 the very thing Parliamentarians are legislating to prevent. There is also a lack of understanding or acknowledgement as to the development concerns of the territories. The reality is that many were encouraged to be tax-competitive. The perceived problems about the jurisdictions are well-documented and many are evidenced by various findings whether by implication in case law, monitoring group assessments, or even in NGO reports. The problematic nature of the OTs’ OFCs was espoused by the House of Commons International Development Committee (2016) Report ‘Tackling Corruption Overseas’: “Enabling money to be held or hidden in offshore tax havens too often deprives developing countries of essential tax revenues, which can have a devastating impact on the provision of public services”.348 This view was examined in chapter 2. In evidence to the International Development Committee, Professor Heywood captures the extent to which blame lies with the UK: “The UK is involved as, unfortunately, a facilitator of international corruption. That is because there are very, very significant financial flows that go through the City of London where, although we have rules in place and there are quite clear rules of diligence and PEPs and requirements on a whole host of people to take action, in reality that action is not too often taken”.349 NGOs have also been highly vocal. In evidence to the Committee, TI submitted that “Secrecy and corruption in the [OTs] and [CDs] make a significant contribution to the UK’s role as a safe haven for corrupt funds. The secrecy offered by the offshore company structure enables corrupt individuals to hide the source of their funds 346 BBC ‘My Pension: About the Scheme, Top Investments’. 347 The Guardian (18 September 2018) ‘Ireland collects more than €14bn in taxes and interest from Apple’. 348 House of Commons International Development Committee supra 123, [16]. 349 Ibid, [13]. 65 and use them to buy property, luxury goods and education in the UK. Public registries of beneficial ownership are necessary for real accountability”.350 A final encapsulation by the Committee, with particular emphasis on the effects of the recent data-breaches, presents the common issue taken with the OTs: “The Government’s efforts have recently come under question, particularly with relation to the continued tax haven status of many of the [OTs] and [CDs] and the release of the leaked papers from Panama firm Mossack Fonseca which revealed the major role which some individuals and companies based in the UK and the [OTs] and [CDs] have played in global tax evasion and aggressive tax avoidance”.351 More recently in the 2018/19 FAC Inquiry into the OTs, the Committee concluded that the OTs’ continued lack of public beneficial ownership registers was a matter of national security to justify UK legislative intervention.352 For reasons which will be discussed in chapter 7, there is also the argument that the OTs’ companies laws and financial regulation, are matters of domestic law and thus, by virtue of their respective constitutions, are devolved matters. These sentiments identify a clearly perceived problem, the spirit of which was seen in the concerns I have already raised about acquisitive types of misconduct and development in chapter 2. The charge is that the OTs, CDs (and, by extension, the UK) play a significant role in facilitating subversive activity abroad. The general idea of this seems difficult to dispute, particularly given the overwhelming amount of information relevant to the OTs in the Panama and Paradise papers. However, it is suggested that such a conclusion ought to be balanced against important features and distinctions relating to their domestic anti-economic crime and regulatory frameworks. Such is often lacking from the discourse, which is almost invariably negative. Other important nuances also add ambivalence in identifying where problems lie, such as collectively grouping the OTs and CDs together. While the negative attention from the Panama papers seemed indisputably at the door of the UK, its OTs and CDs, 7 of the 10 most featured tax havens in the Panama papers were not OTs or CDs. BVI was highly-represented, yet the Seychelles and Bahamas were also significantly implicated. Bermuda and TCI were absent from this particular list.353 The extent to which the UK government can, or would, intervene with the governance or legislation of an OT is controversial. The UK can theoretically legislate on behalf of Bermuda by passing Orders in Council.354 Indeed, in the 2012 White Paper, the 350 Ibid, [17]. 351 Ibid, [9]. 352 UK FAC (2019) supra 322, [3]. 353 ICIJ ‘Explore the Panama Papers Key Figures’. 354 Section 1(1) Bermuda Constitution Act 1967. 66 government’s position clearly states that it is a matter of constitutional law that the UK Parliament has unlimited power to legislate for the OTs.355 However, as some scholars have noted, this power creates significant political difficulty.356 There are constitutional conventions which make intervention politically inapposite, such as the political instability in TCI following direct rule.357 There are also conventions which clearly state that the UK Parliament should not legislate on devolved matters except with the express agreement of the devolved legislature in question.358 The Sewel Convention being one which appertains to devolved legislatures in the UK.359 Diplomatic relations between Whitehall and the OTs is often a delicate issue, particularly with independence talk surfacing and the UK government’s obligation to uphold the OTs right to self-determination. Such a context is a doubtless antidote to rash legislative movement on the UK’s part, and might have been a reason why Amendment 73 to the UK Sanctions and Anti-Money Laundering Bill360 (which called for Orders in Council to make OTs beneficial owners’ registers public) was originally voted against. However, without consultation, section 51 SAMLA was adopted in May 2018, a move fundamentally inconsistent with Parliamentary convention, yet justified for national security.361 Given this recent shift in approach, the statuses of these jurisdictions needs to be re-examined. The development of the territories themselves is also often neglected or misunderstood amidst the discourse on economic crime and tax havens. Other than the evident and constant threat of tropical cyclones, one major threat are the persistent mischaracterisations of these jurisdictions and their values. One would think, in reading any mainstream Paradise papers coverage, that Bermuda is, like W.S. Maugham said of the South of France, a sunny place for shady people362 and non-compliant with international standards. Following an examination of evidence in chapter 4, it will be shown that such is not indicative of Bermuda’s modern approach to suspect wealth. An important point is that a lot of earlier initiatives vis-à-vis financial services in the Caribbean were not set up for nefarious purposes, rather because they were thought to be positive for the development of small islands. A purposeful example was 355 FCO (2012) supra 297, [14]. 356 Wheeler, G.J. (2016) ‘The British Overseas Territories and “Direct Rule”’, UK Constitutional Law Blog (12 April 2016). 357 Auld Report supra 306. 358 HL Deb (17 January 2018) Vol. 788, Col. 689, The Earl of Kinnoull. 359 UK Parliament Glossary. The Sewel Convention applies when the UK Parliament wants to legislate on a matter within the devolved competence of the Scottish Parliament, National Assembly for Wales or Northern Ireland Assembly. Under the terms of the Convention, the UK Parliament will “not normally” do so without the relevant devolved institution having passed a legislative consent motion. 360 HL supra 358, cols 669-724. 361 UK FAC (2019) supra 322, [3]. 362 Maugham, W.S. (1941/1977) Strictly Personal, Doubleday: New York. 67 the establishment of the Society of Trust and Estate Practitioners (‘STEP’) in the Bahamas in 1996 to provide training and qualifications to support a growing professional infrastructure. This was set against a backdrop of phenomenal literacy increase in the Bahamas between the 1970s and 1990s.363 Bahamians received STEP with a sense of pride as it afforded islanders the ability to obtain a worthwhile qualification which would be useful as the islands ventured into economic diversification. This was instrumental in enabling the islands to set up as an OFC. Given the fervent criticism about the perceived lack of transparency in the OTs’, subsequent chapters will consider evidence on this and the extent to which certain criticisms are warranted, or rebuttable. In general terms, the UK’s Anti-Corruption Strategy 2017-2022 acknowledges some important aspects of the OTs adherence to international standards as well as proactivity with regards to increasing transparency. For example, the UK acknowledges that the OECD Bribery Convention has been extended to various OTs, such as BVI, the Cayman Islands and Gibraltar. They acknowledge that TCI enacted legislation in 2017 to enable the Convention to be extended to them. It also noted that the OTs have committed to FATF AML/CFT standards as well as bilateral agreements on access to central registers of company beneficial ownership.364 On this point, beneficial ownership information registers have existed in certain OTs for decades. The information held therein has been subject to reform in recent years – for example, in Bermuda’s case, requiring any company ownership information changes to be filed with the registrar. The information is available to competent authorities – traditionally by request and more recently automatically. The question of whether these registers should be publicly-accessible is contentious, which will be addressed in due course. The UK is, perhaps, overly hopeful that they will become the norm365 having created their own public register. Recent data-breaches demonstrate the widespread use of OFCs – a revelation which is unsurprising.366 What is concerning is that as well as the facilitation of obvious criminal misconduct, a significant portion of the leaks relate to either legal conduct, like legitimate company ownership, or controversial conduct, such as tax avoidance. The fact remains that in breaching confidentiality of a firm to try and expose a portion of that which is illegal, the legitimate rights of many individuals and entities engaged in legitimate transactions were compromised. A cynical justification by TJN is that “no one would go offshore if they could 363 Bahamas Ministry of Education (2009) ‘10 Year Education Plan’, [9]. 364 UK Government supra 91, [39]. 365 Ibid, [39]. 366 I made this point when presenting a paper: ‘The Panama Papers – Business as Usual?’, 35th International Symposium on Economic Crime, Jesus College, Cambridge, 6 September 2017. 68 do whatever they wanted to do onshore. People and companies use offshore financial jurisdictions precisely because they allow them to do things they can’t do at home”.367 For reasons I shall come to, this is a far too simplistic contention. For example, the Bank of England Governor is warning of possible recession should the UK leave the EU without a withdrawal agreement. Therefore, investing overseas, or offshore, can act to diversify a portfolio and strategise against such risks to protect the investor. The data-breaches quite convincingly shine an indefatigably bright spotlight on the world of offshore business. The perpetrator’s purpose of the Panama papers was to expose the wrongdoing of an offshore law firm which was committing great harm to the world. As such, the tone was set to paint offshore jurisdictions in a shady light – characteristically “sunny places for shady people”. In terms of awareness raising, both publications and the ensuing media reports, succeeded. However, in terms of meaningful effect beyond heightening awareness about offshore business, the effects of the Panama and Paradise papers can be judged on two measures. First, the extent to which information published led to legal actions for wrongdoing, and secondly the extent to which legislation, regulation and policy has changed in consequence of the publications, or by contribution. Both data-breaches targeted law firms, yet they were relatively untargeted in terms of information. For example, the Panama papers was not concerned with a targeted list of PEPs which were suspected, and later confirmed, to be using OFCs. Concerningly, it included information belonging to, and relating to, legitimate individuals and entities conducting normal business, which led to various civil actions being brought in respect of rights clearly infringed in consequence of the data-breaches.368 It provided a line of inquiry and, as such, can be viewed as an investigative tool. As Andrew Mitchell MP suggested, it provided civil society, media, NGOs and charity the ability to scrutinise offshore activity. From a scholarly standpoint in writing a dissertation on jurisdictions mentioned in these leaks, the information provided by the publications paints a very different picture of some OTs than their assessed levels of compliance with various international standards might otherwise indicate. This is particularly so for BVI and Anguilla in the Panama papers, and Bermuda in the Paradise papers. While the number of published documents were in the tens of millions, and hundreds of thousands of entities named, cases resulting in enforcement action are statistically low. However, those which did result in cases, or general fallout including political crises, were significant matters which rightly attracted action. Moreover, online research demonstrates reports of several ongoing investigations and concluded cases in multiple countries following 367 TJN, (2017) ‘Are the activities uncovered in the Paradise Papers ‘legal’ – a plea to journalists’. 368 For example, Appleby Global Group v BBC and Guardian [2018]. 69 the revelations. Of these, some of note include the conviction of former Pakistan Prime Minister, Nawaz Sharif, for corruption.369 He was imprisoned for 10 years, and his daughter and son-in-law have also been convicted. Data from the Panama papers showed that 3 of his children were linked to BVI-registered entities which owned several London properties, and had purportedly been used to channel purchasing funds. These were not disclosed on his family’s wealth statement. Despite the Panama papers not specifically naming Nawaz Sharif, arguably its main output here was to provide investigative lines of inquiry into individuals closely-connected to him. As such, it has been labelled as “one of the most stunning outcomes”370 of the publication. Elsewhere, in Armenia, it was recently reported that authorities have re-opened a criminal case into Armenian-politician, Mihran Pogosyan, for matters relating to abuse of office, failing to disclose interests, and possible ML.371 This emanated from data published in the Panama papers alleging he had interests in 3 offshore companies, legally prohibited for government officials. Other cases include the pop-singer Shakira being charged in Spain with tax evasion, relating to €14.5m. Data from the Paradise papers purportedly demonstrates that she had represented her residence as the Bahamas, despite allegedly living in Spain.372 Other important ramifications include the resignation of Icelandic Prime Minister following revelations of his interests in a BVI-registered company which owned bonds in the 3 major Icelandic banks.373 While publicly-reported criminal cases from the Panama papers appears limited or ongoing, the ICIJ suggested that momentum is more recently under-way, reporting that its investigation has helped governments recover more than $1.2bn worldwide through fines and back taxes,374 based on public announcements or reports. Similarly with the Paradise papers findings, there are several ongoing tax and financial investigations internationally, such as that in Canada whereby its Revenue Agency recently launched audits into approximately 100 taxpayers named in the Paradise papers.375 Other cases relating to MOSSFON and selected OTs, are mentioned in chapters 4-6. 369 BBC News (6 July 2018) ‘Pakistan ex-PM Nawaz Sharif given 10-year jail term’. 370 New York Times (28 July 2017) ‘How the Panama Papers Changed Pakistani Politics’. 371 ICIJ (23 January 2019) ‘Armenia, under new leadership, re-opens Panama Papers case’, and Hetq (4 April 2016) ‘Mihran Pogosyan: The Armenian General Who Mastered the Ins and Outs of Panama’s Offshore Zone’. 372 The Guardian (14 December 2018) ‘Shakira charged with tax evasion in Spain’. 373 ICIJ (5 April 2016) ‘Iceland Prime Minister Tenders Resignation Following Panama Papers Revelations’. 374 ICIJ (3 April 2019) ‘Panama Papers Helps Recover More than $1.2 Billion Around the World’. 375 Mondaq (18 March 2019) ‘Paradise Papers, New VDP Not Government’s Panacea in 2019’. 70 3.4. Capacity Issues in the OTs Fundamental development constraints in the OTs include issues of capacity, particularly with regards to law enforcement, and personnel and financial resources. This concern is well documented, and was noted by the NAO (2007), who observed that this issue necessitates external assistance.376 Given the increasingly sophisticated approach to compliance and regulation, OTs’ capacity limitations are acknowledged as limiting their investigative abilities. For example, low numbers of SARs in OTs – a framework typically requiring significant resources, recruitment and training staff and financial resources for compliance.377 As well as will, there are technical considerations which, at times, rebalance priorities in favour of day-to-day challenges over those which may be perceived as less contextually pressing. There will always be a tendency to place more emphasis on fighting street crime in jurisdictions where there is a substantial tourism business, or which have drugs and violent crime problems. Small island jurisdictions can also suffer from “brain drain”378 – migration of skilled talent to jurisdictions with better living standards, connectivity, access to advanced technology, career-mobility and higher salaries.379 The World Bank found that in the case of five countries located close to the US, migration takes a large share of the best educated.380 Small jurisdictions in this network share resource problems – a finding echoed by the Foot Report (2008).381 Detailed capacity issues specific to the selected territories will be considered in chapters 4-6. It will be shown that jurisdictions like Bermuda, which have developed significant professional sectors, do not have the same capacity needs as Anguilla and TCI, whose limitations presents greater development challenges. 376 NAO (2007) Managing Risk in the Overseas Territories, [19]. 377 For background on SARs, see Kingsley Napley LLP (2018) ‘AML: reforming the suspicious activity reporting regime – have your say’. 378 World Bank, World Development Report (2000) Washington, DC: World Bank. See also, OECD Observer No. 230, (2002): ‘The brain drain: Old myths, new realities’: “The phrase “brain drain” was coined by the British Royal Society in the 1950s to describe the outflow of scientists and technologists going to the US and Canada”. 379 See, for example; Dodani, S., and LaPorte, R.E. (2005) ‘Brain drain from developing countries: how can brain drain be converted into wisdom gain?’, Journal of the Royal Society of Medicine, 98(11): 487-491, [488]. 380 World Bank (2003) Policy Research WP 3069, ‘International Migration, Remittances, and the Brain Drain: A Study of 24 Labor-Exporting Countries’. 381 Final Report of the Independent Review of British Offshore Financial Centres, Michael Foot (2009), [7]. 71 3.5. OTs and CDs: The differences The jurisdictions this thesis considers are subject to a confusing array of labels. The 14 OTs are so defined under the British Nationality Act 1981,382 which replaced the term ‘dependent territory’383 as implemented in the Interpretation Act 1978.384 This manifested in the British Overseas Territories Act 2002. As Hendry & Dickson (2011) observe, it is incorrect to describe the OTs as dependent territories. The important rationale for this is that it reflected “a change in nomenclature that had already occurred informally”.385 This sentiment was also seen in the 1999 White Paper, which stated that change was necessary to reflect future partnership.386 The term ‘CD’ is most often confused with OT. This term relates to several jurisdictions which are classified as dependents of the Crown, rather than the UK government. These are: Jersey, Guernsey and the Isle of Man (the former two are the Channel Islands located off Normandy, and Isle of Man is in the Irish sea). CDs and OTs are visibly similar as they are all OFCs linked to the UK. Queen Elizabeth is the Head of State for all the OTs and CDs. Unlike the OTs, none of the CDs are former colonies of the British Empire. Many of the OTs are former colonies which have chosen to remain British and the UK’s policy is to respect their right to self-determination. By contrast, the CDs are dependencies of the Crown.387 The Ministry of Justice states that while the UK government is responsible for their defence and international relations, it is the Crown, acting through the UKPC, who is ultimately responsible for ensuring their good government.388 Constitutionally, they have elected Assemblies and their own courts, in a similar fashion to the OTs. The CDs can make domestic legislation although, as a dependent of the Crown, these require Royal Assent much like UK law. UK legislation rarely extends to the CDs.389 382 Schedule 6, British Nationality Act 1981. 383 Ibid, section 1(1). 384 Schedule 1, Interpretation Act 1978. 385 Hendry and Dickson (2011) supra 312, [3]. 386 FCO (1999) supra 299. 387 Ministry of Justice, ‘Factsheet on the UK’s relationship with the Crown Dependencies’ [1]. 388 Ibid, [1]. 389 Ibid, [2]. 72 3.6. Selected Jurisdictions: Introductory Statistical Comparators In the forthcoming chapters, I examine three selected OTs: Bermuda, TCI and Anguilla. Despite similarities, these jurisdictions have fundamental differences, particularly vis-à-vis development as well as their responses to suspect wealth entering their financial sectors. Evidence will be used to consider the extent of each jurisdictions’ compliance with international standards on these issues, as well as the degree to which they are appropriate in their contexts. Bermuda demonstrates the greatest regulatory response, supported by a long- established business infrastructure as well as advanced institutional development. TCI and Anguilla are more similar to one another and have each demonstrated commitment to compliance. However, notwithstanding domestic corruption and ML challenges, TCI is further advanced and developed in this regard than Anguilla. The latter faces ongoing development concerns, which makes implementation more challenging. 73 Table 1: Overview of Macroeconomic and Financial Indicators for Selected OTs Bermuda Turks and Caicos Anguilla Population, 2016 61,670 34,900 15,000 GDP, 2016 (Nominal, million USD) 6,012.00 901.50 326.70 GDP per capita, 2016 (USD) 97,492.90 25,831.50 21,780.00 Tourism: Hotels & Restaurants, 2016 (% of GDP, current market price) 4.7% 36.2% 21.2% Financial Services, 2016 (% of GDP, current market price) 39.3% 8.5% 9.1% Imports, 2016 (% of GDP) 21.72 54.20 60.70 Budget revenue, 2016 (% of GDP) 15.83 28.30 21.66 Human Development Index - - - Corruption Perceptions Index - - - FSI Ranking 2018 (out of 112) 36 87 56 Financial Secrecy Score 2018 (0=transparent) 73 77 78 World Governance Indicators - Control of Corruption, 2016 (100=good) 87.5 - 87.5 Implemented TIEA with UK (Date) 4th Dec 2007 23rd Jul 2009 20th Jul 2009 Number of TIEAs 41 19 17 Registers of Beneficial Ownership Central Central Central (Implementing) Listed on OECD Blacklist in 2000 No Yes Yes Listed on EU Non-Cooperative Tax Havens List 2017 Annex I, March 2019 (Blacklist) Yes No No Listed on EU Non-Cooperative Tax Havens List 2017 Annex II, March 2019 (Greylist) No No Yes Named country of primary concern by the US State Department No, "Monitored" No, "Concern" No, "Monitored" Named on FATF list of high-risk countries No No No Has the UNCAC been extended? No No No Sanctions (UN / US / EU) No No No Number of SARs 2017 (2014 for Anguilla) 942 79 66 Number of SARs in Real Estate 2017 (2014 for Anguilla) 1 1 - Mentioned in the Panama Papers No No Yes Number of Local-Registered Entities Mentioned in Panama Papers 0 0 3253 Mentioned in the Paradise Papers Yes Yes Yes Number of Local-Registered Entities Mentioned in Paradise Papers 9450 26 1 Sources: see Appendix II 74 By way of introduction, prior to analysing each territory, Table 1 presents macroeconomic data and other important financial indicators. This data gives an overview of the selected jurisdictions and demonstrates some contrasts. Even though these jurisdictions are often characterised negatively, as well as being implicated in various criminal matters with an international element, the table shows many positive aspects of their anti-economic crime frameworks. This includes, but is not limited to the OECDs 2000 blacklist and commitments on beneficial ownership transparency. These jurisdictions are not included on the Human Development Index or the Corruption Perceptions Index. 75 CHAPTER 4 BERMUDA Summary Bermuda’s compliance and response to suspect wealth is the most advanced of the three jurisdictions this thesis considers. Many aspects of its AML/CFT, anti-bribery, tax information exchange and corporate beneficial ownership information have been positively reviewed by international monitoring bodies. This is further evidenced by several domestic initiatives designed to improve standards. However, Bermuda has faced allegations of public misspending,390 as well as being implicated in some criminal cases overseas. Its offshore sector was particularly targeted in the Paradise papers in 2017. It has also recently featured on the EU’s blacklist of non-cooperative tax jurisdictions. While such presents a less positive view of Bermuda, this chapter also evaluates evidence to consider the extent to which Bermuda is willing and able to comply with international standards, the extent of this compliance, and whether or not these are viable or if viable alternatives are already in place. 4.1. Bermuda: An Overview At the time of writing, there appears to be various measures and initiatives in place in Bermuda to tackle financial crime and suspect wealth.391 Many initiatives are not normative, and measures such as NRAs are still lacking from many jurisdictions, including several G20 countries. Yet, there is growing criticism towards Bermuda following the Paradise papers, which negatively placed it under the transparency spotlight. There are mischaracterisations levelled at Bermuda, such as the misconception as to its beneficial ownership regime. It is also subject to sustained negative sentiment by various NGOs392 which presents a constant risk to Bermuda’s own development and its international standing. Bermuda has a rich history. It was first discovered by accident in 1503 by Spanish captain Juan de Bermudez, and officially founded in 1612 becoming the second permanent 390 Commission of Inquiry into the Report of the Auditor General on the Consolidated Fund of the Government of Bermuda for the Financial Years March 31, 2010, March 31, 2011 and March 21, 2012, Report of the Commission, February 2017. 391 For example, the ‘Just Good Business’ AML Campaign launched in 2018, and a National AML/CFT Risk Assessment published in 2018 by the Bermuda National Anti-Money Laundering Committee. 392 Oxfam (2016) ‘Bermuda named world’s worst tax haven’. 76 English colony in the New World.393 Its original discovery is mentioned in D’Angheria’s Legatio Babylonica.394 The more well-known story is its 1609 discovery. Admiral George Somers and his crew of 150 sailors took refuge there following the wreck of “Sea Venture” in treacherous seas. There they built new vessels for an onward journey to Jamestown.395 From this point on, Bermuda has been continuously inhabited. In 1612, the Virginia Company of England, a stock company chartered by King James I, sent a group of settlers to Bermuda to commence official settlement. Bermuda’s position and involvement in geopolitical rivalries between metropolitan powers over the years, from the US revolutionary war right through to the Cold War, has ensured that much money has been spent for military purposes on the island. In the 20th century, there was a shift in military presence from British naval bases to American ones and an agreement between the UK Prime Minister Churchill, and US President Roosevelt, saw Bermuda acquire a US naval and air base, which played an important role in the Cold War. Domestically, US servicemen rented houses from Bermudians and spent money on the islands, propelling the Bermudian economy.396 With a major airstrip built in 1942, the island’s development increased extensively which facilitated the development of Bermuda’s tourism industry. Economically, the US military’s presence created jobs for Bermudians who worked on the bases and were paid US dollars which increased living standards. Billions of dollars were brought into the islands and invested throughout the economy which allowed Bermuda to develop its business infrastructure, tourism offerings and services, affecting both residents and visitors.397 Bermuda is self-governing and a parliamentary dependency under constitutional monarchy. Bermuda’s population was 61,670 as at 2016.398 Bermuda lies in the Atlantic Ocean, off the US coast. An archipelago, although colloquially known as “the Rock”, it measures 20.5 square miles. The capital and business centre is Hamilton. Contrary to the common misconception, it is not in the Caribbean and its Atlantic location is an avidly noted competitive advantage.399 Bermuda’s tourism industry was surprisingly affected in the 393 Bernhard, V. (1985) ‘Bermuda and Virginia in the Seventeenth Century: A Comparative View’, Journal of Social History, 19(1): 57-70, [57]. 394 D’Angheria, P. M. (1511) Legatio Babylonica, cited in Jones, R. (2004) Bermuda Five Centuries, Panatel VDS. 395 Glover, L., and Smith, D.B. (2008) The Shipwreck that Saved Jamestown: The Sea Venture Castaways and the Fate of America, New York: Henry Holt & Co. 396 Ibid, [6]. 397 Ibid. 398 See Appendix II. 399 The Royal Gazette (12 May 2015) ‘Not in the Caribbean but of the Caribbean’. 77 aftermath of Hurricane Irma– because some media confused Bermuda with Barbuda, an island hit by the hurricane some 1600km away.400 The Queen appoints a Governor who appoints a Premier capable of commanding a Parliamentary majority – usually following a General Election. Bermuda has a House of Assembly and an Upper House. The former has 36 elected members who represent “parishes”,401 and the latter has 11 appointed members. Bermuda’s political framework largely follows Westminster’s. There are two major political parties: The Progressive Labour Party (‘PLP’) and the One Bermuda Alliance.402 The PLP are in government having won the 2017 Election by a landslide,403 and Hon. David Burt MP is Premier. The legislature is charged with making laws to ensure the peace, order and good government of Bermuda.404 Bermuda’s legal system, like its fellow OTs, is based on English law and the common law legal tradition.405 The country’s laws are derived from the courts, sometimes known as judge-made law – manifesting from judgments creating precedent, rather than statutes. Statutes, of course, are often a fundamental component of a common law system yet, common law does not rely exclusively on statutes or codes as the sole source of law. Bermuda’s legal system encompasses doctrines of equity and statutory instruments dating back to 1612.406 Justice is administered through the Magistrates’ courts, Supreme Court, Court of Appeal and Commercial Court, with its final appeals court being the UKPC. The presence of a legal system borne from principles of English common law is a major contributor to Bermuda’s success as an international financial centre, due to the attractiveness of a legal tradition understood and respected world-over.407 A stable and independent legal and judicial system is a hallmark of a country in which the constituent elements of the rule of law and democracy are present. It also epitomises a secure place to conduct business; both in terms of facilitating business and resolving disputes. Scholars have noted the importance of English law for enabling foreign investors to feel safe when 400 News.com.au (29 November 2017) ‘Bermuda faced its first drop in tourism in almost two years because of a spelling error’. 401 Bermuda’s equivalent to UK constituencies. 402 For a UK reader, broadly speaking, the PLP and the OBA are equivalent to the Labour and Conservative parties in the UK. 403 Bernews (19 July 2017) ‘PLP Records Major Victory in General Election’. 404 Section 26, Bermuda Constitution Order. 405 Section 5, Supreme Court Act 1905 (Bermuda): “Subject to the provisions of any Acts which have been passed in any way altering, amending or modifying the same, and of this Act, the common law, the doctrines of equity and the Acts of the Parliament of England of general description which were in force in England at the date when these Islands were settled [11th July 1612] shall be, and are hereby declared to be, in force within Bermuda”. 406 IMF (2008) ‘Bermuda: Final Detailed Assessment Report Anti-Money Laundering and Combatting the Financing of Terrorism’, [8]. 407 See Wood, P.R. (2008) Maps of World Financial Law, London: Sweet & Maxwell. 78 conducting business in, or with, Bermuda or its companies,408 particularly given Bermuda judges recognise the jurisprudential scholarship of their English counterparts.409 4.2. Economy and Development as an OFC Bermuda has a vibrant economy being one of the world’s wealthiest jurisdictions. In 2015, its GDP per capita was $94,400 ranking it the fourth largest per capita economy in the world.410 Tourism and business services have fuelled spectacular economic growth.411 In addition, Richards (2017) refers to Bermuda’s strategic geographical positioning as its “hidden natural resource”.412 Being 1000km from North Carolina, Bermuda is highly proximate to influential US cities like New York and Washington. Its relationship with Canada is also of strategic importance in terms of trade, tourism and employment. Bermuda has developed into a major international and OFC, which contributed to 39% of GDP and accounted for 18% of its employment in 2016.413 Bermuda’s world-leading (re)insurance market414 dominates the financial sector, with 15 of the world’s top 40 reinsurers based there.415 This market contributed some $35 billion over 12 years to cover US catastrophe losses and provides more than a quarter of capacity for Lloyds of London.416 It has covered many natural and non-natural disaster claims globally. Two examples of Bermuda’s positive impact on the global economy, and on the development of others, include that its reinsurance market covered 9% of total claims arising from 9/11, and 20% of claims arising from UK flood losses in 2016.417 Important aspects of Bermuda’s business offerings like these are seldom acknowledged by tax haven critics. This particular activity distinguishes Bermuda from other OFCs which mainly focus on corporate services. 408 Stanton, J. (2016) ‘The Currency Board Monetary System over 100 Years in Bermuda (1815-2015)’, Studies in Applied Economics, No. 50 [13]. 409 Jenkins, A. (2009) ‘The Bermuda Islands blow ‘sweet & sour’ on employers’ liability for Internet libel’, Computer Law & Security Review, 25: 280-284, [280]. 410 UN National Accounts Main Aggregates Database 2015, Bermuda. 411 For example, 7.94% in 1980; 9.32% in 2000; and 7.22% in 2001, source: World Bank Development Indicators Database. 412 Richards (2017) Bermuda: Back from the Brink, supra 345, [5]. He cites Gibraltar, Singapore and Suez as situationally high-ranking as Bermuda. 413 Bermuda Government (2017) Department of Statistics: Bermuda Job Market Employment Briefs, May 2017, [2]. 414 Appleby (2007) ‘Guide to the Bermuda Insurance Market’, [2]. 415 KPMG (2017) ‘(Re)insurance in Bermuda: The view from the bridge’, [1]. 416 Bermuda Business Development Agency (2016) ‘Bermuda is Different’. 417 Ibid. 79 Its investment sector is relatively large yet its banking sector is relatively small comprising 4 banks.418 There are no offshore banks licenced in Bermuda.419 Its banking industry focuses mainly on servicing the international business sector demands, such as the provision of financial management, trustee and investment services. It has a stock exchange, which is also small in terms of trading volume,420 as are its collective investment schemes. Economic growth has been created, and assisted, by the presence of law firms, fund management and administrative services, accountancy firms (including KPMG, PWC, Deloitte and EY), telecommunications and technology companies, regulation and compliance. At a recent speech at the World Economic Forum, Premier Burt pointed to Bermuda’s rapidly advancing technology industry.421 The international business sector in Bermuda provides some 3,894 jobs422 and brings business visitors to Bermuda who support the local economy.423 The below table outlines the makeup of Bermuda’s financial sector: Table 2: Data on Bermuda’s Financial Sector Service/Product Quantity Domestic Banks (including credit union) 5 Offshore Banks 0 Limited Companies 14,603 Limited Partnerships 1,004 Trust Service Providers 28 Corporate Service Providers 62 Fund Managers 31 Insurance Companies 1,231 Collective Investment Schemes/Investment Funds 441 Money Service Businesses 2 Source: TJN FSI (Bermuda) and Bermuda’s NRA 2017 418 By contrast, Cayman has nearly 300 banks, see: Know Your Country Report (2017) Cayman Islands. 419 Insight provided by Saul Froomkin QC, former Attorney General of Bermuda. 420 IMF (2008) supra 406, [8]. 421 The Royal Gazette (25 January 2018) ‘Burt meets tech titans in Davos’. 422 Bermuda Government, Ministry of Finance ‘National Economic Report of Bermuda 2015’ [4]. 423 Ibid. 80 Bermuda is a consumption-based economy with an indirect taxation model. As Atkinson (1977) avers, the differences between direct and indirect taxation is among “the oldest issues of taxation policy”.424 Bermuda is completely reliant on imports for the “basics, luxuries and everything in between”.425 It is a principle of law that jurisdictions have the sovereign right to decide their tax system by which they build revenue.426 Indeed, as Faulhaber (2009) noted in the EU context, no institution has the authority to regulate direct taxation without the unanimous support of all twenty-seven Member States.427 Bermuda’s model requires a different taxation philosophy than that of a mixed-economy. Bermuda does not collect income or corporation tax. However, it is not a ‘no-tax jurisdiction’. There are two things to point out. There is the issue as to whether an indirect taxation model provides any real opportunity for international money-launderers, criminals, tax evaders and avoiders. Another issue is whether the model is appropriate – taking account of various developmental concerns. In 2016/2017, Bermuda’s government had a revenue of $988m, including customs duties of $211m and payroll tax of $401m.428 Since the Revenues Act 1898, Bermuda has collected import tax, customs duties, land and property tax, premiums for foreign purchasers, licence fees, stamp duty, passenger tax and a payroll tax. The latter is levied on all employers and those who are self-employed. Annual fees for operating a Bermuda company also generates revenue. This model is not uncommon and is present in similar jurisdictions, such as Cayman.429 Levies and taxes in Bermuda make up 84% of public revenue, at $813m.430 This is proportionally similar to that in Canada and the US.431 Does such a model benefit those seeking to abuse it? This is an important question, because of the frequent mischaracterisation about countries being tax havens largely on the basis that they have indirect taxation models.432 It would be principally beneficial to an 424 See: Atkinson, A.B. (1977) ‘Optimal Taxation and the Direct versus Indirect Tax Controversy’, Canadian Journal of Economics, 19: 590-606; and Cremer, Pestieau, P., and Rochet, J-C., (2001) ‘Direct Versus Indirect Taxation: The Design of the Tax Structure Revisited’, International Economic Review, 42(3): 781-799. 425 Richards (2017) supra 412, [10]. 426 Pivetti, M. ‘High public debt and inflation: on the ‘disciplinary’ view of European Monetary Union’, [292-307] in Mongiovi, G., and Petri, F. (eds) (1999) Value, Distribution and Capital, Oxford: Routledge, [295]; and, Ring, D.M. (2008) ‘What’s at Stake in the Sovereignty Debate?: International Tax and the Nation-State’, Virginia Journal of International Law, 49: 156; and, Ring, D.M. (2009) ‘Democracy, Sovereignty and Tax Competition: The Role of Tax Sovereignty in Shaping Tax Cooperation’, Florida Tax Review, 9: 555-596. 427 Faulhaber, L.V. (2010) ‘Sovereignty, Integration and Tax Avoidance in the European Union: Striking the Proper Balance’, Columbia Journal of Transnational Law, 48: 177-241, [177]. 428 Bermuda Government, Department of Statistics, Bermuda Digest of Statistics 2017, Table 6.1, [58]. 429 Freyer and Morriss (2013) above supra note 22, [7]. 430 Bermuda Government, (2009) ‘Bermuda’s role in the international capital market’. 431 Ibid. 432 For example, Chris Bryant MP on BBC Newsnight (5 April 2016) stated that Bermuda is a tax haven because it does not have income tax, property tax, sales tax, inheritance tax. He also makes the point that 81 overseas investor if they became a resident of Bermuda. The fact is that if wealthy individuals want to live in places like London, New York or Paris, then they would not qualify for the tax benefits of Bermuda’s indirect taxation model, unless they became ordinarily resident in Bermuda. Residency is a difficult process and Bermuda has been traditionally protectionist, such as offering jobs to Bermudians first, making it difficult to obtain residence and work permits, and with significant premiums on property sales to non-Bermudians. The second question is whether this model of taxation is appropriate for Bermuda. This is more controversial. Richards (2017) argues the system works for Bermuda’s context. Yet, there is also convincing sentiment amongst local economists that its taxation model is leaving behind the bottom 25%, who live in relative poverty, which I shall consider later when discussing developmental challenges. The implication is that for a country so wealthy it is surprising that there are still social welfare issues. In turn, many have suggested that tax policy adaptation is needed to boost public expenditure.433 Tourism is the second most important industry in Bermuda,434 representing 4.7% of GDP.435 It accounts for 8.1% of total employment from direct contribution, and 17.3% of total contribution.436 In 2016, 646,465 visitors came to Bermuda, with estimated visitor spending at $358m.437 Bermuda hosted the 2017 35th America’s Cup (‘AC35’), the world’s most renowned sailing event, broadcast to 400m viewers.438 A 2015 resident impact survey predicted it would have significant social and economic impact.439 At the time, Bermuda had lived through a seven-year depression440 and tourism had suffered,441 largely a reverberation from the global financial crisis. AC35 was seen by some critics of Bermuda as an extravagant platform for luxury brands, corporate sponsors and wealthy spectators.442 However, Bermuda was able to demonstrate its tourism offering to millions of viewers world-wide,443 something Bermuda has structured its tax regime in such a way to attract people to hide their assets international there. 433 Stubbs, R.J. (2016) Stubbs, R. J. (2016) ‘Bermuda in 2016: An Economic Analysis and Political Critique of Where We Are, How We Got Here and The Way Out’, [22]. 434 Archer, B. (1995) ‘Importance of Tourism for the Economy of Bermuda’, Annals of Tourism Research, 22(4): 918-930. 435 Bermuda Government, Department of Statistics, GDP 2016 Highlights, October 2017, Table 6: Hotels and Restaurants, [9]. 436 World Travel and Tourism Council, Economic Impact 2017: Bermuda [1]. 437 Bermuda (2016) Visitor Arrivals Report Full Year. 438 Richards (2017) supra 412, [65]. 439 DeShields, S, and Riley, C. (2015) ‘The Economic and Social Impacts of Bermuda Hosting the 2017 America’s Cup Races’. 440 Stubbs (2016) supra 433, [28]. 441 The Independent (29 June 2013) ‘How Tourism Got Lost in the Bermuda Triangle’. 442 For example, in BBC Panorama (6 November 2017) Richard Bilton negatively described the sponsors and luxury-nature of the event: “When you arrive … this event is not mass market. It’s a high-end event. People here, sponsors are elite and wealthy companies [and] bang smack in the middle of them is Appleby”. 443 Bermuda Government, Budget Statement 2017/2018, [16]. 82 small jurisdictions like these seldom have chance to do. Hosting AC35 was $12.9m under- budget and contributed $336.4m to GDP while costing $64.1m to host.444 There were also $500,000 in donations for community initiatives such as computer equipment and refurbished sailing-school boats.445 The Endeavour Programme was founded which provided sailing instruction to 1600 students,446 and 545 Bermudian residents were trained as ‘First Mates’. 9 acres of land were developed, hotels were built and many existing hotels upgraded.447 Given the focus of perception of OFCs, it is interesting to note Bermuda’s capacity and ability to host a world-wide event, and be reviewed positively with regards to spending, investment and legacy. It certainly adds deeper context and demonstrates that Bermuda’s advanced development. This is important in the context of this thesis when considering its abilities, and willingness, to adopt and implement international standards into its financial frameworks. 4.3. Bermuda’s Role in Economic Crime and Suspect Wealth Corruption and lack of integrity in Bermuda have not materialised to the same extent as, for example, in TCI.448 There is a distinguishing presence of regulated professional industries and personnel, with an increasingly large compliance sector harnessed by various local AML and integrity initiatives.449 That said, as I emphasised in chapter 2, no country is immune to corruption450 and Bermuda was recently subject to a Commission of Inquiry into the Report on the Consolidated Fund of the Bermuda Government for the Financial Years 2010, 2011 and 2012.451 The Auditor General found significant mismanagement of Bermuda’s finances during the Report period, particularly in 2010 and 2011.452 It was alleged that the government failed to comply with Financial Instructions (‘FIs’) for the handling of public finances.453 It was emphasised that, as in the past, it is not the issue whether controls regarding rules exist, but that they are “ignored or overridden” with those responsible “immune” to the imposition of sanctions.454 This demonstrates that Bermuda is not beyond abuse within its own system. In the context of upholding the integrity and accountability of institutions as an essential constituent element of democracy, this presents a realisation that 444 PWC (2017), ‘Economic, Environmental and Social Impact of the 35th America’s Cup on Bermuda’. 445 America’s Cup Bermuda Ltd. (2017), ‘America’s Cup Bermuda Legacy Impact’. 446 Ibid, [10]. 447 Ibid, [14]. 448 Auld Report supra 306. 449 For example, Bermuda’s 2018 AML Campaign: ‘Just Good Business’. 450 As is the sentiment of the UNCAC. 451 Commission of Inquiry (2017) supra 390. 452 Ibid, Section 3. 453 Ibid, [21]. 454 Ibid, [18]. 83 domestic lapses can occur in public life. While some of the language in the Report was cautious,455 the fact that senior officials in Bermuda have shown appetite and have been unhindered in their examinations is a positive example of accountability (of course, notwithstanding the reason for the Report in the first place). Several Report findings are worth noting. During 2010, approximately $14m in expenditure did not have the required Cabinet approval. For example, $957,762 and $1,863,386 were spent on renovations to the Department of Human Resources and the Ministry of Finance, respectively.456 The Report flags breaches regarding monies paid for supply agreements, without first signing contracts,457 as well as significant contracts not tendered. Further, it identified millions paid for professional services without prior approval.458 The report aimed to consider whether the laws and regulations are satisfactory and whether they provide safeguard against violations. As a result of this report, a Commission of Inquiry was appointed to look at whether FI violations had occurred and whether there was evidence of possible criminality. The Commission found “widespread breaches of [FI]”459 focusing on Government contracts publicly tendered and approved by Cabinet,460 and in relation to public money paid out despite contracts not being signed by the Government.461 In summary,462 7 government business dealings had evidence of “possible criminal activity”, which were referred to the police. Under Bermuda law, the FIs only have legal backing through the Public Treasury (Administration and Payments) Act 1969.463 Power exists for the Minister to give FIs full statutory force so that breaches become criminal matters, however this power had not yet been exercised.464 At present, such can only be sanctioned as disciplinary offences. The Commission took the view that breaches without reasonable excuse ought to be disposed of as crimes, although they do add that not all breaches should be criminally regarded, and thus an element of selectivity is necessary. Bermuda was also heavily impacted in the Paradise papers – unsurprising given Appleby’s Bermuda office was the target. Yet, in the former equally sizeable offshore data- leak, the Panama papers, Bermudian-registered legal entities were not named. This 455 Ibid, such as the use of the phrase “possible criminal activity” [9]. 456 Ibid, [20]. 457 Ibid, [25]. 458 Ibid, [31], See Section 3 for comprehensive details of allegations. 459 Ibid, Section 10(1). Financial Instructions are issued by the Bermuda Government’s Finance Minister. 460 If exceeding $50,000 (then) or $100,000 (recently updated). 461 Ibid, Section 5(1). 462 Ibid, Section 8(1). 463 Section 3, Public Treasury (Administration and Payments) Act 1969. 464 Supra 390, [119]. 84 demonstrates that MOSSFON, whose practices have since been proven to have fallen short on both law and ethics, did not appear to register Bermuda entities for its clients. With respect to the Paradise papers, there were 9450 Bermuda-registered entities named in the data-base. Of these, the data showed 6059 had already been closed.465 As I have argued throughout this thesis, simple naming entities does not demonstrate wrongdoing – only the undisputed fact that Appleby provides corporate legal services to clients. Other than demonstrating use of Bermuda as a jurisdiction in which multinationals have benefited from aggressive tax avoidance, the impact upon Appleby has been significantly less than on MOSSFON (which ceased operating). Except launching and settling civil suits for breach of confidence against media organisations, there does not appear to have been any lasting adverse impact on Appleby. With regards to the number of entities mentioned, at the time of writing there are approximately 17,000 legal entities in Bermuda including limited liability companies, partnerships, CSPs and so forth. There are 25 law firms in Bermuda, and two major offshore ones: Appleby, and Conyers, Dill & Pearman. It is unsurprising therefore that in targeting a large firms in Bermuda, 9,450 entities were mentioned. However, the data provided by the ICIJ is incomplete as commercial activity or company status are often omitted, while the Panama Papers data showed many companies mentioned had been dissolved decades before the publication. As was acknowledged in Bermuda’s NRA, “the money laundering threat from predicate offences committed overseas is assessed as high, as given the nature of [its] economy, it is likely that the proceeds from such offences will be found in Bermuda’s financial industry”.466 Predicate offences here include: “drug trafficking … fraud, insider trading/market manipulation, tax crimes and corruption/bribery”.467 The report emphasises that the proceeds of crime which emanate from foreign criminality present a significant threat. Drawing upon several law reports of criminal cases in foreign courts, Bermuda has been implicated as a jurisdiction connected to such instances of criminality, typically through disposal of the proceeds of crime or tax evasion through its financial system. For example, in 2017 Credit Suisse settled an Italian case which involved allegations of it helping clients to transfer undeclared funds offshore, after it was placed under investigation for ML. The 465 ICIJ Offshore Leaks Database, ‘Paradise papers’. 466 Bermuda Government, National Anti-Money Laundering Committee (2017) ‘The Assessment of Bermuda’s National Money Laundering and Terrorist Financing Risk – Report’, [39]. 467 Ibid, [34]. 85 scheme affected some 13000 clients and related to €14bn. The transactions allegedly took place between Liechtenstein and Bermuda in order to evade Italian tax authorities.468 In the case of US v Perez-Ceballos [2017], the wife of former Tabasco, Mexico Secretary of Finance was convicted for conspiracy to commit bank fraud. The crime involved the laundering of $40m via fictitious companies and complex transactions. $2m was moved to an offshore account in Bermuda as a result of false statements made to a US banking institution.469 Similarly, in US v Patrick Sutherland, an executive was convicted for filing false tax returns and obstruction. The allegations involved concealing significant income and filing tax returns omitting unreported income of $2m received from a bank in Bermuda. He falsely claimed the transactions were capital contributions/loans, yet most transactions were insurance commissions or money obtained from a brokerage account which he controlled in Bermuda. Using Bermuda-based shell companies allowed him to funnel personal and business funds to his US domestic bank accounts.470 In the matter of US v Donville Inniss [2018],471 Bermuda was implicated in an American FCPA case. The case concerned a former Barbados Minister of Industry criminally charged in the US with laundering corrupt payments in respect of influencing lucrative insurance contracts. Such payments were received from a Barbados insurance company – the controlling shareholder of which was a Bermuda-registered company. Finally, in the US case against former Mayor of Matamoros, Erick Santos, who is a fugitive following a conviction for accepting bribes totalling between $5.3m and $10m, US prosecutors are engaged in asset seizure relating to his funds kept in Bermudian bank, Butterfield & Son.472 These criminal cases demonstrate that Bermuda and its financial centre, to differing degrees, has played host to the proceeds of overseas criminality. These have included using local companies and bank accounts to evade tax, launder money, and dispose of the proceeds of crime. Other than criminality, Bermuda’s financial sector has been implicated in some significant instances of tax avoidance involving some of the world’s largest multinationals. In fact, given the statistically insignificant levels of criminal proceedings following the Paradise papers, the leak was overshadowed by revelations of tax avoidance rather than allegations of criminality. For example, it was reported that Google moved €19.9bn to Bermuda via its 468 Reuters (21 October 2016) ‘Credit Suisse reaches 109.5mln euro settlement in Italy’. 469 US v Silvia Beatriz Perez-Ceballos [2017], US Department of Justice Press Release (16 October 2017) ‘Wife of Former Mexican Official Convicted in Bank Fraud Conspiracy’. 470 US v Patrick Sutherland [2017] US Dist. Court, Western District of North Carolina, CR17-4427. 471 US v Donville Inniss [2018] US Dist. Court, Eastern District of New York, CR18-00134. 472 FARS News Agency (21 January 2016) ‘Fugitive Ex-Mayor Fights Asset and Money Seizure Case’. 86 Netherlands-registered company in 2017 via a double Irish, Dutch sandwich vehicle.473 This reduces overall corporate tax by using the Netherlands subsidiary to shift global non-US profits to Google Ireland Holdings, an affiliate in Bermuda which is not subject to income tax.474 One European Parliament Member state: “Firstly, the profits generated in the EU are transferred to a subsidiary established in Ireland, where they are subject to a very low tax rate agreed with the Irish Government. Then, the subsidiary transfers the money in question to a Dutch company with no employees which forwards it to a letter-box company in Bermuda”.475 Similarly, the medical corporation Abbott was reported to have made use of the double Irish structure and a series of inter-company transactions and charges to divert profits to Bermuda-registered companies. Ireland recently announced changes to its laws which gives multinationals with the structure in place until the end of 2020 to alter their subsidiaries structure. However, multinationals like Google have been implicated as stepping up their use of the double Irish framework prior to its eradication.476 Finally, the Paradise papers implicated Nike’s use of Bermuda for tax avoidance purposes from 2006-2014.477 An EU Commission report, in examining multinationals’ aggressive tax, outlined that Nike had entered into an arrangement with Dutch authorities allegedly enabling it to shift billions of dollars of European profits to Bermuda.478 It should be noted that in terms of revenue-related enforcement actions, many are either not reported nor would attract public attention, and therefore a fuller picture in this context is difficult to determine. Recently, Bermuda was named in TIs The Cost of Secrecy (2018) report. This analysed information concerning OTs which have been connected to corruption and related misconduct overseas drawing upon Paradise papers revelations. One of its case studies, “The Shuvalovs’ private jet owned via Bermuda”, concerned the wife of former Russian Deputy Prime Minister, who allegedly was the beneficial owner of a Bermudian-registered entity that owned a private jet. The report draws an adverse inference based on the jet’s value being incommensurate with the beneficial owner’s known wealth.479 By implication, Bermuda’s financial service offerings may have facilitated suspect wealth from overseas connected to a PEP. However, the information presented is incomplete given the evidence it relies upon does 473 Supra 48. 474 Reuters (3 January 2019) ‘Google shifted $23 billion to tax haven Bermuda in 2017: filing’. 475 European Parliament (9 January 2019) Parliamentary questions: Question for written answer E- 000064-19. 476 Irish Times (5 January 2019) ‘Google ramps up the ‘double Irish’ before closing time’. 477 ICIJ (10 January 2019) ‘Nike Could Owe Billions in Back Tax if New EU Probe finds Against It’. 478 EU Commission, Special Committee on Tax Crimes, Tax Evasion, and Tax Avoidance, Meeting of 21 June 2018, Hearing on “Lessons learnt from the Paradise Papers”: Panel II Alleged aggressive tax planning schemes within the EU, [6-8]. 479 TI UK (2018) ‘The Cost of Secrecy’, [5]. 87 not contain material information about time-stamps and dates. As such, TI concedes it is not known when the jet was ultimately owned by those in question. Of course, TI acknowledges that some of its cases in the report provide only “prima facie evidence of corruption”.480 Whilst the tone of the allegations is serious insofar as Bermuda is concerned, concrete conclusions cannot be drawn. Matters which are non-disputed facts in case-law, or serious reported allegations which implicate Bermuda’s financial centre give a prima facie case that its OFC has received suspect wealth and facilitated significant tax avoidance. However, in the coming sections, Bermuda’s response to suspect wealth will be critically analysed to consider the extent of its compliance, the viability of international standards, and how Bermuda can better prevent suspect wealth entering its financial system. 4.4. Bermuda – More Sinn’d Against Than Sinning?481 Bermuda has a track record of compliance and cooperation in the context of suspect wealth and this has positively intensified in recent years. Each OT has a unique constitution and a system of ‘home rule’. Bermuda has a centuries-old system of governance and democracy. Bermuda’s constitution, and its institutions of governance, are long-established – unlike in some OTs where scrutiny bodies are younger.482 Its general development therefore provides context to the consideration of its record of engagement with international AML, anti-corruption, tax and beneficial ownership standards, as well as reform of important legislation. Bermuda displays cooperation in both adherence to, and implementation of, international standards. Having considered case law, as well as implications from the data- breaches, this section identifies and assesses some of the more prevalent attacks against Bermuda which have related to its harmful tax perception, its regulatory and compliance regime, and its perceived lack of transparency with beneficial ownership. Where appropriate, it seeks to rebut those criticisms which are perhaps based on mischaracterisations. The NGO Oxfam recently classified Bermuda as the “world’s worst corporate tax haven”.483 Its singling out of Bermuda is unprecedented as, for example, there are jurisdictions at the worst end of the FSI which have not been subject to the same types of labelling as Bermuda has. Oxfam’s criteria was the same seen in historic tax haven attacks, such as those 480 Ibid, [1]. 481 Shakespeare, W. (1605) King Lear, Act 3, Scene 2. 482 For example, Anguilla, despite being an OFC, does not yet have an Integrity Commission, its Public Accounts Committee is functioning poorly, and there is a lack of modern legislation to tackle fundamental issues, of which more later. 483 Oxfam (2016) ‘Tax Battles’ supra 187, [5]. 88 by the OECD, which include considering corporate tax rates, incentives and “commitment to heed international efforts to curb tax dodging”.484 Their assessment hinges on Bermuda’s indirect taxation model, which indicates bias against low tax jurisdictions – irrespective of that jurisdiction’s level of compliance on relevant measures such as information exchange. Oxfam has identified its 0% corporate income tax, 0% withholding taxes, lack of participation in multilateral anti-abuse, exchange and transparency initiatives, and evidence of large-scale profit shifting.485 While Bermuda does not collect corporation tax, it has signed numerous bilateral information exchange agreements. This assessment came closely after the Panama papers, in which Bermuda was not implicated and at the same time as 300 of the world’s leading economists claimed that tax havens generally serve no useful purpose to the world economy.486 These views omit consideration of Bermuda’s economic value proposition through its (re)insurance sector – such as through paying out billions of dollars annually for natural disaster losses. Other similar jurisdictions under attack which simply park or conceal assets have a more difficult task in demonstrating a valuable contribution.487 The criticism by Oxfam is, however, concerning given that Oxfam occupies an increasingly influential policy role. While the manner in which they have singled out Bermuda may be questionable for reasons pertaining to Bermuda’s legislative and regulatory response to suspect wealth, the criticism itself is rather more representative of longstanding, repeated and recent blacklisting attempts. Of note is the OECDs campaign against tax havens in the 1990s. The campaign turned into a struggle between the OECD and its members, and smaller jurisdictions that were the subject of the campaign. A helpful outline can be found in Sharman (2006) Havens in a Storm.488 In an attempt from larger high-tax jurisdictions to impose regulations and tax reform on smaller island jurisdictions, this struggle was not insignificant. On the side of the OECD-initiative was billions of potentially taxable revenue with the inevitable benefits this would have on developed and developing countries alike. On the side of the small islands was a risk of unprecedented scale to their economic viability and consequent development sustainability. Indeed, it was very much a ‘David and Goliath’ story, with David staying the campaign of Goliath – at least temporarily. 484 Ibid, [38]. 485 Ibid, [13]. 486 Oxfam (2016) ‘Tax Havens serve no useful economic purpose’ supra 10. 487 Richards (2017) supra 412, [133]. 488 For background see Sharman (2006) supra 267, [40-48]. 89 While it is obvious, not all jurisdictions’ economies are the same and it is worth remembering that all 30 OECD countries489 are characterised by having market-based economies,490 and typically high tax rates. The OECD’s 1998 report on harmful preferential tax regimes491 aimed to identify and blacklist countries they deemed harmful tax jurisdictions. The OECDs criteria included: i) no or nominal taxes in the case of tax havens and no or low effective tax rates on the relevant income in the case of preferential regimes; ii) lack of effective EOI; iii) lack of transparency; and iv) no substantial activities, in the case of tax havens, and ring fencing, in the case of preferential regimes. Due to advance commitments, Bermuda avoided inclusion on the list.492 Many criteria do not apply to Bermuda, such as ring fencing of which Richards (2017) notes: “there is no preference … local companies don’t pay income tax either”.493 While bank secrecy was not an OECD criterion (and it is worth noting that Bermuda does not have bank secrecy legislation and never has494) lack of transparency and information exchange was a criteria – something the confidentiality norm present in offshore banking, as well as bank secrecy, would otherwise facilitate. In Bermuda’s case, information exchange is now fully integrated via the CRS and bilateral exchange agreements. The OECD’s 1999 report defined tax havens as jurisdictions which, among other things, have “laws or administrative practices which prevent the effective exchange of relevant information with other governments on taxpayers”. This is an increasingly developing area of Bermuda’s compliance infrastructure. While automatic information exchange agreements are now common practice and exist via bilateral agreements in Bermuda, there are two things to observe. First, Bermuda has had a central beneficial ownership register in relation to legal entities for some 70 years, seldom acknowledged by critics. Second, Bermuda now has 41 TIEAs in place and 3 double taxation conventions (‘DTCs’).495 More recently, the UK government’s ultimatum on the OTs represents an unawareness of Bermuda’s historic position and responsible approach to beneficial ownership information. Richards (2017) notes a meeting at the FCO where officials were astonished when he explained that Bermuda had had a beneficial ownership register for 70 years.496 Notwithstanding Richards’ bias as a former 489 Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, The Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, UK and US. 490 OECD (2006) ‘The OECD’s Project on Harmful Tax Practices: 2006 Update on Progress in Member Countries’, [2]. 491 OECD (1998) ‘Harmful Tax Competition, An Emerging Global Issue’. 492 OECD (2000), ‘Towards Global Tax Co-operation. Progress in Identifying and Eliminating Harmful Tax Practices’, [29]. 493 Richards (2017), supra 412, [121]. 494 I am grateful to Saul Froomkin QC, former Attorney General of Bermuda, for providing this insight. 495 OECD (2018), Exchange of Tax Information Portal. 496 Richards (2017) supra 412, [126]. 90 politician, at the time, Bermuda’s register was functioning and providing the NCA with 24- hour turn-around on information requests and the UK had not yet implemented its PSC register. In 2013, France blacklisted Bermuda as an uncooperative jurisdiction. This was short- lived and Bermuda was removed by committing to cooperate with French requests for information exchange. It was accompanied by a 75% withholding tax on all payments made from France to Bermuda. Its global insurance offering was one of the main reasons Bermuda was removed from the blacklist. The French insurance sector pressured the French Ministry of Finance emphasising that the withholding tax prohibited France from getting the best reinsurance rates which were available in the Bermuda market.497 Another blacklisting episode came in June 2017, where the EU Code of Conduct Group served a questionnaire on Bermuda about its tax system.498 Sentiment in Bermuda included the perception that this was another blacklist threat and that the questions were phrased in such a way that led to the predetermined conclusion that Bermuda is a tax haven and a danger to the international business sector. Of course, it is unsurprising that Bermuda, or any jurisdiction, would reject the negative term tax haven.499 In December 2017, the most recent blacklisting attempt was made by the EU in its List of Non-Cooperative Jurisdictions. This exercise was based on a wide criteria including good governance, transparency, fair taxation, tax systems and adherence to Base Erosion and Profit Shifting (‘BEPS’). It compiled a blacklist of jurisdictions which had failed to take meaningful action to address deficiencies identified by the EU.500 It also compiled a greylist of jurisdictions that had committed to enhancing transparency obligations, subject to ongoing review.501 While Bermuda was not originally featured on the blacklist, it was placed on the greylist, and in early 2019 transferred to the blacklist. Grey-listing is a new concept. While it acknowledges commitments of jurisdictions like Bermuda, it also acts as a quasi-blacklist by association in terms of reputational harm. In any event, the recent adding of Bermuda to the blacklist was met by Premier Burt stating he did not fear reputational damage. While this might strike one as surprising, particularly if the EU member states agree on any sanctions to impose on blacklisted jurisdictions, it might indicate Bermuda’s dissatisfaction with the seemingly ever- changing landscape whereby it sees itself both removed and added to different black or grey- 497 Richards (2017) supra 412 [124]. 498 The Royal Gazette (23 June 2017) ‘Richards: Bermuda under threat from EU’. 499 Sharman (2006) supra 267, [19]. 500 EU List of Non-Cooperative Jurisdictions for Tax Purposes, Council Conclusions (Adopted 5/12/2017), Annex 1, [8]. 501 Ibid, Annex 2, [13]. 91 lists. Bermuda was also included as part of the 2018 Netherlands blacklist of non-cooperative tax jurisdictions. There has been forceful criticism from the UK Labour party more generally towards the OTs. During the 2015 election, the then Opposition Leader issued a letter to the OTs’ leaders announcing that they must compile a public beneficial ownership register without consideration of their current circumstances or methods in place.502 Similarly, following the Panama papers, the present Opposition Leader spoke about the UK’s ability to impose direct rule over the OTs and that it could be done “swiftly”.503 On BBC Newsnight, the then House of Commons Deputy Leader, Chris Bryant MP, said: “What a load of baloney you’ve just heard … Bermuda is a tax haven”.504 4.5. Harmful Tax Practices and The Court of Public Opinion There is consensus that the use of jurisdictions to hide assets provides drug barons, arms dealers, tax evaders, despots of resource-rich nations and so forth, with an easier framework to facilitate criminality and conceal ill-gotten gains.505 Notwithstanding the array of interesting scholarly work arriving at such a conclusion, the discourse is being driven by the misconception that these jurisdictions are largely used for such purposes. If it is accepted that anonymous shell companies are an essential part of the laundering and tax evasion processes, as some of the cases implicating Bermuda indicate, then it is interesting to consider the recent study by Findley, Nielson and Sharman (2014) which found surprising results. This was the largest global field experiment to date in international relations concerning anonymous shell company incorporation. One of this study’s findings was that small island jurisdictions tended to be harder environments to incorporate anonymous shell companies, the opposite being the case for larger developed countries. If jurisdictions like Bermuda were largely harmful, then surely more sanctions would be seen – like those received by banks for breaching AML controls. The study exposes a clear misconception as to the perceived facilitative-role of certain jurisdictions. It found that Bermuda scored a relatively high level of compliance (much higher than the US and UK) which supports the study’s general thesis that 502 Labour Press Release (6 February 2015) ‘Miliband tells tax havens: open your books in six months – or face international sanctions. 503 The Guardian (5 April 2016), ‘UK could impose direct rule on tax havens, says Jeremy Corbyn’. 504 Chris Bryant MP supra 432. 505 This general point is avidly made. See, Alstadsæter et al (2017) supra 193, [31]; Christensen, J. (2011) ‘The looting continues: tax havens and corruption’, Critical Perspectives on International Business, 7(2): 177-196; Schwarz, P. (2010) ‘Money launderers and tax havens: Two sides of the same coin?’, International Review of Law and Economics, 31: 37-47; Oxfam (2016) ‘Ending the Era of Tax Havens: Why the UK Government Must Lead the Way’; TJN (2012) supra 27; Shaxson (2011) supra 31; and Zucman, G. (2015) supra 180. 92 tax havens are more compliant because they have been subject to more longstanding and intense pressure to improve their corporate transparency practices since the 1990s.506 A continued criticism of Bermuda relates to the impact of its tax regime on development of other jurisdictions (as per the concerns raised in chapter 2). This is clearly the motivation of those who seek to try and justify making Bermuda’s beneficial ownership register public, and indeed the objectives of those organisations who point to Bermuda’s tax practices as increasing inequality, poverty and harming development.507 While it is not disputed these issues pose significant threats to development, there is important thinking relating to the source jurisdictions which does not accompany such criticism. Richards (2017) illustrates this in a recollection of a FCO meeting in 2013 where “the narrative was that multinational corporations engaged primarily in extractive industries in various African countries were doing two things: first, bribing corrupt politicians there and second, shifting the profits they were making in those countries … [to countries] like Bermuda thereby leaving the governments of the African countries in question insufficient revenue to feed their starving babies”.508 In other words, there seems to be less focus on the corrupt politicians themselves and more on the tax havens. While there are many aspects of Bermuda’s framework which will be shown as domestically robust as well as compliant with international standards, there perhaps are some areas where Bermuda falls short. For example, its indirect taxation model, or its unwillingness to make its centrally-held beneficial ownership register public.509 In the case of the Paradise papers, information was stolen from the law firm. Whistleblowing is subject to various safeguards whereas hacking and theft are tautologies. With this, it is interesting that many stakeholders in the international anti-economic crime fight are significantly fixated on the good the Paradise papers hacking did. For example, the former Chair of the UK Public Accounts Committee, Dame Margaret Hodge stated “we have the Guardian and Panorama to thank for their brilliant investigative work and for placing the data relevant to us under public scrutiny”.510 Those who justify non-targeted thefts of confidential information risk ignoring the specific costs to those whose private information has been compromised, and the underlying dangers with dispensing of legal safeguards. I am not seeking to undermine the seriousness of the allegations raised in the Papers, rather that the thinking ought to be redirected away from the “means justifying the ends” mentality. The actions of the perpetrators have been given a false sense of legitimacy, exacerbated by the 506 Findley et al (2014), supra 149, [78]. 507 For example, TJN (2012) supra 27. 508 Richards (2017) supra 412, [129]. 509 The Royal Gazette (28 May 2018) ‘Burt Defiant in Talks with May’. 510 HC Deb (13 November 2017) Vol. 631, Col. 55. 93 media who have given weight to their actions. The media has acted as a safe-haven for ill- gotten information – a charge their media stories stoically levelled at OTs as facilitating suspect wealth. If they are in possession of information which looks suspect, then it should be disclosed to enforcement bodies. Sadly it is often not. For example, the Panama papers were only disclosed to HMRC for a fee.511 In May 2018, it was reported that HMRC still did not have access to the Paradise papers that the BBC and Guardian were not responding to investigative inquiries.512 Publishing misappropriated confidential information often hides under the veil of public interest. This practice is dubious at best in this context and transcends a social line which is ineradicable. If such conduct precipitates, it will start to become socially and morally acceptable which has dangerous consequences for legal protections. For example, at what point does committing a crime to expose another crime become acceptable, as defined by the media and others’ moral definitions of such conduct.513 If these values are eschewed in favour of exposing wrongdoing as some exercise in utilitarianism, then at what point does it become permissible for law enforcement to break into someone’s property without a warrant or reasonable suspicion of a crime taking place? The minute procedural misconduct becomes acceptable and the lines start to blur, comes the immovable point at which integrity is lost. The balance of freedoms and rights is, of course, a complex task. I am not contending that the freedom of the press should be constrained – as holding those to account who have engaged in illicit conduct, particularly public officials, is of paramount importance. However, it seems quite clear that public interest is finding convenient favour over fundamental rights such as the right to privacy, the legal right to confidentiality and legal privilege. As I alluded to above, just as the right to live in a corrupt-free society, or the expectation of properly funded public services are important, so are fundamental rights of individuals which are often taken for granted.514 The reality is that these data-breaches further an agenda which drives and designs policy, with section 51 SAMLA being an example, without acknowledging context, commitments made and frameworks in place in Bermuda. 511 HC Committee of Public Accounts: HMRC’s Performance in 2016-17, at Q48. 512 Ibid, evidence of Jon Thompson, HMRC Chief Executive and Permanent Secretary: “… in relation to the BBC and The Guardian, we would like the information and we will continue to request it. They are making a decision not to give it to us, but we would obviously like it”, at Q44. 513 Senior UK politicians have all praised the work of the hackers, such as Sir Vince Cable, Baroness Stern and Dame Margaret Hodge. 514 Nakajima (2017) supra 43. 94 4.6. Bermuda’s Response to Suspect Wealth I have outlined various concerns about Bermuda, including the fact that its offshore services have been implicated in international criminal matters. I have also detailed criticisms about Bermuda, including data-breaches, blacklisting offensives and reputational attacks, including some mischaracterisations. This gives rise to a more negative view of Bermuda, from which adverse inferences might be drawn. However, such information is not indicative of Bermuda’s compliance with international standards, nor is it indicative of the extent to which such standards may be irreconcilable with domestic circumstances. I will now outline several key elements of Bermuda’s legal and regulatory regime to support the case that Bermuda is a compliant, cooperative and responsible OFC across many measures. It will be shown as fundamentally different to the other OTs. The first major concern pertains to beneficial ownership of companies – a standard which is presently changing. 4.6.1. Beneficial Ownership Regime and Company Law The term ‘beneficial owner’ refers to the true owners of equity in a business, even if the title might be in another name. The criticism of Bermuda’s central register is that it is not publicly-accessible. The inference is that if it cannot be scrutinised by the public, then crime can be facilitated. By implication, a register which is central is perceived as non-transparent, and Bermuda’s is perceived so. At the time of writing, FATF R.24 states that “countries should ensure that there is adequate, accurate and timely information on beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by competent authorities”. FATFs standard is silent as to whether countries should make this information public, but infers the importance of countries being able to have access such information in good time. The Paradise papers’ aim was to expose information the public were hitherto prohibited from seeing, despite such information being legally protected by professional privilege or confidentiality laws. UK legislators have gone as far as claiming that: “the public in the UK and elsewhere have a right to see beneficial ownership information”.515 Abrogating legal protections with an incorrectly-proclaimed right of others to see such information, without it being a matter afforded by law, is legally and jurisprudentially flawed. Bermuda takes the view that this sort of information does not give rise to legitimate public interest. Rather, it is matter for governments authorities. This seems more aligned with FATFs position. Bermuda has 515 UK FAC (2019) supra 322, [3]. 95 demonstrated will and commitment by making such information available through bilateral exchange agreements with foreign authorities. This, however, is being viewed by transparency campaigners, media and UK politicians as inadequate. Attempts in the UK Parliament in 2018 to impose public registers on the OTs have been recently successful. Baroness Stern stated that “In the absence of the transparency [Amendment 73] calls for, we’ve had to rely on hackers and whistle-blowers to take great personal risks in order to expose this criminality”.516 In furtherance of this point, and in dismay at the UK government’s ongoing attitude towards the question of Bermuda’s beneficial ownership register, Richards (2017) suggests that for the UK, as a large diversified economy, introducing a public register is incidental, but for OTs that depend on financial services, the commitment is more a matter of economic life or death.517 Unlike other OTs, Bermuda is not a significant jurisdiction for company incorporation, or a typical shell company domicile.518 Bermuda entities were not implicated in the Panama papers. By contrast, about half the legal entities revealed were incorporated in BVI,519 while the data revealed BVI and Panama as favourite jurisdictions for incorporation services.520 It could be argued that Bermuda’s resistance pivots more on convention and principle, rather than the functional impact of public registers on its financial sector. Public statements from officials,521 as well as evidence submitted to the FAC Inquiry supports this point.522 Views from opposing sides of the political spectrum in Bermuda suggest that it will only implement a public register if its government votes for it, or once it becomes a global standard. Such arguments appear to be based more along the lines of resisting because it is not yet the global rule, rather than the extent to which it might impact its industry. However, Richards (2018) in evidence did suggest it would affect competition with other jurisdictions, that business will go elsewhere to less-regulated environments, and loss of revenue for development and expensive social services. That said, the Bermuda government did not take the opportunity to explain why this would be a matter of life or death for Bermuda in terms of its financial industry during the recent FAC Inquiry, which is surprising. It could 516 HL (17 January 2018), supra 358, col. 687, Baroness Stern. 517 Richards (2017) supra 345, [129]. 518 IMF (2008) supra 406, [8]. 519 ICIJ supra 353. 520 Trautman, L.J. (2017) ‘Following the Money: Lessons from the Panama Papers – Part 1: Tip of the Iceberg’, 121 Penn St. Law Review, 807-873, [864]. 521 Bermuda Government (4 May 2018), Ministerial Statement by Premier David Burt MP: ‘The British Government vs. the Bermuda Constitution’, where the Premier states that the public register decision represents a regressive colonial mindset and that it will only manifest when the Bermuda Government votes to implement one. 522 UK FAC (2019) supra 322, Written evidence from Hon. E.T. Richards, who emphasised concern that the public register is not yet a ‘global standard’, [42]. 96 also indicate that the points on competitiveness, consistency and convention, rather than measurable impact, are Bermuda’s principal concerns. Given the resistance, it is necessary to examine Bermuda’s present and past status on beneficial ownership information – for which there is evidence suggesting an established regulatory framework which at least prima facie aligns with FATF standards and, in any case, may be a viable alternative. Even in 2008, the IMF noted, “incorporation of Bermuda companies requires that ultimate beneficial ownership be established twice before registration is accepted; once by the party submitting the application (normally a lawyer), and again independently by the authorities”.523 This supports the view that Bermuda has had established regulations in place vis-à-vis beneficial ownership due diligence (‘DD’). Going further, and recognising the increasing global push for accountability, in 2017 the Bermuda government proposed legislative changes to its framework including intensified disclosure obligations on information changes for local companies. It stated: “In response to growing demands for transparency from the global community, these 2017 amendments are to ensure Bermuda’s regime remains in good international standing for future generations”.524 These changes intensified the disclosure obligations on the part of local companies so that they must file on the register any information changes.525 Moreover, in April 2016, Bermuda and the UK entered into an Exchange of Notes Agreement which made changes to the Exchange Control Act 1972 and the Exchange Control Regulations 1973. This concerns the sharing of beneficial ownership information via Bermuda’s central registry and was implemented in June 2017. The Bermuda Monetary Authority (‘BMA’) stated that this regime is consistent with Bermuda’s decades-long commitment to transparency and “creating and retaining a regulatory environment that enables Bermuda to remain world-class in international compliance”.526 Other relevant legislative developments include amendments to the Companies Act 1981 via the Companies and Limited Liability (Beneficial Ownership) Amendment Act 2017. This demonstrates Bermuda’s commitment to update legislation in line with the Exchange of Notes agreement and in compliance with internationally-accepted standards advocated by the OECD and FATF. Bermuda also recently introduced the Registrar of Companies (Compliance Measures) Act 2017 which confers increased powers on the Companies Registrar to “monitor, 523 IMF (2008) supra 406.. 524 Bermuda Government, Cabinet Office, Press Release (22 May 2017): Enhancements to Bermuda’s Beneficial Ownership Regime Proposed. 525 The Royal Gazette (22 May 2017), ‘Beneficial ownership register rules updated’. 526 Bermuda Government (22 May 2017) supra 524. 97 inspect and enforce and otherwise regulate Bermuda registered entities to ensure compliance with their governing legislation”.527 This was in direct response to the OECD Assessment Team’s recommendations made during a peer-review of Bermuda which included enhancing the Registrar’s power to inspect Bermuda-registered entities’ compliance with governing legislation. Measures created under the Act in addition to this commitment include default fines and civil penalties.528 In doing so, it demonstrates actionable commitment to maintaining a favourable OECD rating. This is also balanced against the obligation of protecting the interests of Bermuda-registered entities. In their case, the Act provides for procedural safeguards including the provision of notice529 and the right to appeal default fines and civil penalties.530 As will be discussed in chapter 7, there is presently no empirical evidence suggesting that making a beneficial ownership register public carries any further deterrent than a register which is government-accessible. Therefore, for would-be criminals, it is not unreasonable to suggest that information in the hands of law enforcement is more dangerous to their operations than in the hands of the public. There is corpus opinion about increased transparency deterring illicit activity, although there also sentiment towards striking a balance between transparency and privacy. This is particularly so with corporate ownership, and how publicly accessible shareholder information might have a converse effect in deterring foreign investment from those who wish to observe privacy.531 For Bermuda, generating external investment is crucial to economic sustainability. The same debate is also occurring in the UK with regards to property and beneficial ownership registers. In the UK Government’s Call for Evidence on this issue, there was significant concern about the negative impact a public register would have on the UK property market in deterring overseas investors and making it less competitive.532 Given the UK’s recent decision to impose public registers on the OTs, it seems as though the above achievements of Bermuda’s system on collecting and sharing beneficial ownership have been disregarded. 527 Bermuda Government (14 March 2017), Ministerial Statement by the Minister of Economic Development, Hon. E. Grant Gibbons JP MP. 528 Sections 10-13, Registrar of Companies (Compliance Measures) Act 2017. 529 Ibid, Section 6. 530 Ibid, Section 16. 531 Mischon de Reya LLP, (18 November 2014), Event Report: Corporate Ownership: Transparency v Privacy. 532 UK Department for Business, Energy & Industrial Strategy (March 2018), ‘A Register of Beneficial Owners of Overseas Companies and Other Legal Entities: The Government’s response to the call for evidence’, [6]. 98 4.6.2. AML Regime Bermuda’s AML/CFT regime has been held to be compliant and effective. Recent initiatives demonstrate not only commitment to enhancing this regime, but progressive efforts in developing multilevel initiatives. This presents an alternative means of promoting integrity while at the same time meeting international obligations. In February 2018, Bermuda launched the ‘Just Good Business’ AML campaign, to bring stakeholders together to raise awareness and mobilise society to understand the issues relating to AML best practices and compliance. Conceived by Bermuda’s National AML Committee and Financial Intelligence Agency (‘FIA’), it has collaborated with various stakeholders including the Association of Bermuda Insurers and Reinsurers, Banking Association, Bermuda Business Development Agency (‘BDA’) and BMA.533 The aim of this campaign is to foster commitment and action from the public and private sectors in enhancing Bermuda’s AML/CFT framework. In launching the initiative, Premier Burt stated: “Reinforcing a strong framework to combat ML and terrorist financing is of critical importance to Bermuda’s economic future”.534 One of its 2018/2019 goals is to target the compliance industry. The BDA is designing programmes to increase awareness of the responsibilities of compliance officers, such as the ‘hug a compliance officer’ initiative to engage more with this critical industry. The compliance industry in Bermuda is growing rapidly, demonstrating its commitment to market integrity. The number of compliance officers in Bermuda rose from 65 in 2013 to 96 in 2017, a 48% increase.535 Of these 96, 73 were Bermudians, demonstrating a clear ability to recruit from its domestic labour-force. Initiatives like this cannot be underestimated. It draws parallels with the 2016 Anti- Corruption Summit in London of which Prime Minister David Cameron said “is the biggest demonstration of political will to address corruption for many, many years”.536 Some argued the Summit was just “one good day”,537 however TI concluded that the demonstration at multilateral level of collaboration is a positive outcome and points to its partnership-building function.538 It resulted in the establishment of the International Anti-Corruption Coordination Centre, Global Declaration Against Corruption and Global Forum on Asset 533 For full list of stakeholders, see www.goodbusiness.bm. 534 ‘Just Good Business’, supra 449. 535 Government of Bermuda, Department of Statistics, Employment Surveys 2013, [28]; and 2017, [27]. 536 Remarks of the Prime Minister, 2016 Anti-Corruption Summit, supra 110. 537 Power, S. ‘The London Anti-Corruption Summit: one good day is not enough’, LSE European Politics and Policy Blog. 538 TI UK (19 September 2017) ‘3 Things We’ve Learned Since the Anti-Corruption Summit in London 2016’. 99 Recovery. TI contend that shining a spotlight on words raises the bar for meeting commitments. Indeed, PWC suggest that awareness-raising and increased understanding of the scope and extent of economic crime is responsible for presently the highest level of reporting of economic crime.539 In the context of small jurisdictions, actions can manifest in various forms. It might take years to successfully bring a prosecution under progressive bribery legislation – yet by placing increased importance on fostering social denunciation of economic crime, institutions can be strengthened. Motivating and incentivising stakeholders at all levels of society to report and denounce such behaviour is indicative of a collaborative appetite. It might be the case that while wishing to adhere to strict, sophisticated internationally-driven best practices, small states cannot achieve this without first strengthening their values across sectors. Such standards have more of a chance of success than simply imposing them without consideration of domestic realities and, often, differences. I chose to analyse the ‘Just Good Business’ AML initiative prior to considering Bermuda’s broader AML, as it is the most recent example of internal AML awareness-raising at a multi-stakeholder level. Further, it provides a good foundation to consider the spirit of Bermuda’s AML record knowing that as well as compliance with international standards, it is also strengthening understanding of ML at a deeper level. There are many ML risks applicable to Bermuda. As mentioned, a lesser risk is ML via anonymous shell companies as Bermuda is not an incorporation-focused jurisdiction. Shell companies are a valuable secrecy tool accepted as ideal anonymous vehicles for laundering the proceeds of crime.540 Indeed, the perception about shell companies probably drives much of the antagonism towards tax havens. However, in Findley et al, as previous mentioned, Bermuda featured high in its table of CSP’s compliance ranking higher than some OECD countries that are responsible for tightening up global financial rules.541 Bermuda’s AML regime is robust and it has consistently striven to enhance its framework to comply with FATF standards. This is well-voiced by many commentators.542 The following aspects of its legal and regulatory regimes should be taken in conjunction with the ‘Just Good Business’ initiative. Possibly the most important piece of legislation is Bermuda’s POCA 1997, which gives powers to the police and to the courts to confiscate ill- gotten gain emanating from criminality, such as drug trafficking. The Act affords the Bermuda Police Department the opportunity to obtain an order or search warrant where they 539 PWC The Global Economic Crime and Fraud Survey 2018. 540 Findley et al (2014) supra 149. 541 Ibid, [76]. 542 For example, Farles, T. (21 November 2012), ‘Guide to Anti-Money Laundering and Anti-Terrorist Financing in Bermuda’. 100 can demonstrate reasonable grounds for suspecting ML. On the prevention function of Beccaria’s deterrence framework, the Act also establishes various requirements on financial institutions to undertake certain risk-based actions including DD measures, reporting, monitoring, and creating offences which deal with failure to comply with the regulations.543 As emphasised in chapter 2, ML and TF are intrinsically linked. Another relevant Bermudian statutory instrument is the Anti-Terrorism (Financial and Other Measures) Act 2004 which establishes offences related to facilitation and involvement of raising or using funds for terrorist activity. The Act provides Bermuda with the framework of targeting specific entities/persons known to be involved in TF and countries which have not addressed AML/CFT deficiencies. The Act allows directions to be issued to financial institutions in order to enhance and protect the reputational integrity of Bermuda. This is modelled on similar powers conferred upon the UK Treasury.544 Requirements under the Act include those made via the Anti-Terrorism (Financial and Other Measures) (Businesses in Regulated Sector) Order 2008 which classifies activities within the regulated sector and creates obligations to report suspicions of TF to Bermuda’s FIA. Bermuda’s FIA is provided for under the FIA Act 2007. An independent body, it is tasked with receiving and processing SARs. Under the Act, the FIA has authority to enter into exchange agreement processes with other foreign competent authorities. They can serve disclosure demands on suspicious individuals or entities to produce relevant information regarding transactions, and they also have the authority to serve freezing order notices of up to 72 hours. While such legislation demonstrates the regime’s robustness, Bermuda has also acknowledged that its professionals are at risk of inveiglement or lowering of standards to facilitate ML, which shows domestic awareness of this issue. The Proceeds of Crime (Anti- Money Laundering and Anti-Terrorist Financing) Regulations 2008 accommodates this and applies to regulated financial institutions and independent professions. It is widely accepted that professional gatekeepers to complex transactions, who might be engaged in managing securities accounts, property transactions, incorporating companies or holding client money, can facilitate wrongdoing.545 The Proceeds of Crime (Anti-Money Laundering Financing 543 For example, failing to comply with a production order (section 38 Bermuda POCA 1997) and failing to comply with a direction (section 49J Bermuda POCA 1997). 544 Schedule 7, Counter-Terrorism Act 2008 (UK). 545 See: The White Collar Crime Centre (2017) ‘The Corporate Offence of Failure to Prevent the Facilitation of Tax Evasion – thoughts on scope and effect in the UK’; PWC (2016) ‘Tackling Tax Evasion – An update on recent developments and how they will impact offshore service providers’; World Economic Forum (2012) ‘Organised Crime Enablers’; and Judiciary of England and Wales (2015) ‘The Professions: Power, Privilege and Legal Liability’, Peter Taylor Memorial Lecture by Lord Justice Jackson’. 101 Supervision and Enforcement) Designation Order 2012 established the Bermuda Barristers and Accountants AML/CFT Board as the authority responsible for overseeing and supervising the independent professions. The Regulations require these professions establish AML/CFT policies, for example customer DD and ascertaining identity on the basis of documents, data or information obtained from a reliable independent source, and beneficial ownership identification.546 The Regulations also task the BMA with oversight of all wire transfers. This emphasises the partnership aspect of oversight and also measures for institutions which include retaining records for a period of 5 years and verifying accuracy and completeness of information before transferring funds. The final statutory weapon in Bermuda’s armoury is the Proceeds of Crime (Anti- Money Laundering and Anti-Terrorist Financing Supervision and Enforcement) Act 2008, (‘the Supervision Act’). This designates the BMA as the financial regulator with regards to supervising AML/CFT-regulated financial institutions.547 The BMA’s functions under the Act include monitoring and taking necessary measures for the purpose of securing compliance,548 issuing guidance regarding compliance with AML/CFT provisions,549 conducting public reporting and informing the FIA of suspicions of criminality.550 It also outlines the functions of other competent authorities such as the Bermuda Casino Gaming Commission,551 the FIA552 and the Superintendent of Real-Estate.553 The BMA states that one of their principal objectives is to safeguard Bermuda’s reputation and economic model.554 Bermuda has shown considerable commitment in preparation for CFATFs upcoming review of its AML/CFT regime. Enhanced regulatory measures have been put in place, with examples being in the context of commercial (re)insurers and sustained compliance and implementation of Basel III measures.555 Competent personnel are critical in offshore environments like Bermuda and can be the distinguishing feature between compliance and non-compliance. While brain drain is 546 Part 2, The Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Regulations 2008. 547 See, section 3 Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing Supervision and Enforcement) Act 2008. 548 Ibid, Section 5(1). 549 Ibid, Section 5(2). 550 Ibid, Section 5(4). 551 Ibid, Section 6A(1). 552 Ibid, Section 6A(2). 553 Ibid, Section 6A(3). 554 BMA 2016 Annual Report, [2]. 555 Ibid. The Basel III framework is the international regulatory framework for banks: “[It] is a central element of the Basel Committee’s response to the global financial crisis. It addresses a number of shortcomings in the pre-crisis regulatory framework and provides a foundation for a resilient banking system that will help avoid the build-up of systemic vulnerabilities”, Basel Committee on Banking Supervision, ‘Finalising Basel III In Brief – 2017 Reforms’. 102 more pertinent to developing nations,556 jurisdictions like Bermuda attract well-educated people due to its professional services and business sectors. However, Bermuda’s business model centres on relatively few industries. For example, even within finance, the hedge-fund industry is relatively small. Bermuda ought to be acutely aware that talent is a critical commodity for its economic sustainability. However, given Bermuda’s development, it remains an attractive jurisdiction to live and work. The BMA recently announced improved policies which demonstrate not only their avidity for enforcement, but their acknowledgment that public denunciation and publicity of enforcement actions serves a deterrent function. In March 2016, the BMA announced that “Until now, the Authority has chosen to limit publicly disclosed actions to a fairly brief notification ... From 2016 onwards, the Authority will publish details of any use of its enforcement powers … The release will detail the nature of the enforcement action, the size of any penalty, the identity of the entity or person involved and the circumstances of the breach”.557 This shows a renewed focus on integrity and public accountability from Bermuda’s financial regulator. In 2016, BMAs enforcement activity increased across all financial sectors and they issued decision notices to five licensed entities. At the time, large unpublished civil fines were imposed on two entities for serious breaches of AML/CFT obligations. Utilising the Business Act 2003, the BMA fined a licensed entity and published the decision. There are also other actions, such as licence revocations currently under appeal, including restricting a licence of a Trust Company under the Trusts (Regulation of Trust Business) Act 2001. Furthering this policy, it published its decision against Barrington Investments Ltd. A civil penalty of $50,000 was imposed in respect of serious breaches of corporate governance and the Minimum Criteria for Licensing in the Investment Business Act 2003.558 There was also default enforcement regarding non-payment of the Annual Business Fee, totalling $105,341. In the context of financial supervision, the 2008 IMF Report (a follow-up from the 2003 Assessment) raised some interesting points demonstrating Bermuda’s approach to supervision. It stated that since 2003, “Bermudian authorities have made impressive progress in developing and implementing a risk-focused approach to supervision across the range of their sectoral supervisory responsibilities”.559 The IMF noted that all their recommendations had been taken into account, or implemented, particularly those relating to supervision of the 556 Docquier, F., Lohest, O., and Marfouk, A. (2007) ‘Brain Drain in Developing Countries’, The World Bank Economic Review, 21(2): 193-218, [193]. 557 BMA (2016) supra 554, [20]. 558 Second Schedule, Investment Business Act 2003. 559 IMF (2008), supra 406. 103 insurance industry.560 This review demonstrates upward trajectory regarding supervision is similar to the positive reviews its AML regime received from FATF in 2014. 4.6.2.1. Compliance with FATF Recommendations As emphasised, FATF are the leading international standard bearer on AML/CFT. As well as setting Recommendations, their follow-up bodies engage in incremental peer- review assessments. CFATF (the regional affiliate, of which Bermuda is a member) operates these assessments within the Caribbean. Bermuda’s 3rd Round MER was published in 2008 where Bermuda was assessed as Compliant (‘C’) with 9 recommendations; Largely Compliant (‘LC’) with 10; Partially Compliant (‘PC’) with 16; and Non-Compliant (‘NC’) with 14. By the time of the First Follow-Up in 2009, Bermuda had addressed many deficiencies, particularly with regards to DD of PEPs. It has engaged in regular follow-ups and assessments since and at 2014, during Bermuda’s Fifth Follow-Up Report, CFATF assessed Bermuda as C or LC in 8 of the 16 Core and Key Recommendations, and PC or NC in the other 8.561 It is anticipated that through recent increases in bilateral exchange agreements,562 modern bribery laws, updates to disclosure, increased legislature autonomy, proactivity across enforcement and political levels following the 2017 Commission of Inquiry, and other initiatives like ‘Just Good Business’, Bermuda will be deemed C or LC with a significant number of the remaining recommendations during the 4th Round MER. Bermuda’s compliance record is supported by the OECDs 2017 assessment of Bermuda as “largely compliant”. CFATFs 5th Follow-Up Report concludes that Bermuda’s legislative actions addressed all the deficiencies identified for the following Core and Key Recommendations: 13, II, IV, 3, 36, and SRIII. With regards to the remaining recommendations, it stated: “Bermuda has progressed to the point where only R.12 can be considered to be outstanding. R.11, R.14 and R.24 have been significantly addressed and now have only very minor shortcomings. All of the Other Recommendations that were rated as PC and NC have been fully rectified.”563 Importantly, based on Bermuda’s legislative and procedural action to address deficiencies identified in previous FATF Reports,564 the 5th Follow-Up review recommended that Bermuda’s request for removal from regular follow-ups to biennial updates be 560 Ibid. 561 For comprehensive detail on compliance of Recommendations, see CFATF (2014) 5th Follow-Up Report: Bermuda, [3]. 562 The move towards automatic exchange of information agreements, rather than “by request”. See, for example, HMRC (2017) Exchange of Letters Between the UK and Bermuda Replacing the 2007 Arrangement Between the Two Governments for the Exchange of Information with Respect to Taxes. 563 CFATF (2014) supra 561, [6]. 564 Specifically, FATF R.13, II, IV, R.3, R.36, & SRIII. See above supra note 561, [6]. 104 accepted.565 This demonstrates that FATF, the international standard-setter, accepted Bermuda’s compliance progress. The criteria for removal is that the jurisdiction has taken “significant action … where it has an effective AML/CFT system in force, under which it has implemented the Core and Key Recommendations at a level equivalent to a C or LC taking into consideration that there would be no re-rating”.566 It is interesting to compare Bermuda’s CFATF assessments with other relevant OTs, like Cayman and BVI (the largest OTs in terms of GDP). These jurisdictions have quite different offshore sectors – one distinguishing feature being the number of incorporated companies. For example, there are over 400,000 limited companies registered in BVI, and more than 1000 CSPs.567 In Bermuda, there are around 14,000 companies, and 129 CSPs.568 At the time of the 3rd Round MER in 2007, Cayman was reviewed positively, with the assessors noting “a culture of compliance”.569 Compliance with the recommendations were assessed as: C (14), LC (24), PC (10) and NC (1). It too was removed from the regular follow- up requirements to the biennial process in 2010. In the 2010 follow-up report, it was assessed as having a C or LC rating on 15/16 Core and Key Recommendations, and a PC on the remaining one.570 BVIs 3rd Round MER in 2008 assessed its compliance with recommendations as C (18), LC (15), PC (15) and NC (1). The most recent follow-up report in 2011, BVI was rated C or LC on 14/16 Core and Key Recommendations, and PC on the remaining 2. The 3rd Round reports showed that BVI and Cayman compared favourably to Bermuda. 4.6.2.2. National Risk Assessments Like many OTs, Bermuda has recently engaged in NRAs in furtherance of FATF standards. FATF guidance states that “once ML/TF risks are properly understood, country authorities may apply AML/CFT measures in a way that ensures they are commensurate with those risks – i.e. the risk-based approach which is central to the FATF standards”.571 In Bermuda, the most recent was undertaken in 2017 and was a follow-up to the 2013 ML risk assessment and the 2016 TF assessment. Having engaged in three relevant ML/TF risk 565 Ibid, section 10, [6]. 566 Ibid, [2]. 567 TJN FSI Country Information: British Virgin Islands. 568 Ibid, Bermuda. 569 CFATF (2007) Cayman Islands 3rd Round MER, [6]. 570 CFATF (2010) Cayman Islands 3rd Follow-Up Report, [2]. 571 FATF Guidance (February 2013) National Money Laundering and Terrorist Financing Risk Assessment, [4]. 105 assessments in the past 6 years, Bermuda has shown a willingness to identify risks to comply with the risk-based approach of implementing standards. In contrast, TI UK (2018) found that 8 G20 countries had not conducted an NRA in the past 6 years.572 Specifically, the NRA found that the risk of ML in Bermuda at 2017 was “Medium- High” and for TF was “Low” or “Medium Low”, the latter based on potential threat as there was no evidence that TF had taken place in Bermuda.573 In considering predicate crimes giving the highest risk of ML, it identified drug trafficking and offences under the Misuse of Drugs Act 1972. While acknowledging that Bermuda is an end-user destination for drugs, the average annual value of Bermuda’s drug market is $25bn. In the review period 2013-2016, 1365 trafficking cases were detected resulting in 364 prosecutions and 326 convictions. 51 ML cases were investigated whereby drug trafficking was the predicate offence. Such resulted in 10 prosecutions with 100% conviction. From these cases, criminal proceeds totalling $2.4m were confiscated.574 While fewer cases than domestic fraud, international fraud was considered as being a high threat for ML, “because of the much higher value of proceeds involved and the actual use of the financial system in Bermuda to launder those proceeds”.575 The NRA reported that international tax crimes did not form the predicate basis for any ML in Bermuda during the review period, while assessing it to represent a high risk of ML. There were two civil asset recovery cases undertaken involving fraud and international tax evasion, resulting in $6m being frozen and $2.8m confiscated. Corruption was also considered to be a high threat, however with primary activities occurring outside the jurisdiction. On SARs, the assessment stated that the majority came from the banking sector. Interestingly, many were low-value transactions for currency-conversion relating to the drug trade, detected principally on the basis of such occurring in front of bank tellers and through ATMs.576 SARs in the securities sector were found to be relatively low, although there is a steadily increasing number of SARs coming from the financial sector in general, something the National AML Committee considers to be “an indicator of enhanced compliance in the private sector”.577 The NRA concluded that the level of SARs in the trust sector was low,578 with only 2 investigations, and no prosecutions or convictions. Given Bermuda’s trusts market is sizeable with a large international client-base including PEPs and resident and non-resident 572 TI UK (2018) G20 Leaders or Laggards? Reviewing G20 promises on ending anonymous companies’, Executive Summary, [3]. 573 Bermuda Government (2017) NRA, supra 466, [5]. 574 Ibid, [35]. 575 Ibid, [36]. 576 Ibid, [44]. 577 Ibid, [22]. 578 Ibid, [62]. 106 high-net-worth individuals,579 this puts this sector at a high risk for ML. The assessment acknowledged that there is generally a lack of information available in this sector, and oversight for private trust companies is limited.580 4.6.3. Anti-Bribery Regime Recognising the international consensus that corruption harms the world’s poorest and threatens the sustainability of societies and institutions, Bermuda has recently reformed its anti-corruption legislation to address deficiencies. Bermuda’s Bribery Act is largely based on the UK’s Bribery Act 2010, widely viewed as the “gold standard” in anti-corruption legislation.581 Then Attorney General, Hon. Trevor Moniz MP commented that while Bermuda has had anti-corruption legislation since the 19th century, failing to modernise it would harm Bermuda’s ability to deal with future cases. This points clearly to a functional imperative to updated legislation. Otherwise, Moniz averred that Bermuda would “not stand to benefit from the developing case law through court decisions and appeals”.582 The modernised legislation includes offences of bribing a foreign public official and a new offence of failing to prevent bribery on the part of a corporate. The legislation also provides for extra- territoriality, meaning that a prosecution might be brought in Bermuda for a charge of bribery committed abroad (wholly or partly) by Bermuda residents, Bermudians, and Bermuda- registered corporates.583 In enacting this legislation, Bermuda has demonstrated a commitment to preventing the recurrence of past episodes of integrity lapses, such as those highlighted by the Commission of Inquiry,584 but also to the fact that bribery can take many forms including through corporate hospitality or promotional expenditure. The Attorney General made the point that while the Bribery Act is not designed to penalise legitimate business, Bermuda needed to follow the UK’s lead and recognise that the possible offences of bribery are widely drawn. The government has made commitments to amend the broader anti-corruption framework such as putting in place enhanced codes of conduct for public officials, showing that legislation alone is not enough. This is important, because it fosters 579 Ibid. 580 Ibid, [63]. 581 See; Ryder, N. (2015) ‘The Legal Mechanisms to Control Bribery and Corruption’, in Rider (2015) supra 44, [381-393], [7]; Mansell, J. (6 May 2010) ‘Perils of the Gold Standard’, Law Society Gazette, [8]; David Green CB QC, Director of the UK SFO, in a speech to the Cambridge Symposium on Economic Crime 2017, said that the UK Bribery Act is a “regarded as a gold standard internationally”; and Sally McGeachie (June 2013) ‘The UK Bribery Act – A gold standard worth preserving’, for Good Corporation. 582 Bermuda Government (20 May 2016), ‘Hon. Trevor Moniz JP MP, Ministerial Statement: Modernizing Bermuda’s Law on Bribery & Corruption’. 583 Ibid. 584 Commission of Inquiry (2017) supra 390. 107 integrity through initiatives which will not require significant resources to enforce. It also demonstrates a commitment to promoting the highest standards amongst officials, as well as accountability in public procurement and finances. The Bribery Act came into force on 1 September 2017. At the time of writing, it is not possible to comment on its effectiveness, not least given there have not yet been any prosecutions or convictions thereunder. This is not unusual with legislation of this nature.585 It is expected that some years will pass before the first prosecution is brought, due to the timescales of financial crime cases involving bribery. These are complex matters and hinge on voluminous documentary evidence. Evidence-gathering procedures, as well as preparation time to bring proceedings, adds to the timescale. Doubtless, these problems are compounded by Bermuda’s size. Financial crime cases take significant time from investigation to disposal, regardless of jurisdiction. For example, the UK case of R v Tom Hayes (the LIBOR-rigging scandal) commenced with Hayes’ arrest in December 2012 and ended with his conviction in August 2015.586 Given that the UK Bribery Act 2010 came into force in 2011, the first conviction obtained by the UK Serious Fraud Office for an offence thereunder came in R v Sweett Group Plc (2016)587 after an investigation commenced in 2014. Even with the UK’s capabilities, the first proceedings under the new ‘gold standard’ Bribery Act 2010 took some 5 years to bring. While this might be expected, the rate at which proceedings came under the new Act attracted criticism by anti-corruption groups.588 There are also deterrent functions served by offences like the “failure to prevent” offence,589 and the “adequate procedures” defence-requirement.590 In recognising it will likely be some time before cases are brought under the new Act, Bermuda also created an offence of “failing to report bribery” modelled on sections 13-15 of the Isle of Man’s Bribery Act 2013. Failing to prevent bribery is seen in the UK Act, but not failing to report. The rationale is to give public officials a greater incentive to be more proactive with authorities vis-à-vis reporting bribery. Thus, the legislation engages the deterrent function of the law and mobilises the private sector. By modernising, Bermuda demonstrates appetite to legislate accordingly in line with modern bribery views. This was precisely the aim of international conventions like UNCAC. Indeed, it goes far further in scope than its 585 I am grateful for this insight to Mr Richard Ambrosio, barrister and former advisor to the Bermuda Attorney General’s Chambers, and who was involved in the policy and development of Bermuda’s Bribery Act. 586 R v Tom Hayes [2015] EWCA Crim 1944. 587 R v Sweett Group Plc [2016]; see, SFO ‘Sweett Group’. 588 For example, Hawley, S (8 December 2014) ‘How Effective is the UK Bribery Act?’, Corruption Watch. 589 Section 7, UK Bribery Act 2010. 590 Ibid, Section 7(2). 108 predecessor legislation, and on the point of reporting bribery, further than the UK Act. In an increasingly global, technology-abetted world, this shows progress rather than stubbornness. If Bermuda wanted to attract dirty money, or trade on a laissez-faire attitude to controls like some OFCs, it is suggested that it certainly would not implement sophisticated legislation of this nature which contains provisions for extraterritoriality, bribing public officials, and failure-to-report offences. From the points of view of both companies and criminals, if such legislation exists, then it demonstrates that jurisdiction is taking such conduct seriously by increasing legislative scope. However, as scholars like Horder (2013) have acknowledged, it might be that regulatory strategy in the first instance modelled on anti-bribery policy might have served as more of a deterrence than its legislative counterpart.591 It is a common principle that while legislation can have a deterrent effect itself, it is little use unless accompanied by an efficacious regulatory and enforcement plan.592 Take, for example, the UK’s adoption of UWOs.593 While I have argued this civil measure is sensible compared to criminalisation as UNCAC advocates, very few will be obtained in the first few years and, even then, the predicted amount of assets recovered seems relatively insignificant.594 If it is sparsely enforced, the deterrent function of that legislation is compromised.595 Bermuda has acknowledged that “enacting legislation, while necessary, is only a first step”.596 There is also the emphasis in the islands of fostering these principles at all levels of the community. While integrity problems have not plagued Bermuda like they have in TCI, collegial initiatives are paramount and should work simultaneously to legislation and enforcement. The Attorney General stated: “Bermuda as a society must be prepared to take action when and where we see corruption … It requires us to overcome a reluctance in the community to deal with these difficult issues [and] it is not enough to say that we are against corruption”.597 The failure to prevent offence is important because it communicates the need for institutional and multi-stakeholder action. As the penal philosopher Beccaria (1764) advanced in his work on deterrence theory, “it is better to prevent crimes than punish them”.598 In this 591 Horder, J. (2013) Deterring bribery: law, regulation and the export trade, in Horder, J., and Alldridge, P., (eds) (2013) Modern Bribery Law: Comparative Perspectives, Cambridge: CUP, 196-215, [209-214]. 592 Ibid. 593 Thomas-James (2017) supra 14. 594 See, Home Office (2017) Criminal Finances Act 2017, Overarching Impact Assessment; and, Home Office (2017) Criminal Finances Act 2017, Unexplained Wealth Orders Impact Assessment. 595 See: Nagin, D.S. (2013) ‘Deterrence in the Twenty-First Century’, Crime and Justice, 42(1): 199-263, whose empirical work suggests severity makes no difference and that certainty of apprehension is a guiding principle of deterrence. 596 Bermuda Government (2017) Ministry of Legal Affairs, ‘The Bribery Act 2016 – Guidance’, [1]. 597 Ibid, [1-2]. 598 Beccaria, C. (1764/1986) On Crimes and Punishments, H. Paolucci (Trans.), New York, NY: Macmillan. 109 vein, important initiatives have manifested in the islands, including in the private sector and in the media, such as workshops and seminars to assist businesses with compliance and increasing their understanding of the law. There have been a number of thought-pieces in the Royal Gazette and practitioner briefings regarding the Act.599 This leaves the observer with the perception that Bermuda’s industry is taking notice of the modernised Act and engaging in awareness-raising. If Bermuda follows the UK’s path with its Bribery Act, and does not see any prosecutions for several years, then in the meantime the Beccarian view that prevention is better than cure is a useful ethos for the island upon which to promote understanding and knowledge of the Act’s scope and the importance of integrity. In the NRA, bribery was acknowledged to be a predicate offence which poses a high ML risk.600 There were two civil recovery cases in the review period based on foreign corruption/fraud resulting in over $5.2m being confiscated. It also acknowledges potential bribery matters identified by the Commission of Inquiry, which were then under investigation. However, the fact remains that little evidence is available, particularly with the occurrence rather than the threat of domestic ML emanating from overseas corruption. The NRA acknowledged the risk that private banking poses to the commission of ML, given that its products and services are offered within a culture of confidentiality. They suggest that institutions’ desire for lucrative, high-net-worth business relationships may compromise compliance officers’ responsibility to persuade their institution to not deal with dubious customers.601 4.6.4. Tax Information Exchange and Cooperation Bermuda has entered into tax agreements with a significant number of jurisdictions. The most important are bilateral TIEAs, by which the signatory jurisdictions agree to cooperate in tax investigations through information exchange procedures.602 As a mechanism to control tax evasion and tax avoidance, TIEAs enable governments to enforce their own tax laws, investigate and detect crime through exchanging information on someone under suspicion of evading tax. Bermuda does not have bank secrecy laws and has a robust central beneficial ownership register. It cooperates with any competent authority in a TIEA jurisdiction and automatically provides relevant information. The TIEA framework is based 599 See, Bermuda Government (2017) supra 596; and, Conyers, Dill & Pearman (2017), ‘Bermuda Introduces Bribery Act Legislation’. 600 Bermuda Government (2017) NRA supra 466, [34]. 601 Ibid, [46]. 602 UK Government, HRMC (2014) Tax Information Exchange Agreements: overview. 110 on the OECDs Model Agreement on Exchange of Information on Tax Matters. As mentioned, Bermuda has entered into DTCs with several jurisdictions. These are bilateral agreements designed to protect against the risk of double taxation where the same income is taxable in two states. This provides certainty of treatment for cross-border trade and investment and prevents excessive foreign taxation.603 As at March 2018, Bermuda has signed TIEAs with 41 territories including Australia, Canada, China, France, Germany, Guernsey, Ireland, Italy, Japan, Netherlands, Norway, Qatar, UK and US.604 Bermuda has been engaged in bilateral EOI agreements for many years, including having signed one with the US in 1988, Australia in 2005 and the UK in 2007 (later replaced by the TIEA).605 Among many developments is the advent of automatic exchange, rather than ‘by request’.606 Like the CRS,607 TIEAs are achieving global acceptance.608 As Seun states, “hiding information is not tax planning .. [and] working on the assumption that the tax authorities will not find out is a strategy that is very likely in its dying days”.609 Bermuda is implementing this to a significant extent.610 Bermuda’s 41 TIEAs compare favourably with developed jurisdictions like Australia (38), Ireland (27) the UK (26), and well against other OFCs like Barbados (6), BVI (28), and Monaco (23).611 The question of TIEA effectiveness is a matter of longstanding disagreement. TIEAs are likely to deter would-be money launderers, organised criminals, despots and tax evaders alike in utilising a jurisdiction like Bermuda to seek to conceal ill-gotten gains. For example, there is the issue of whether simply getting jurisdictions to agree and enter into them will serve deterrence. It could be argued that the initiative ensures many countries are, at least, committing to exchange basic information. Moreover, the information can relate to investigations of both a civil and criminal nature. As some have highlighted, the past regime was problematic because it would fail if the predicate offence requiring the information was not an offence in the receiving country – a good example being if tax evasion were not 603 UK Government Guidance: Double taxation treaties: how they work. 604 OECD (2018) supra 495: Bermuda Agreements. It has also signed 3 DTCs. 605 OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, Peer Review Report Phase 1, Legal and Regulatory Framework: Bermuda’, [53]. 606 Exchange of Letters Between the United Kingdom and Bermuda Replacing the 2007 Arrangement between the Two Governments for the Exchange of Information with Respect to Taxes, 19 June 2017, Para 6. 607 The CRS, developed by the OECD (2014) calls on jurisdictions to obtain information from their financial institutions and automatically exchange it with other jurisdictions on an annual basis. See: OECD (2018) Automatic Exchange Portal: What is the CRS? 608 PWC (2016), ‘Tax information exchange – what will change and how taxpayers should respond’. 609 Ibid. 610 For a detailed summary of the differences between ‘upon request’ and ‘automatic’ tax information exchange agreements see: TJN (2014) ‘Automatic Exchange of Information: An Opportunity for Developing Countries to Tackle Tax Evasion and Corruption’. 611 OECD (2018) supra 495. 111 criminalised.612 However, scholars like Murphy (2009) have suggested the requirements of an effective TIEA (i.e. identify, type of information, grounds for suspicion) present computability problems in the context of jurisdictions which uphold secrecy or obscurity.613 There is also consensus among those engaged in empirical scholarship on this issue that there is little, or at least mixed, evidence to suggest TIEAs are effective in reducing tax evasion.614 Further, there are claims that varying tax policies are the main incentive for engaging in tax evasion.615 This adds support to the global tax harmonisation argument. There is thinking in this area that TIEAs present a positive opportunity for developing countries, particularly in the context of illicit financial flows. While it is accepted that the OECD-led information exchange campaign did not involve such countries in its design phase, studies have contended that there are considerable benefits of engaging in TIEAs for developing countries. TJNs study616 focused on developing and developed countries and suggested there was a high degree of interest in the automatic information exchange regime and an acknowledgment of its benefits from developing jurisdictions. They also noted that the OECD has observed that many developing countries including Chile, Columbia, Costa Rica, India and South Africa have signed a declaration endorsing this regime.617 Despite the difference in opinion, there is a distinction which needs to be borne in mind. For legitimate investors wishing to reduce investment costs, choosing a jurisdiction which has a TIEA is inconsequential. As Kemme et al (2017) observe, for legitimate enterprise there are a list of variable considerations which are important – such as language, legal system, proximity, time difference and political system when making a choice of where to invest.618 These characteristics, they argue, reduce costs for the genuine investor, yet are not desirable for tax evaders who want to increase the level of difficulty in being detected. As such, if more and more countries are engaging in TIEAs which also bear the characteristics of a responsible investment jurisdiction, this leads to the conclusion that deterrence will be served. Bermuda also has many Mutual Legal Assistance (‘MLA’) Treaties in place with jurisdictions internationally. In the most recent data provided to CFATF,619 Bermuda 612 Neslund, K. (2009) ‘Why Tax Information Exchange Agreements are Toothless’, Tax Insider. 613 OECD (2014) Declaration on Automatic Exchange of Information in Tax Matters, adopted on 6 May 2014, Meeting of the OECD Council at Ministerial Level, Paris, 6-7 May 2014 614 For example, Kemme, D.M., Parikh, B., and Steigner, T. (2017) ‘Tax Havens, Tax Evasion and Tax Information Exchange Agreements in the OECD’, European Financial Management, 23(3): 519-542, [521]; and, Johannessen, N., and Zucman, G. (2014) ‘The end of bank secrecy? An evaluation of the G20 tax haven crackdown’, American Economic Journal: Economic Policy, 6: 65-91. 615 Ibid, Kemme et al (2017), [537]. 616 TJN (2014) ‘Automatic Exchange of Information: An Opportunity for Developing Countries to Tackle Tax Evasion and Corruption’. 617 OECD (2014) supra 613. 618 Ibid. 619 CFATF (2014) supra 561, [83]. 112 reported 13 MLA requests in 2013, 3 in 2012 and 7 in 2011. It also reported on other formal requests made and received, through memorandums of understanding and other instruments with foreign competent authorities. For example, in 2013 Bermuda’s FIU reported 42 outgoing and 23 incoming requests for information, with 47 outgoing and 34 incoming in 2012.620 4.6.5. Multilateral Competent Authority Agreement on the Exchange of Country- by-Country Reports.621 Another recent development is Bermuda’s commitment to the OECDs BEPS tax transparency regime. BEPS occupy a controversial position in the tax discourse.622 The G20 (2012) explicitly addressed the need to “prevent base erosion and profit shifting”.623 BEPS represents an increased attitude by multinational corporations to engage in income-shifting for the purpose of fiscal efficiency. The OECD led the “BEPS Project”624 and has emphasised that while eliminating double taxation is essential to support the efficient operation of the global markets, it is also necessary to eliminate what they call “inappropriate double non- taxation”. Brauner (2014) suggests that while the phenomenon is not new, globalisation and the international movement of money has doubtless contributed to the framework whereby multinationals can engage in advantages fiscal efficiency.625 The OECDs action plan regarding BEPS is complex, being referred to as a “potpourri of issues”.626 Importantly, BEPS conjures up perception which has fuelled the anti-tax competition rhetoric. This has transcended into criticism of OTs, with headlines like “The Great Corporate Tax Dodge” demonstrating increased media attention towards the tax affairs of multinational corporations.627 In furtherance of this international position, Bermuda and the UK signed a Country- by-Country Competent Authority Agreement in November 2017. Bermuda has faced criticism in the past because of the practice of multinational enterprises transferring revenue to their offshore holding companies to limit fiscal liability elsewhere. This Agreement 620 Ibid. 621 OECD ‘Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports’. 622 OECD (2013) ‘What the BEPS Are We Talking About?’. 623 G20 (2012) Leaders Declaration, [9]. 624 OECD (2013) ‘Action Plan on Base Erosion and Profit Shifting’; and, OECD (2013) ‘Addressing Base Erosion and Profit Shifting’. 625 Brauner, Y. (2014)’ What the BEPS?’, Florida Tax Review, 16(2): 55-115, [55]. 626 Ibid, [69]. 627 Bloomberg Opinion (9 July 2014), ‘The U.S. Corporate Tax Dodge’. 113 strengthens the regime to tackle ‘tax dodging’ and the proceeds of crime. Bermuda avers that this completes the OECDs BEPS tax transparency package with the UK, and furthers the work already undertaken with common reporting. Bermuda was the first OT to complete such an agreement with the UK.628 This intensifies Bermuda’s regulatory regime and, like the other measures referred to in the preceding sections, demonstrates commitment to international cooperation. After signing it, the Premier urged other countries to meet the Bermuda standard.629 Despite being on the receiving end of a longstanding blacklisting offensive, Bermuda is now classified as ‘largely compliant’ by the OECD in respect of tax practices.630 In 2017, the OECD announced that it was year of the “switch-on” for automatic EOI with respect to financial accounts.631 Bermuda committed to the OECD that it will engage in this and undertook first exchanges that same year.632 Prior to the change to automatic exchange, Bermuda was screened under a peer-review assessment to assess compliance for EOI on request to tax authorities. Even in this regard, Bermuda was assessed to be “largely compliant”.633 Other jurisdictions which were deemed largely compliant by the OECD review include Australia, Canada, and Germany.634 Therefore, Bermuda’s compliance compares well with OECD countries and is being acknowledged by monitoring bodies. 4.6.6. Economic Substance Legislation An international standard which formed part of the EU Code of Conduct Group for business taxation’s investigation into the tax policies of EU and third countries, is the requirement of economic substance. Following the Conduct Group’s investigation in 2017, Bermuda was named as a jurisdiction which needed to address economic substance concerns. Under the Economic Substance Act 2018, which came into force in December 2018, every Bermuda-registered entity635 engaged in a relevant activity636 is required to maintain a substantial economic presence in the jurisdiction and comply with the Act’s economic 628 The Royal Gazette (29 November 2017) ‘Bermuda and UK agreement on income reporting’. 629 Ibid. 630 Bermuda Government (21 August 2017) ‘Global Forum approves Bermuda as “Largely Compliant”’. 631 OECD (2017) Global Forum on Transparency and Exchange of Information for Tax Purposes, ‘Tax Transparency 2017’ Report on Progress, [12]. 632 Ibid, [14]. 633 Ibid, [29]. 634 Ibid, [28]. 635 See section 2, Economic Substance Act 2018. Registered entity means company, limited liability company or partnership. 636 Ibid, Relevant Activity is defined as business in the following: banking; insurance; fund management; financing; leasing; headquarters; shipping; distribution and service centre; intellectual property; and holding entity. 114 substance requirements. The substance requirements are defined at section 3(1) and include if the entity is managed and directed in Bermuda; core income generating activities are undertaken in Bermuda; entity maintains adequate physical presence in Bermuda; adequate and full time employees in Bermuda with suitable qualifications; and, adequate operating expenditure incurred in Bermuda in relation to the relevant activity. The requirements stipulate that entities must file an annual economic substance declaration with the Registrar. The purpose behind this is self-explanatory, given the concerns about shell and paper- companies and the increasing action against aggressive avoidance schemes. It points to the ability of offshore jurisdictions to play host to vehicles designed to receive profits without commensurate economic activities. Bermuda created this legislation in accordance with EU commitments. In such circumstances, these requirements appear capable of rendering more meaningful presence by multinational companies accused of aggressive tax avoidance through use of profit shifting to Bermuda companies. This new legislation will necessitate Bermuda intensifying its promotional efforts aimed at foreign investors and businesses, as well as those already domiciled in Bermuda. In January 2019, Bermuda’s government stated that there were proposals underway to create various incentives, such as with work permits and payroll- tax concessions.637 With economic substance reform in mind, in a recent meeting with the Chair of the EU Code of Conduct Group on Business Taxation, Bermuda was told that a positive recommendation would be made to the next Economic and Financial Affairs Council, to remove Bermuda from the EU’s blacklist.638 4.7. Remaining Social Concerns – another side of the tax haven story? There are some remaining important developmental concerns. My research found deep-rooted economic problems in Bermuda, with some basic social needs lacking. As Bermudian economist Stubbs (2016) observed, “everyone in Bermuda knows of the economy’s weakness … even the most financially and economically switched on people in Bermuda regularly cite [the] 10% decline in GDP since 2008 and Bermuda’s concurrent decline in population”.639 Stubbs suggests that Bermuda’s economy is actually worse than people think and he states that such a reaction often produces surprising responses from people, such as “Where’s the unemployment?” or “Where are the soup lines?”.640 Bermuda 637 Royal Gazette (10 January 2019) ‘Economic substance incentives unveiled’. 638 See: STEP (1 April 2019) ‘European tax commissioner indicates Bermuda de-listing will be approved in May’, and Government of Bermuda (8 April 2019) ‘Finance Minister expects Bermuda to be removed from the EU list of non-cooperative jurisdictions’. 639 Stubbs, R.J. (2016) supra 433, [2]. 640 Ibid, [8]. 115 has a violent crime problem with a murder rate of 6.45 per 100,000 in 2015.641 However, such statistics make basing conclusions difficult. For example, Bermuda reported a 28% decrease in crimes against the community between 2015 and 2016,642 yet murder statistics show there were 5 murders in 2015, and 7 in 2016 which represents a significant, albeit misleading, statistical increase. Of the 2526 arrests in 2016, 347 were for drug offences. Bermuda also has a well-known gang crime problem which increased significantly from the late-2000s.643 Homicides related to gangs accounted for 35 murders between 2009-2017.644 Another problem is living standards, combined with little in terms of social welfare. Bermuda does not have many of the stereotypical development-hindering problems like sanitation or public health concerns, so therefore might not meet traditional connotations of poverty, exacerbated by its status as a wealthy jurisdiction.645 Various initiatives, including providing nutritional breakfasts for school children, are undertaken by the Coalition for the Protection of Children.646 They estimate that 25-30% of black children in female-headed households do not have nutritional meals available to them on a consistent basis as a result of poverty. Social consequences include hindering educational performance, and affecting mental health through food anxiety.647 Stubbs (2016) states that 23% of the population live in poverty.648 Empirical first-hand accounts gathered by the Coalition in their 2011 documentary Poverty in Paradise: The Price We Pay surprisingly demonstrated that many Bermudians struggle on non-professional wages, as well as challenges through drugs, community violence and homelessness stinting social development. Contextually, Bermuda’s economic success is characterised by its financial services, business, retail and tourism activities. The incumbent government ran on a platform of “putting Bermudians first” – a campaign that contained significant rhetoric about Bermudians being left behind. There have been calls for a minimum wage to be established.649 From an economic perspective, Bermuda’s government revenue as a share of GDP is significantly lower than in similar island jurisdictions. In 2017, Bermuda’s government revenues was just over 16.1% of GDP. By comparison, Cayman’s was 22.3%, BVIs was 641 UNODC Statistics Online, Murder Rate by Country. By comparison, the US is 5.35 per 100,000. 642 Bermuda Police Service (2016) Crime Statistics Report, [9]. 643 Bermuda Police Service (2012) ‘Making Bermuda Safer: Strategic Plan 2012-2015’, [2]. 644 Bermuda Government (17 November 2017), Ministerial Statement, Minister of National Security, Hon. Wayne Caines JP MP, ‘Reducing Gang Violence’. 645 CIA World Factbook (2018) Country Comparison – GDP Per Capita (PPP). 646 Insight provided to me by Sheelagh Cooper, Criminologist and Chair of the Coalition for the Protection of Children, Bermuda. 647 The Coalition for the Protection of Children, ‘Breakfast for Every Child’. 648 The Royal Gazette (22 September 2017), ‘Bermuda has 23 per cent living in ‘poverty’’. 649 The Royal Gazette, (24 April 2017), ‘Minimum wage would mean more jobs for Bermudians’, by Sheelagh Cooper. 116 31.9% and the UK’s was 37.8%.650 This leads to the inference that spending on social programmes is likely to be lower than in similar jurisdictions. The case could be made that Bermuda’s tax structure needs to adapt to ensure that spending on adequate social housing, universal healthcare, and, for example, nutritional breakfasts for the islands’ poorest is not left exclusively to charities. Bermuda’s cost of living is high and, unless working as a professional, wages balanced against expenditure are problematic. These problems suggest that revenue-building methods may need re-thinking to combat some of these developmental concerns. The Report of the Tax Reform Commission (2018) in Bermuda recommended many new taxes, such as an interest and dividend withholding tax, a general and managed services tax, and tax on commercial and residential rental income.651 However, in the context of Bermuda enhancing its compliance with internationally-imposed standards, such as economic substance requirements, it is conceivable that some of these concerns might go unchecked given the need to incentivise businesses to locate to, or remain in, Bermuda. While some derivation away from indirect taxes might be needed to better meet the needs of Bermuda’s poorest, it is not clear how this would sit against the legitimate concerns of the financial sector: upon which Bermuda’s sustainable development greatly relies. 4.8. Summary In this chapter, I have outlined that Bermuda has been implicated as facilitative of international financial crime and other misconduct, such as tax avoidance. Its implication in foreign cases, as well as in the Paradise papers, paints a picture of Bermuda as a harmful jurisdiction. Moreover, while being removed from blacklists in the past, Bermuda was recently added to the EU’s and Netherland’s blacklists. On the other hand, in examining Bermuda’s legal and regulatory responses to suspect wealth, this chapter has shown that Bermuda complies with many international standards, in so far as they are applicable and viable in its context, addressing a key research question of this thesis. Its compliance and cooperation is evidenced by enhanced companies register requirements, centrally-maintained beneficial ownership register, accompanied by TIEAs and other exchange mechanisms. Its economic substance legislation and modernised anti-bribery laws, as well as regional engagement and positive review by CFATF add to this picture. It has received positive classifications by the OECD (LC in 2017) and has a risk-based approach to complying with international AML 650 Economist Intelligence Unit 2016. 651 Bermuda Tax Reform Commission, Report 2018. 117 standards. Despite transparency advocates and the UK government perceiving Bermuda negatively – through reports of their entities being used to host suspect wealth, their unwillingness to implement a public beneficial ownership register, and maintenance of an indirect taxation model – Bermuda’s system is largely already viable and compliant. Bermuda’s ability to comply with international standards is superior than the other jurisdictions this thesis considers, principally due to its development stage, but also its established business environment and reinsurance market. In terms of perception, Bermuda has been shown to consistently move with AML standards, by conducting regular risk assessments and raising awareness of compliance through multi-stakeholder initiatives. This shows will and dedication to their compliance with international standards. 118 CHAPTER 5 THE TURKS AND CAICOS ISLANDS Summary In 35 years, TCI has had periods of substantial economic growth, yet also development- hindering circumstances including allegations of systemic domestic corruption, ministerial criminality, direct rule and devastating natural disasters. Domestic corruption and lack of accountability have stinted the development of important institutions though losses of sovereignty. Overseas cases also demonstrate TCIs OFC has handled suspect wealth and facilitated international criminality. Notwithstanding reputational, developmental and constitutional crises, TCI has recently made substantial progress in responding to suspect wealth and promoting institutional integrity. Through analysing TCIs legal, regulatory and compliance frameworks, and aspects of its OFC, it will be shown that there is increasing willingness to implement international standards and a visible underscoring of core values. It aligns with many international standards demonstrating its ability to adhere to them. That said, its OFC is not as sophisticated as some competitors and its regulatory approach is not as advanced as Bermuda’s. Yet, it is making progress in strengthening viable systems and engaging in international initiatives to prevent its OFC handling suspect wealth. There is considerable room for improvement, part due to capacity, and this will be shown as needing to be reconciled against domestic realities. 5.1. TCI: An Overview In his final speech as Governor, H.E. Richard Tauwhare said: “these islands have huge, huge potential… The future of TCI holds great promise [as] we have a huge amount going for us”.652 Tauwhare was confident in 2008 that TCI had reached a turning point in its history. Yet, the context of this faith came at a time the islands were about to face another constitutional crisis which would dramatically impact its social, governmental and economic development. Direct rule lasted between 2009-2012 following the UK’s partial suspension of TCIs Constitution. This followed findings of systemic corruption by the Commission of Inquiry 2008-2009 into possible corruption or other serious dishonesty in relation to elected 652 TCI Weekly News (2008) ‘Governor Tauwhare bids a fond farewell’. 119 members of the Legislature in recent years, by the Rt. Hon. Sir Robin Auld.653 Despite Tauwhare instigating the Inquiry, his confidence perhaps resided in a belief emanating from his experience of the resilience of the TCI people. TCI is no stranger to interventionist action by the UK, nor is it alien to episodes of ministerial criminality. Since 1976, there have been instances of corruption and other misconduct by three Premiers or Chief Ministers.654 In 1985, Chief Minister Norman Saunders was sentenced to 8 years in US prison for offences relating to conspiracy to traffic narcotics into the US. In 1986, a Commission of Inquiry found Chief Minister Nathaniel Francis to be guilty of unconstitutional behaviour and ministerial malpractices.655 Finally, in 2008/2009, the latest Commission of Inquiry recommended a criminal investigation into Premier Michael Misick who, following his resignation and period of direct rule ensuing in TCI, was arrested in Brazil and returned to TCI to be charged with offences relating to ML and bribery. His trial is ongoing. These circumstances demonstrate that underlying principles and values of a developed society – such as the rule of law, integrity in public life, due process, accountability and transparency have been lacking at the highest levels. As such, institutional development was compromised, as was the TCI-UK relationship. In terms of TCIs capacity and willingness to implement laws and standards, proactivity has been particularly visible in the past 9 years. While TCI is relatively young in developmental terms, it has a rich history in its pre- colonial context and in its modern status as the fastest-growing Caribbean tourism destination.656 Its original inhabitants were Taino (later known as Lucayan Indians) who resided there for nearly 700 years. Their legacy remains through industries like seafaring, fishing and farming. In the early 16th century, Bermudians arrived and engaged in salt-raking to take salt back to Bermuda. Britain lay claim to TCI in 1764 and it was placed under the jurisdiction of the Bahamas by the UK. In 1848, the islands were separated and TCI was self- governing for a quarter of a century known as the “Presidency era”.657 TCI was later annexed to Jamaica due in part to its unviability and unsustainability vis-à-vis taxation to offset debt. It was annexed until 1962 when Jamaica obtained independence from British colonial jurisdiction. TCI returned to Bahamian jurisdiction until the Bahamas became independent in 1973. Consequently, TCI installed its first Governor. A Constitution was enacted in 1976 along with an election, following which the first ministerial-style government was elected. TCI 653 Auld Report, supra 306. 654 Between 1976 and 2006, the “Chief Minister” was Head of Government in TCI. This was replaced with the “Premier” in 2006 and has remained so since. 655 TCI Commission of Inquiry (1986), Report of Mr Louis Blom-Cooper QC into Allegations of Arson of a Public Building, Corruption and Related Matters (‘Blom-Cooper Report’), [109]. 656 Caribbean Tourism Organisation (2016) State of the Industry Report 2016. 657 TCI Business Guide 2013-2014, [14]. 120 has had two periods of direct rule imposed by the UK. On 24th July 1986, the UK Government led by Prime Minister Margaret Thatcher dissolved TCIs government and imposed direct rule following the 1986 Commission of Inquiry by Mr Louis Blom-Cooper QC,658 which lasted until 8th March 1988. The second period followed the 2008/2009 Inquiry and lasted from 16th August 2009 until 13th November 2012, where it was brought to an end following a General Election and enactment of a revised Constitution. TCI is a self-governing OT and parliamentary dependency under constitutional monarchy. Its population is 34,900.659 The Governor, presently H.E. Dr John Freeman, appoints a Deputy Governor responsible for the Public Service,660 and a Premier capable of commanding a Parliamentary majority. TCIs Assembly consists of 19 members (15 elected, 2 nominated by the two political parties and 2 appointed by the Governor). The two parties are the People’s Democratic Movement (‘PDM’) and the Progressive National Party (‘PNP’). The PDM are presently in government and Hon. Sharlene Cartwright-Robinson MP is TCIs first female Premier. The legislature is tasked with making laws for the peace, order and good governance of the island.661 TCIs political framework largely mirrors Westminster’s. Its community is well-engaged in participatory democracy and, despite a small electorate as only ‘Belongers’ aged over 18 can vote, there was a turnout of 80.41% in the 2016 election with 7,732 votes cast.662 “Belonger” status in TCI is conferred as of right (e.g. birth), or by way of grant (e.g. long-residence, or special service).663 TCIs legal system is based on common law, the features of which are documented in chapter 3. Intervention by the UK is provided for in legislation, which is a highly controversial and complex area of law and international relations. This function was also emphasised in the 2012 White Paper on the OTs.664 Despite the UK having this power over the OTs, this is particularly acute in the context of TCI.665. While such an interventionist tool might conjure up imagery of colonialism, and some scholars have noted that for fiscal issues the UK would not use this power,666 successful attempts to legislate on behalf of the OTs was seen in 2017- 658 Blom-Cooper Report, supra 655. 659 See Appendix II. 660 Section 25, TCI Constitution Order. 661 Ibid, Section 62. 662 TCI Election Centre (2016), ‘General Election Results 15 December 2016’. 663 TCI Ministry of Border Control and Employment, ‘British Overseas Territory Citizenship’; and, section 132 ‘TCI Islander’, TCI Constitution Order 2011. 664 FCO (2012) supra 297, [14]. 665 The UK can legislate on behalf of TCI by passing an Order in Council, as afforded in UK law, for example Section 2(1) Cayman Islands and TCI Act 1958. 666 For example, Sharman (2006) supra 267, [18] took this view over a decade ago even prior to the 2008/2009 Commission of Inquiry. Since then, there have been several attempts to make amendments to UK legislation and enact Orders in Council. 121 2018, for example, compelling them to create public beneficial ownership registers.667 While the UK Parliament had previously opposed this, due to it being both constitutionally and politically inapposite, it has recently manifested in the form of an ultimatum which undermines convention. The most impactful UK intervention in TCI was direct rule between 2009-2012668 following findings that TCI were in “dire constitutional, political and economic straits”. After a period which was defined by some in the islands as a foreign invasion,669 but unquestionably necessary given the severity of the Commission’s findings, both will and commitment on the part of the islanders was necessary to implement progressive controls. TCI is geographically well situated being 48km south of the Bahamas and 925km east-southeast of Miami. This enabled TCI to develop a major tourism industry, upon which it greatly relies. With a GDP per capita of $23,614.70,670 TCI is considered developed. Its tourism industry has sustained increasing momentum since the 1980s,671 partly attributed to the islands’ strategy of focusing on wealthy tourism.672 It received 1.3m visitors in 2016,673 and a cruise-liner port opened in 2007.674 TCI has among the highest visitor-spending per capita in the region. Its significant fishing and agriculture sector employs 20% of its labour force.675 Given its natural beauty, TCI has developed a significant property industry. However, through this sector, the islands remain vulnerable to economic crime which was identified as a ML risk in FATFs 2008 Report and subsequent NRA.676 The Auld Report found widespread evidence of improper crown land disposal, with the only safeguard seemingly susceptible to ministerial abuse677. Its construction industry also presents risk to the islands’ natural beauty, biodiversity and heritage given that construction decisions often impact coastal land. Within the parameters of suspect wealth, it is clear that any lack of domestic controls can give rise to the commission of both domestic and overseas bribery (e.g. from a non-belonger) as well as facilitating an investment vehicle to dispose of foreign suspect wealth. 667 As per section 51, SAMLA 2018. 668 HC Library (31 December 2012), Research Briefing, ‘The Turks and Caicos Islands’, [6]. 669 Caribbean Insight (2009) ‘CARICOM condemns UK stance towards TCI’, specifically the remarks of Premier Michael Misick. 670 See Appendix II. 671 CFATF (2008) TCI: 3rd Round MER, [6]. 672 In 2017, several TCI Hotels won Trip Advisor Awards both regionally and internationally. 673 TCI Tourist Board Statistics Department, Tourism Statistics 2016. 674 TCI Business Guide, supra 597 [13]. 675 CIA World Factbook (2018) Turks and Caicos Profile. 676 CFATF (2008) supra 671, para 916, [150]. 677 Auld Report, supra 306, [81]. 122 TCI has an indirect taxation model, which is sometimes difficult for higher-tax jurisdictions to accept, as it is often embedded in the notion of tax competition.678 Indirect taxation is structured according to circumstantial needs. While non-collection of traditional taxes classifies TCI as a tax neutral jurisdiction,679 it does collect customs excise duty on imported goods and stamp duties in respect of real-estate sales.680 TCI collects 8% stamp duty on consideration passing on the transfer of shares of companies holding local land, and there is a nominal duty on the transfer of a domestic company’s shares.681 5.2. Economy and Development as an OFC In 1981, TCI entered the offshore financial services market. This represented a growing trend in the Caribbean, with Antigua and Barbuda (1982) and BVI (1984) entering the sector. Despite scholars such as Palan (1999), who has been critical of the offshore world, noting that such locations ought to be the last place one would envision a financial centre,682 there were many reasons TCI and others entered this industry. Development and bilateral aid from large developed countries declined in the 1980s and 1990s,683 a good example being the US whose aid in the Caribbean fluctuated greatly during a 30-year period and declined in the 1990s following the Soviet Union break-up.684 Other pressures motivating this move included threats to trading preferences established under the African Caribbean Pacific EU programme, as well as resourcing, emigration and “brain drain” issues for islands. Sharman (2006) notes the islands’ geographical situation as a contributor to the lack of economic diversification, as well as being situated in a natural disaster zone. While progression towards financial independence through offshore services was viable, perhaps assisted by financial deregulation in the world’s larger economies,685 it ought to be borne in mind that this innovation was not a fantasy conceived by the territories themselves. Rather, the rationale might have roots as far back as the original power-struggles of former colonial structures, by which the colonial state would have the power to control the 678 Mitchell, D. J. (2016) ‘Is Defending Tax Competition Akin to “Trading with the Enemy”?’, Cato Institute, Cato At Liberty. 679 PKF TCI Tax Guide 2010, [1]. 680 Ibid. 681 Ibid. 682 Palan, R. (1999) ‘Offshore and the Structural Enablement of Sovereignty’, in Hampton, M., and Abbott, J., (eds) (1999) Offshore Finance Centres and Tax Havens: The Rise of Global Capital, [18-21]. 683 Meyer, P.J. (2016) ‘U.S. Foreign Assistance to Latin America and the Caribbean: Recent Trends and FY2016 Appropriations’, Congressional Research Service. 684 Ibid, [2]. 685 Sharman (2006) supra 267, makes the point that it is unsurprising that small states like the Caribbean islands were prompted to become OFCs given the pressures which they faced, together with financial deregulation and technological advancement, [24]. 123 economic development of its colonial possessions.686 Sharman (2006) notes several instances whereby islands under colonial rule or dependency entered into the offshore market, encouraged through pressure from their metropolitan states – an example being Vanuatu.687 Pressure and a desire to limit dependent liability in far-away regions seems to have been a concern for metropolitan states, as Freyer & Morriss (2013) observe. They state that “Given [Britain’s] concerns over being left with an expensive legacy of financially dependent territories, Britain’s interest in the region focused on finding a means for fiscal self-sufficiency in the Caribbean”.688 This was also the view of the Colonial Cabinet Policy Committee (1961) who were adamant that Britain should not be left with a residue of financially dependent territories,689 including TCI. TCIs financial services sector contributed to 8.5% of GDP in 2016.690 This sector has traditionally focused on international investment through property and construction. Although, it is commonly classified as a tax haven691 and provides many of typical offshore financial services. TCIs regulated financial activities, overseen by the Financial Services Commission (‘FSC’), whose responsibilities are provided for by the FSC Ordinance 2001,692 include company incorporation, banking, partnerships, insurance, money transmitters, trust companies, investments and management. As Moore (1997) observed, there are many reasons TCI is competitive amongst its fellow OFCs in the Caribbean. While his observations are outdated, Moore acknowledges certain features of TCI that have remained constant such as its legal system, which he asserts is far more favourable than the civil law deriving from Napoleonic times, as is the case in Aruba or the Netherlands Antilles. Other competitive faculties include stable government, its value of privacy as enshrined in the Confidential Relationships Order 1979, time-zone and connectivity to the US. Cost of doing business in TCI is renowned to be cheaper than OFCs like Cayman, particularly regarding incorporation and annual maintenance costs.693 It is worth noting that TCIs offerings, while typical of OFCs, are not as sophisticated or innovative as some of its competitors. For example, while trust services are available, special and complex trusts are more commonly seen in jurisdictions like 686 Darwin, J. (1988), Britain and Decolonisation: The Retreat from Empire in the Post-War World, Hampshire: Macmillan. 687 Ibid, [24]; and, Dwyer, T. (2002), ‘‘Harmful’ Tax Competition and the Future of OFCs’, Journal of Money Laundering Control, 5(4): 302-317. 688 Freyer and Morriss (2013) supra 22, [1317]. 689 Ashton, S.R., and Kinningray, D., (eds) (1999) British Documents on the End of Empire, Ser B. Vol 6, Colonial Cabinet Policy Committee Draft Memorandum, 1961. 690 See Appendix II. 691 For example, Tax Justice Network (2007) ‘Identifying Tax Havens and OFCs’, [9]. 692 Sections 3-15, FSC Ordinance 2001. 693 Moore, G.C.J. (1997) ‘Selecting An Offshore Jurisdiction: Why TCI?’, Mondaq. 124 BVI. The make-up of TCIs licensed and regulated financial sector can be summarised as follows: Table 3: Data on TCIs Financial Sector Service/Product Quantity Banks 6 Money Transmitters 4 Trust Companies 10 International Insurance Managers 6 Domestic Insurance Companies 18 IBCs (or ‘exempt companies’) 9,871 International Insurance Companies 6,217 Casinos 2 Source: TJN FSI (TCI); Know Your Country TCI Risk and Compliance Report (Jan 2017) TCIs regulatory regime for financial services, including its AML and compliance frameworks, have been subject to significant peer-review and international assessment, including a FATF MER in 2008 and an IMF Financial Sector Assessment Programme in 2015, which assessed the stability of the financial system generally.694 5.3. Domestic Corruption and Impact upon Development It is worth remarking on the serious corruption problems TCI has experienced. Corruption has impacted its development significantly. While not implicated in the most recent data-breach from the offshore world, corruption scandals implicating TCI have made international headlines, led to Commissions of Inquiry, and suspended TCIs constitution on two occasions. Other than the general stigma attributed to tax havens, these instances have caused harm to TCI in different ways. While necessary to consider the impact of domestic corruption on development, such as institutional development, in the context of this work, it is also necessary to examine the connection between local corruption and the ability of foreign suspect wealth to transit into the island through property development and more broadly its OFC. Evidence collated from secondary research emanating from the findings of the 2008/9 694 IMF (2015) ‘TCI Financial Sector Assessment Program, Financial System Stability Assessment’. 125 Commission of Inquiry indicates the ease at which domestic corruption undermined institutional processes, and also how the domestic construction market facilitated substantial investments from overseas. It will also be shown that lacking domestic controls facilitated corruption which, in turn, appeared attractive to foreign individuals and companies looking to corruptly profit from large crown land deals. Such behaviour undermines reputation and can result in policy and legislative changes from outside. If a jurisdiction or financial market is the recipient of adverse attention for issues relating to financial crime, the mere presence of suspicion or the perception that the jurisdiction is not ticking the boxes on international standards renders negative impact. This can take the forms of financial institutions de-risking, government and NGOs blacklisting them, sanctions or negative publicity. On 13 March 1985, the New York Times reported “In Old Pirate Haunt, Daunting News of Drug Trade”. This was in reference to accusations made against TCIs Chief Minister, Norman Saunders and other officials of conspiracy and bribery relating to narcotics trafficking. Saunders allegedly received bribes to permit smugglers to refuel aircrafts at his airport station. He was arrested in Miami with Development Minister Stafford Missick, and a Canadian businessman.695 The US charged them with conspiracy offences including conspiring to violate the US Travel Act 1961 and import narcotics. Video evidence emerged showing Saunders accepting $20,000 from an undercover agent to allegedly protect drug shipments passing through TCI to the US. All 3 were convicted of conspiracy offences.696 This history is important as it illustrates problems at earlier stages of TCIs development, particularly set against receiving increased autonomy. In 1986, Governor Christopher Turner appointed Louis-Blom Cooper QC, as Commissioner of Inquiry into allegations of arson of a public building, corruption and other matters.697 The Commission found the Chief Minister, Health and Education Minister and Minister of Works guilty of “unconstitutional behaviour and ministerial malpractices”, “unfitted to carry out ministerial responsibilities”.698 Blom-Cooper recommended suspending the 1976 Constitution and implement direct rule,699 which lasted between 1986–1988 where governance rested with the Governor and an Advisory Executive Council.700 Blom-Cooper’s findings are historically relevant to TCIs development given their severity and the striking similarities to Sir Robin Auld’s findings in 2008/9. The 1986 Report, 695 Griffith, I.L. (1993) ‘Some Security Implications of Commonwealth Caribbean Narcotics Operations’, Conflict Quarterly Spring 1993, 25-45, [33]. 696 Ibid. 697 Blom-Cooper Report, supra 655. 698 Ibid, [107]. 699 Ibid, [107-108]. 700 The Times (1 September 1987) ‘World Summary: Assurance to Islands’. 126 proximate to the conviction of Saunders, warned: “the time has come to disperse the cloud that hangs like a brooding omnipresence in a Grand Turkan sky”.701 Blom-Cooper noted that the by-election in November 1985 saw three new members elected who were “closely identified with the previous Chief Minister … and his two colleagues found guilty of serious drug offences”.702 Blom-Cooper suggested that this rendered a sense of hopelessness for change with elections. He averred that significant instances of corruption are prefaced by a failed state of public affairs, administration and controls. He called it a “disease in the body politic”, which seemed endemic and ineradicable in the islands, at least for that generation.703 As well as the Chief Minister’s conviction, the report paints a bleak picture of governance in TCI in the 1980s: “Making allowance for the general lack – (a) of educational attainment of many Islanders; (b) of specialist training in public administration resulting in a low general standard of local civil servants; and (c) of political sophistication among Ministers … the time has come to disperse [of] persistent unconstitutional behaviour [and] maladministration … at every level of government”.704 During the 1990s, Governor Bourke stated that the islands were at a peak of narcotics trafficking, its small police force was corrupt and crime was increasing.705 A well-known figure on the island, Alden “Smokey” Smith, who had been imprisoned in the US for his involvement in the 1985 Saunders affair,706 was acquitted in the 1990s on drug trafficking charges to cheering crowds. Many islanders compared this to the acquittal of OJ Simpson.707 The Caribbean became synonymous in the field of transnational organised crime with drugs and its proceeds in the 1970s and 1980s.708 As Blom-Cooper observed, up to 1985 “there was on the Islands an alternative source of income: drug trafficking … with several good quality airports and their position midway between Florida and the drug producing countries of South America, earned a substantial income as an entrepot and made, albeit illegally, a significant contribution to the economy”.709 There has been considerable scholarly work on the impact of narcotics trafficking on the Caribbean.710 Collier (2002) argues that it 701 Blom-Cooper Report, supra 655, [97]. 702 Ibid. 703 Ibid, [98]. 704 Ibid. 705 The Independent, (14 April 1996) ‘Our man in hot water: when the British governor of TCI claimed drug trafficking was fire it was the last straw for locals’. 706 TCI News Now! (9 March 2012) ‘SIPT makes another arrest’. 707 People of the State of California v Orenthal James Simpson [1995] was a double-homicide trial of the US footballer and public-figure, ‘OJ’ Simpson. It was known as the “trial of the century”, in part due to Simpson’s popularity, and resulted in acquittal. 708 Sharman (2006), supra 267, [23]. 709 Blom-Cooper Report, supra 655, [22]. 710 Griffith, I.L. (1997) Drugs and Security in the Caribbean, Sovereignty Under Siege, Pennsylvania: Pennsylvania State University Press. 127 has affected every Caribbean state.711 Two similar examples include Chief Minister Saunders’s conviction, and the allegations levelled at Bahamian Prime Minister, Lynden Pindling in the late 1980s for accepting protection money to facilitate narcotics trafficking through the Bahamas.712 Indeed, it was the offensive against drug trafficking which provided the architecture for modern AML policies and initiatives. There is consensus that drug trafficking and associated forms of crime like corruption have ravaging effects on a country’s economic, social and institutional development, not least given that it is commonly understood that drug use among local populations increases with the presence of a trafficking industry. Secondary problems includes prostitution, gangs and violent crime. However, similar to the ‘corruption can facilitate development’ argument, the fact remains that the drug industry earned sizeable income for TCI. This was not simply for the elites, as Blom-Cooper noted that evidence suggests that profits filtered down amongst people. He posited that this might account for the equivocal response of belongers to Saunders’ conviction.713 After his release, he returned to politics serving in the Legislative Council. By one account, he was “popular as ever”.714 Direct rule was imposed again in 2009. The former Premier, Michael Misick, is presently on trial for corruption and ML offences, along with other former Ministers. Misick was very much the focus of the Auld Report which found he “failed repeatedly throughout his period of membership of the Legislature … to make full and accurate declarations of his interests as required by the Registration of Interests Ordinance 1993”.715 There was evidence he abused his position by personally using PNP funds, hence the recommended criminal investigation. Allegations relate to disproportionate political donations and finder’s fees in respect of selling crown land for development,716 and contracts for his celebrity wife to promote TCI. What is particularly interesting about Misick’s case is his perceived popularity – comparable to that of Saunders in the 1980s. Many perceive that he largely increased TCIs development.717 Despite indictments assets being subject to a restraining order under the Proceeds of Crime Ordinance,718 Misick remains an extremely popular figure evidenced by 711 Collier, M. (2002) ‘The Effects of Political Corruption on Caribbean Development’, Working Paper No. 5, LACC Working Paper Series (2001-), Paper presented for the Caribbean Studies Association Annual Conference (27 May–2 June, Florida International University, [5]. 712 New York Times, (1988) ‘Bahamas Leader Tied to Drug Bribe’; and New York Times (1998) ‘Bahamian Leader Is Subject of U.S. Drug Inquiry’. 713 Blom-Cooper Report, supra 655, [22]. 714 The Independent (1996) supra 705. 715 Auld Report, supra 306, [244]. 716 Ibid, [247]. 717 Turks & Caicos The Sun (15 January 2014), ‘Michael Misick gets hero’s welcome in TCI: Granted bail with conditions’. 718 2011 Restraint Order. 128 thousands of guests and celebrities attending his birthday.719 Misick argued that he could not have a fair trial720 and in submissions to the Sir Robin Auld, Misick’s barrister argued: “there is absolutely no prospect [he] could receive a fair trial in the light of the adverse media publicity surrounding this case and the contamination of any potential jurors by rumour, by comment and by the public disclosure of inadmissible evidence”.721 This argument, and the unavoidably familiar nature of TCI,722 was clearly convincing as Sir Robin recommended a judge-alone trial.723 Interestingly, this concept was addressed in the 1986 Commission: “With such a manifest commitment to party politics [in TCI] it would be impossible to achieve impartiality in a jury”.724 Some parishes consist of a few hundred people who constantly interact with eachother. Misick’s continued integration is evidenced by his 2016 return to politics, standing as an independent candidate in the election (as did another defendant), yet only receiving 5.57% of his parish’s vote.725 Under his Premiership, prima facie TCIs economy grew significantly through property development, tourism and land sales. His lawyer submitted to the Commissioner: “He has done a great deal for the good … attracted tourism and investment … sought to empower the people … increase land ownership … extend educational opportunity and to provide health- care”.726 However, the reality is that TCIs growth was underpinned by alleged misconduct and mounting debt.727 While denying corruption, Misick admitted there were times he had been at fault, such as not disclosing interests to the Registrar. Rather than admitting dishonesty, he argued that this was part of a practice of neglect and carelessness which resided in TCI for years, while asserting the value of having good relations with property developers.728 The question arises: are certain types of behaviour normative in TCI? The Auld Report identified that bribing of voters was a major concern729 and despite a tiny electorate (7000 people, due to limiting the franchise to belongers), there was a disproportionate level of funding in the party system.730 Some $4m went in and out of the PNPs bank account in the 6 719 Turks & Caicos The Sun (4 March 2016), ‘Michael Misick returning to elective politics in TCI’; and (22 February 2016) ‘Hundreds Celebrate Mike Misick’s Birthday’. 720 Judgment, Misick and Others (Appellants) v The Queen (Respondent) (TCI) [2015] UKPC 31, Privy Council Appeal No. 0042 of 2015, [55-56]. 721 Ibid. 722 TCIs Opposition Leader, Washington Misick, is Michael Misick’s brother. 723 Auld Report, supra 306, [12]. 724 Blom-Cooper Report, supra 655, [58, 97]. 725 TCI Election Centre (2016) supra 603. 726 TCI Weekly News (10 February 2009), ‘No fair trial for Premier, says Fitzgerald’. 727 HC Library (2012), supra 601, [5]. 728 Ibid. 729 Auld Report, supra 306, [66]. 730 Ibid. 129 month period preceding the 2007 election.731 Selected findings by the Commission demonstrate the scale of impropriety. These include: • “There is information that [Misick] may have abused his position as Premier … by using PNP funds for his own purposes”; • “There is a possibility of corruption … including misfeasance in public office, in relation to [Misick] in the chain of events leading to the eventual disposal of land at Joe Grant Cay at well below market price to a consortium … following the secret payment by Dr Kinay of $500,000 to him … followed by the approval by Cabinet … to which [Misick] was a party”; • “The payment by Jak Civre, the developer of the Seven Stars Resort, to the Hon Floyd Hall of $150,000 … the day before the election, purportedly as a campaign donation, but which [Hall] paid into the business account of his company”; • “Hon McAllister Hanchell … entered into possibly corrupt and/or otherwise seriously dishonest transactions by offering on behalf of the Government grants of Crown Land to himself and/or to companies that he substantially owned or controlled, thereby creating and ignoring the obvious conflicts of interest…”.732 Worryingly, there are considerable parallels between Blom-Cooper’s and Sir Robin’s Reports, despite over two decades separating them. As evidenced by the selected findings above, there is a trend with the types of misconduct found by both Commissions. This was also noted by Sir Robin: “[Blom-Cooper’s] general conclusions on those matters suggest that little has changed over the last 20 or so years leading to this Inquiry, except as to the possible range and scale of venality in public life”.733 Blom-Cooper stressed in 1986 that reasonable people “complain that there is pervasive corruption in government”.734 Of course, there is the alternate view that many have expressed – including that TCI did well out of being a drug entrepot735 with the same being true of the property developments seen under Misick’s premiership. At the very least, for a micro-population jurisdiction with a relatively high GDP, it is quite understandable that the presence of new luxury resorts, creating jobs, new workers and tourists alike would be perceived as a positive thing. This is set against continuous GDP growth under Misick’s premiership. However, if corruption is normative in a society, then 731 Ibid. 732 Ibid, [247-257]. 733 Ibid, [23]. 734 Blom-Cooper Report, supra 655, [98-99]. 735 Ibid, [22]. 130 long-term damage is caused to social, legal and political institutions. The findings pointed to instances of corruption in office; conflicts of interest going unchecked; non-transparent processes like selling crown land; vested interests influencing decisions; inadequate rules governing donations and such resembling bribes; inadequate disclosure of interests or payments; use of outdated land valuations; and land-flipping. While it may be difficult to measure the social harm or tangible costs of all this, the reality is that much of the growth was based on a credit bubble, which could not sustain wider financial pressures in the late 2000s. Thus, the growth might be described as superficial. A wider reading might say that such growth at the expense of standards in public life might provide an interim economic boost, but significantly damage the prospects of institutions and hinder the jurisdiction’s longer-term development. For example, if crown land is sold based on an outdated valuation, then despite a new luxury resort being built, the country has still lost revenue from open-bidding at market value. Or, if belongerships are given to profiteering developers, this could erode land-price protection for native islanders. If donations can buy influence, or subvert competition and procedures, this impacts the development of institutional processes, but can also facilitate suspect wealth if the funds involved are of dubious origin or transferred in such circumstances. Absent accountability in decision-making, it shows the roulette-like fate such protections have. For its development, the reality is that TCI twice lost its sovereignty over these issues. Financial institutions in the offshore world are increasingly regulated and have to comply with internationally-set standards. If they do not, they remain susceptible to abuse both domestically and internationally, knowingly or inadvertently. As the many recent high- profile fines against banks demonstrate, lacking domestic controls makes the institution susceptible to abuse and can give rise to international criminality and ML. It does not matter whether the wealth starts out as the proceeds of crime or otherwise, because it is that lack of controls in a jurisdiction’s financial or public sector allows the inflow of suspect wealth, wherever it is derived from. The suspect wealth enters the system, it is not-disclosed, it enriches those in power, it remains unaccountable and coincides with improper selling of land which may subvert legitimate competition. The functions of due process, appellate proceedings, judicial reviews, press scrutiny and public awareness are all undermined. On a broader scale it significantly damages the rule of law and democracy – the effects of which were raised in chapter 2. If conflicts of interest arise without reproach, then it is harmful on a much deeper and less-tangible level. People may not have felt like they were suffering – because this is a vaguer concept and difficult to substantiate such a claim with hard evidence. But it is similar to the example given earlier about street littering not necessarily visibly harming anyone – but making society worse to live in. 131 An example of the impact during Misick’s premiership includes lost public revenue due to concessions. In R v Misick and Others, evidence was adduced that under Misick’s premiership, TCI lost $42m in one year due to exemptions and import concessions made under development orders.736 Set against a context of land-flipping and bribery in development projects, this example shows how public money is lost due to unaccountability in decision-making, despite the argument that such developments are good for TCI, or that the economy is consequently growing. Granting belongerships to individuals under discretionary statutory powers was one of the areas of abuse found by the Auld Report. Belonger empowerment means they can purchase land for residential or commercial purposes at a heavily-discounted rate compared to foreign purchasers. Similarly, Bermuda applies a significant premium to non-Bermudians purchasing property. Attaching such premiums is a means of revenue-building for an indirect taxation system like TCIs. This, together with allocation of contracts to those with recently- granted belonger status meant that foreign investors were able to capitalise on domestic corruption to facilitate cost-effective development in TCI. 5.4. TCIs OFC and its Role in International Suspect Wealth Prior to examining TCIs anti-bribery, AML and transparency frameworks and the extent to which they comply with international standards, it is necessary to consider the extent to which its own offshore sector has been utilised to further financial crime internationally. As the above instances of domestic corruption demonstrate, controls have been lacking in TCI – something which attracts international criminals wishing to operate in a manipulatable, yet stable, environment. This section considers whether this has spilled over into the financial sector, an analysis of which will provide context as to TCIs legislative and regulatory reforms. A good starting point is to consider the impact of the Panama and Paradise Papers. Revelations from these publications of leaked and stolen information paints a prima facie negative picture of the specifically-named jurisdictions and OFCs more generally. TCI was not mentioned in the Panama Papers as being the jurisdiction in which any legal entities named in the publication were registered.737 However, it was implicated in the Paradise Papers. Specifically, 26 legal entities were named as registered in TCI. It is important to note, however, that of the 26, only 2 remain active with the others’ statuses being “closed” at the 736 TCI Weekly News (25 January 2016) ‘Misick Government’s import concessions cost TCI $42m’ 737 TCI was mentioned in the Panama papers, but only in the context of being a “linked jurisdiction”. For example, a company registered in BVI may have listed its address 132 time of publication.738 In some cases, entities had closed back in the 1990s. In both publications, TCI is mentioned in other contexts including as registered addresses for intermediaries. Therefore, in circumstances of information published relating to 500,000 legal entities in the ICIJ’s Offshore Leaks Database, only 2 active TCI-registered legal entities were named. Despite the almost exclusively adverse tone of media and government coverage of the information exposed in the data-breaches, the data specific to TCI does not tell us anything other than demonstrating that a few entities are incorporated there, or have existed there, and that several dozen intermediaries are present there. In real terms, the evidence demonstrates that TCI provides offshore services. There is a prima facie case that TCI is not mentioned to any statistically significant degree, relative to the 500,000 named entities, and that it is a less prominent OFC than other jurisdictions more commonly mentioned, such as the Bahamas or Panama. Given that the data omits any contextual information on the entities’ commercial activities or purpose, information relating to TCI is somewhat di minimis. Further, TCI has not been implicated in any civil or criminal enforcement actions stemming directly from information disclosed in the data-breaches. The information from the ICIJ’s database does not exculpate TCI, although nor does it demonstrate anything sinister – if it is accepted that offshore entities are, in and of themselves, not sinister. Moreover, it is not to say TCIs OFC are not susceptible to abuse. However, there are evidential difficulties with these sources of information, which were outlined earlier in this work.739 The publications, which targeted major offshore law firms, effectively exposed only 2 active companies registered in TCI, and 6 intermediaries linked to TCI. While the aim of exposing these companies may not have been to suggest they were acting illicitly, the question of proportionality is rightly raised in the context of the UK’s decision to legislate on behalf of all OTs due to a perceived problem exposed by the publications. Looking beyond the data-breaches, TCIs OFC and its products have been implicated in various cases internationally as facilitating financial crime and being used to conceal its proceeds. Evidence from case law, principally from the US, demonstrates this point. In US v Bognaes [2016],740 a lawyer was convicted for offences relating to tax evasion and fraud for setting up business organisations for his clients to evade tax. He instructed them on how to conduct transactions via nominees and on wiring funds offshore to TCI. Similarly, in US v 738 ICIJ Offshore Leaks Database, Paradise Papers. 739 Bryans (2014) supra 50. 740 US v Palle Bognaes [2016] Arizona District Court, 2:16-mj-06194 (US). See also: US Department of Justice, Press Release (12 April 2016) ‘Fugitive Convicted of Federal Tax Crimes Arrested by the US Marshals Service in Arizona After More Than 14 Years on the Run’. 133 Meyer [2016],741 a financial services executive pleaded guilty to obstruction of justice by concealing assets subject to a freezing order and seizure warrant. On learning of an SEC investigation, he concealed $4.8m in assets via a series of offshore accounts and a shell company. Assets included a luxury property in TCI as well as home-renovations, deemed to be criminal proceeds and thus forfeited. In US v Hall [2013],742 an insurance salesman pleaded guilty to operating a sham investment scheme including ML and wire fraud. The scheme lasted a decade in which 50 investors were defrauded of $4m. It was facilitated by a shell company in TCI, with its only activity being a post-box, of which he was listed as Director. In US v Lopez [2013],743 a company executive was charged with securities fraud relating to operating TCI-registered shell companies for the purpose of issuing stock to settle debts and creating purposefully-defaulted loan agreements with the shell companies to then instigate sham lawsuits. In US v Chapman [2013],744 which involved a $270m investment scheme fraud, court documents show that the perpetrator failed to repay clients’ money, rather spending it personally on a lavish lifestyle, including purchasing TCI properties. Many of these cases show that criminality abroad is not only facilitated by use of TCI companies and services to conceal wrongdoing and provide enrichment, but also that TCIs property market represents a risk of being used to launder the proceeds of crime. Another case which implicated TCI was US v Mebiame [2016]. This involved a joint venture between a wholly-owned subsidiary of a US hedge-fund and a TCI subsidiary company concerned in acquiring African mining rights and uranium concessions in Chad, Niger and Guinea. The defendant was a consultant acting for the joint venture and was alleged to have bribed African officials to obtain the rights. In violation of the FCPA, Mebiame conspired in the US to bribe, and following a guilty plea was sentenced to 24 months’ imprisonment. The TCI entity and owner were known to US authorities,745 and was named as a co-conspirator in the indictment. At all material times, Mebiame was acting as a consultant to the entities, and the conduct he was charged with related to conspiracy while in the US. In respect of TCI, some important 741 US v Jaymes Meyer [2016], North Carolina District Court, 3:16-cr-62-MOC (US). See also: US Department of Justice, Press Release (24 March 2016) ‘Financial Services Company Executive Pleads Guilty to Obstruction of Justice’. 742 US v Anderson Scott Hall [2013], Middle District of Florida District Court. See also: US Department of Justice, Press Release (27 December 2013) ‘Jacksonville Man Pleads Guilty to Operating a Fraudulent Investment Scheme’. 743 US v Mark Anthony Lopez [2013] Southern District of California, 12-CR-5236. See also, US Department of Justice, Press Release (22 January 2013) ‘Former CEO-President of San Diego-Based Company Charged In $28 Million Stock Fraud Mark Lopez Also Accused of Obstructing SEC Investigation By Hiding Emails In Manila Folders Marked “Files Deleted” and “Not Released to SEC Subpoena (Delete)’. 744 US v William Chapman [2013] Eastern District of Virginia, See also: US Department of Justice, Press Release (6 December 2013) ‘Sterling Man Sentenced for Conducting $270m Investment Fraud Scheme’. 745 US v Mebiame [2016] Eastern District of New York, 16-627, charges, [1]. 134 points include the fact that Mebiame was not a director, controller or owner of the TCI entity. As such, and like any other company, there would be no requirement to register him in terms of company information. In other words, the central register in TCI would not be aware of his involvement with the company. However, had he been the company’s director, his personal circumstances would have likely been red-flagged as a PEP being the son of the former Gabon Prime Minister. In TIs (2018) report The Cost of Secrecy, this case is used as evidence to suggest that if TCIs beneficial ownership register was open, then such matters would be easily detectable. TI avers that TCI companies are highly secretive with no information published about their owners or directors. They state that TCIs “aggressive secrecy may indicate why more corruption schemes involving [TCI] companies have not come to light”.746 However, as mentioned, even if the register was public, his information would not have been required as he was only, as the US Justice Department put it, a “fixer”,747 for the US-based and TCI- based entities. However, while the case of Mebiame clearly relates more to the conduct of a Gabonese-French duel citizen furthering his scheme on US-soil, a serious point relates to the co-conspirator named in the court documents as the controller of the TCI entity – for whom Mebiame worked in acquiring the rights via bribes. While there is no further information about the co-conspirator, it is concerning that the controller of a TCI company was named with respect to the bribes paid to African officials and raises questions as to whether this amounted to an infraction of TCIs Bribery Ordinance. 5.5. TCIs Response to Suspect Wealth 5.5.1. Mutual Legal Assistance The above cases demonstrate that police have had to assist with international criminal investigations relating to TCI-entities or individuals with assets in TCI. US Attorney’s Office has regularly cited the assistance given to it by TCI law enforcement.748 The question arises as to what extent or magnitude is there a problem by which the only recourse is to impose public beneficial ownership legislation? While the cases implicate TCI entities and its offshore market more broadly, the information from the data-breaches shows the relative infrequency 746 TI UK (2018) supra 479, [3]. 747 US v Mebiame [2016] supra 745, [3]. See also: US Department of Justice, Press Release (31 May 2017) ‘Gabonese-French Duel Citizen Sentenced to 24 Months Imprisonment for Bribing African Officials’. 748 For example in US v Vandyk, St-Cyr and Poulin [2014] Eastern District of Virginia District Court. See also: US Department of Justice, Press Release (11 July 2014) ‘Caribbean-Based Investment Advisors And Attorney Plead Guilty To Using Offshore Accounts To Launder And Conceal Funds’. 135 with which TCI was mentioned. An important piece of information which might add context to TCIs circumstances are the statistics on information exchange and MLA requests.749 Also known as judicial cooperation, these are international bilateral cooperation requests between countries for obtaining assistance when investigating or prosecuting criminal offences, including the investigation of the proceeds of crime, confiscation and freezing of assets. These are particularly relevant when considering the above evidence implicating TCI companies or services in various criminal cases. The UK considers that MLAs are “critical to criminal investigations and proceedings both in the UK and abroad … [and] a vital tool in the pursuit of criminal finances including the recovery of the proceeds of crime that may have been moved and hidden overseas”.750 Given the status of the OTs, they are individually responsible for executing requests and have their own frameworks in place. In TCIs case, data provided to CFATF shows that there were 3 MLA requests in 2016, 1 in 2015 and 2014 respectively, and 2 in 2013. In 2016, the 3 requests came from the Netherlands, Bahamas and Jamaica and the single request in 2015 coming from the US. The low amount of requests is problematic, and also shares similarities with the relatively low number of EOI requests made in relation to tax and beneficial ownership matters. This suggests two problems: either a lack of occurrences of criminality to investigate; or, more likely, that crime does exist yet the powers are rarely utilised. This was observed by the UK Parliamentary Inquiry (2019) into the OT.751 The cases emanating from the US alone in recent years suggests the latter rather than the former. 5.5.2. R v Misick and Others The ongoing trial of former Premier, Michael Misick, and other former politicians, raises important questions. So far, this work has pointed out that whether or not a jurisdiction can protect itself from receiving suspect wealth is going to depend greatly on the ability of domestic laws, controls and enforcement. As such, the trial in TCI is a major example of criminal prosecutions emanating from arguably TCIs largest scandal reverberating from corruption and ML in its history. It is important to reemphasise that the offences in question are domestic infractions of TCI criminal laws. However, domestic offending relates to the facilitation of international financial crime given that if domestic standards are non-existent, then this serves as a target for abuse, as was pointed out in the Auld Report on instances of 749 UK Home Office (2015) (12th ed) Requests for Mutual Legal Assistance in Criminal Matters: Guidelines for Authorities Outside of the United Kingdom, [4]. 750 Ibid. 751 UK FAC (2019) supra 322, [15]. 136 foreigners’ abuse of the political and financial systems to further their commercial activities. There is no scholarly literature considering the critical procedural issues raised by this trial and the only available information are media reports and government updates. As Hughes LJ commented in Misick and others v The Queen [2015]: “[these are] very exceptional trials for the very small courts system of TCI. They have already been pending for over two years … A special courthouse has had to be constructed on one of the principal islands to hear them. Almost all the leading advocates appear to have been recruited from outside the Islands, many of them from as far away as England and Wales…”.752 There are steadfast reservations about the trial in TCI. Misick and others made applications about not receiving a fair trial and have averred that diplomatic solutions should be sought after the lengthy timeframe and disproportionate expense. The right to a fair trial is enshrined in numerous sources of domestic and international law.753 Section 6(1) TCI Constitution mirrors the European Convention on Human Rights (‘ECHR’) and states that defendants be “afforded a fair hearing within a reasonable time by an independent and impartial court”.754 During direct rule, the 2006 Constitution was suspended via Order in Council.755 As such, the unqualified right to a jury trial in TCI was also suspended.756 Today, while jury trial is conventional, if the interests of justice so requires, then a judge-alone trial can be ordered.757 In the 2015 UKPC appeal, the defendants argued that the trial was contrary to their constitutional right to a fair trial, given that the judge had insufficient security of tenure to maintain his independence, and that in deciding to have a judge-alone trial, he had failed to ascertain whether there was no reasonable doubt that the interests of justice required a trial without a jury before deciding so.758 The 2015 UKPC appeal emphasised that the trial issues were complex. A jury would have had to have been selected from the 6000 belongers. Hughes LJ noted that in medieval times, jurors brought with them prior knowledge about the case and that in modern times the cardinal virtue and safeguard of trial by jury is the ability to “produce fact finders who are entirely unconnected with the events under examination, and wholly disinterested”.759 A jury in this case would have been quite the opposite as they would invariably have some connection to events or defendants. Hughes LJ, nothing the relentless publicity in favour of, and 752 Misick and others [2015] supra 720, Hughes LJ at [19]. 753 Article 10, Universal Declaration of Human Rights 1948 and Article 6(1) ECHR. 754 Section 6(1) TCI Constitution. 755 TCI Constitution (Interim Amendment) Order 2009. 756 Section 6(1)(g), TCI Constitution. 757 Misick and others [2015] supra 720, Hughes LJ. 758 Misick and others v R [2015] AII ER (D) 74 (Jul), Criminal Law and Justice Weekly, 179(27). 759 Ibid, [55]. 137 criticising, the defendants, stated it would be “impractical to find a jury composed of those with no prior knowledge of, or opinion upon, the issues at stake”.760 With the change in law to give the judge power to determine a judge or jury trial, it made no sense to proceed on the basis of a jury trial given these procedural concerns. It could have resulted in a jury composed of stoic critics or ardent supporters of the defendants. Sections of the local population strongly resented direct rule, which is unsurprising given TCIs history. There have also been criticisms against the prosecutor, Andrew Mitchell QC, whose purchase of a property through a TCI company resulted in one MP calling for his removal due to “hypocrisy”.761 There is also the unusual nature of the offences – for example, the perception that aspects of Misick’s conduct did not amount to corruption because laws were vague and did not specify methods by which politicians could receive donations. The trial itself is somewhat of a baptism of fire. TCI had to develop an entire legal infrastructure to accommodate it – from venue to the importation of competent lawyers. After a 7-year investigations following the Auld Report, the trial commenced in 2015 and the prosecution took three months to call its first witness.762 Its case ended in late 2018, the defence now following with no-case submission.763 Such protracted progression gives rise to a prima facie case that the defendant’s right to a timely hearing has been undermined. Other concerns include several significant delays, that prosecutors overburdened the case with defendants and counts that were not sufficiently narrowed, all resulting in a poorly- managed trial. One defence barrister commented: “no case should last three to four years, ever … [and] … no one, not judge, not professional lawyer, not defendant, could possibly be expected to remember the witnesses (with a few notable exceptions), the evidence given … whether it was immediately believable or there was a question mark over it”.764 Counsel suggested that none of the lawyers involved, nor even the judge, would have accepted the brief had they thought it would last this long, which strikes at the heart of the criminal justice system. While TCI has exhibited some progress in fostering standards which have clearly been absent in the past, the trial demonstrates significant concerns in its ability to administer justice in respect of these past instances of corruption and ML, given the trial is in its fourth year. It could be argued that accountability of those individuals charged is a necessary step as part of 760 Ibid. 761 Turks and Caicos The Sun (1 June 2018) ‘Turks and Caicos Islands MP calls on prosecutor to quit’. 762 Remarks of Jerome Lynch QC in a no-case submission, reported in TCI Weekly News (21 January 2019) ‘Defence calls for end of trial’. 763 Insight and updates provided to me via email correspondence by prosecutors at TCIs Office of the Director of Public Prosecutions. 764 TCI Weekly News (21 January 2019) supra 762. 138 TCIs broader approach to strengthening domestic law and enforcement activity in responding to financial crime. The concept of prosecuting high-profile individuals is well- established as demonstrating equality before the law. Whether this is consistent with due process in respect of these individuals, however, is a matter of contention. One defendant’s no-case submission has already been rejected on the basis that the trial is manageable that past delays were unavoidable. It is worth noting that one individual charged pleaded guilty and was given a suspended sentence.765 The no-case submissions have been underway since January 2019 and as at April 2019 they are ongoing. 5.5.3. Anti-Bribery Regime This chapter so far has demonstrated that corruption has been a significant problem in TCI. Due to the OTs not being signatories to international treaties, UNCAC has not been extended, but TCI is actively seeking extension.766 The Bribery Bill 2017 sought to reform TCIs anti-corruption legislation and provide a new scope of bribery offences to reflect corruption’s global character. The Bribery Ordinance 2017 deals with offences of bribing others,767 but also the offence of being bribed.768 It also makes it an offence to bribe foreign officials with extraterritoriality provisions, as well as creating the now-familiar failure to prevent bribery offence on the part of corporates,769 and the legislation gives guidance on this. Many aspects are based on the UK Bribery Act 2010 and it was implemented to better address the requirements of the OECD Anti-Bribery Convention.770 The reformed legislation brings TCI in line with international anti-corruption standards.771 It shows TCI recognises the importance of updated legislation. While the UK Act contains many provisions of an international character, such as bribing foreign officials,772 it also contains other important provisions such as offering or receiving bribes,773 and failure to prevent bribery.774 The UK Secretary of State’s Guidelines demonstrate that it is as much about common sense procedures of small domestic businesses as for large multinationals. It is therefore suitable for 765 Ibid. 766 25th Conference of Attorneys General from UK Overseas Territories and Crown Dependencies, Speech by UK Solicitor General, Robert Buckland QC MP, 28 September 2016. 767 Section 4, Bribery Ordinance 2017. 768 Ibid, Section 5. 769 Ibid, Section 10. 770 TI UK (2010), ‘Bribery Act’. 771 For example relating to Articles 15, 16 and 21, UNCAC. Specifically, the wording of Section 9 TCI Bribery Ordinance clearly complies with Article 16 UNCAC which deals with bribery of foreign officials. 772 Section 6, Bribery Act 2010 (UK). 773 Ibid, section 1. 774 Ibid, section 7. 139 TCI, particularly in instilling a common sense approach about the different risks that bribery can pose domestically and from abroad. With TCIs growing property and construction sectors, set against a backdrop of past corruption, properly defining bribery and making international investors aware that all-encompassing legislation exists relating to individuals and entities in TCI is useful. Since 2012, there has been visible commitment from the political directory to ensure the strengthening of institutions and frameworks by reforming anti-corruption laws and initiatives. Law reform takes up valuable space on legislative agendas and costs money. One example was strengthening the Integrity Commission’s legislation, established by the Integrity Commission Ordinance 2008 and is enshrined in the Constitution.775 Other statutory bodies and institutions protecting governance include the Director of Public Prosecutions (‘DPP’), Human Rights Commission and Complaints Commissioner. Institutions like the Integrity Commission, Registrar of Interests and Supervisor of Elections are particularly important in the context of Sir Robin’s findings of electoral impropriety in terms of bribery, donations and non-declaration of interests.776 The statutory responsibility of the Integrity Commission is to promote integrity, honesty and good faith in public life.777 It educates the public about integrity,778 and publishes and maintains a Code of Conduct for Persons in Public Life779 – the first of its kind in the Caribbean and OTs.780 This recognises the important role domestic institutions and processes can play in tackling corruption, often seen in OECD countries as to ethics check-lists and associated initiatives.781 The ethos of establishing a framework of good governance upon which integrity can flourish in TCI is accompanied by the number of individuals in public life having to make declarations under the 2008 Ordinance increasing by 100% since 2010. The Code of Conduct was also timely in the immediate aftermath of the 2012 election and reinstatement of self-rule. Complementing this, the Commission also adopted the Seven Principles of Public Life developed by the UK Committee on Standards in Public Life (1995), and included in the 2012 White Paper. These reinforce the principles of integrity, objectivity, selflessness, accountability, openness, honesty and leadership.782 Drawing upon experiences from 775 Section 102, TCI Constitution. 776 Auld Report, supra 306, [28]. 777 Section 102(3) supra 746 778 Ibid, Section 102(3)(d). 779 Ibid, Section 102(4). 780 Supra 752. 781 Mills, A. (1998) ‘Strengthening Domestic Institutions Against Corruption: A Public Ethics Checklist’, in UN Development Programme (1998) ‘Corruption and Integrity Improvement Initiatives in Developing Countries’, chapter 9. 782 TCI Integrity Commission, Appendix A, ‘The Seven Principles of Public Life’. See also, FCO (2012) supra 297, which emphasises this at [51]. 140 Caribbean neighbours, the Commission also published a Guide to Identifying, Avoiding and Managing Conflict of Interest.783 Following elections, the Commission reported robust implementation of the Political Activities Ordinance.784 Further developments include establishing a whistleblower protection regime – a standard espoused by various international bodies such as the OECD.785 The Commission’s Deputy Director noted that trust in small close-knit communities is difficulty to harness, and that it is challenging to get individuals to understand that protection exists.786 Despite this, the regime is said to have increased the number of individuals bringing complaints about corruption in public life. Given that the Commission not only has regulatory and oversight responsibilities, but also an investigative function, their employees swear an oath of secrecy. This is due to the sensitive nature of information they encounter. The doctrine of confidentiality is taken very seriously in TCI. In 8 years of establishment, the Integrity Commission has had no leaks of confidential reported information which helps engender respect for, and confidence in, this system. The Auld Report also found deficiencies with the political process,787 with donations being a key concern.788 It alleged that developers (often international) were able to make disproportionate political donations which coincided with their bids for developments, sales of crown land or planning applications being Cabinet-approved.789 These findings were actioned by the Integrity Commission.790 In in its 2016 post-election report they found that the election saw no formal breaches of the Ordinance and there was evidence to show remarkable improvement in the quality and regularity of statutory returns under the Political Activities Ordinance, particularly from the main parties. The Commission’s awareness-raising activities fulfil an important statutory function. It is crucial that past events do not lead to TCI identifying itself by its past,791 as labelling theory would suggest. A label is a creation of social reaction,792 and is a formation embedded 783 TCI Integrity Commission, Appendix B, ‘Guide to Identifying, Avoiding and Managing Conflict of Interests’. This is largely adapted from the “Principles of Integrity for Persons in Public Life and those Exercising Public Functions” published by the Integrity Commission in Trinidad and Tobago. 784 TCI Political Activities Ordinance (Revision as at 31 December 2014); TCI Political Activities (Amendment) Ordinance 2016. 785 See: OECD (1998) Recommendation on Improving Ethical Conduct in the Public Service. See also, OECD (2016) Committing to Effective Whistleblower Protection, OECD Publishing, Paris, [3]. 786 TCI Integrity Commission Interview (16 November 2016) Tropical Vibes 105, remarks of Deputy Director Mr Richard Been. 787 Auld Report, supra 306, [62-67]. 788 Ibid, [62] and [120-125] for alleged instances involving Premier Michael Misick. 789 Ibid, [123]. 790 TCI Integrity Commission (2016) ‘Post-General Election 2016 Report’, [2]. 791 For example, at many international evaluations or assessments, something is noted about TCIs history with drugs and/or corruption, an example being CFATF (2008) supra 671, with regular reference to “drugs”. 792 Berk. B.B. (2015) ‘Labelling Theory, History Of’, International Encyclopaedia of the Social and Behavioural Sciences, (2nd ed), Vol 13, [150-154]. 141 in the concept of stigma. This is clearly seen with the ‘tax haven’ label fast displacing any positive perception about tax competition. Promoting integrity at societal level is a purposeful strategy with regards to protecting small jurisdictions from domestic and international corruption abuse, as well as the related misconducts that corruption facilitates. Recognising the importance of youth education, in fulfilment of its statutory education function, the Integrity Commission organises an annual integrity competition. It engages “students and teachers in activities relating to the language, debate, performing and creative arts on the theme of integrity [and] encourages students to express their creative skills and talents and … innovation”.793 Promoting integrity at the early stages of educational development demonstrates a recognition that corruption can be tackled through shifting mindsets. It also demonstrates multi-stakeholder appetite to foster principles that will auger well for future generations of leaders. The Commission produces guidance on integrity and how to act when not being watched.794 At the Third High-School Debate 2017, the Youth Director stated: “people are watching more of what you do than what you say … if what we claim to believe on Sunday is put to practice on Monday … Integrity says “I might not like the law, but I have to obey the law’”.(sic)795 In the science of education scholarship, there is consensus in the literature that in the early part of the 20th century, world events presented the opportunity to enhance basic good values through education. As Brehony (2004) notes, following World War II “the future of education was to foster international understanding, to develop a world consciousness and to give an introduction to the duties of world citizenship”.796 This period saw Stalinism, Nazism and Fascism which made research into education from the 1940s onwards all the more important to eradicate such evils through strengthening values. In the context of promoting integrity to protect against international economic crime, theories of public education which engage morality, spirituality and a basic-values approach are purposive.797 Given the scourges of corruption TCI has experienced, there is a moral imperative for prioritising this. Such aims to mitigate risks that could undermine the financial system, official processes, the political system and its long-term institutional development. While the argument might be that TCI has engaged in window-dressing to enhance its anti-bribery response, it has made a 793 TCI Integrity Commission (2015) Integrity Competition High School Level Handbook. 794 Ibid. 795 TCI Integrity Commission (2017) Third Inter-High School Debate Competition Round 1. 796 Brehony, K.J. (2004) ‘A new education for a new era: the contribution of the conferences of the New Education Fellowship to the disciplinary field of education 1921-1938’, Paedagogica Historica, 40:(5-6), 733- 755, [740]. 797 Scholars like Carl Jung have emphasised the importance of this, particularly in the face of, or following, oppressive political/social instances in the past century. See, for example, Jung, C. (1957/2002) The Undiscovered Self, Routledge Classics. 142 progressive start relative to its past in the form of key legislative reform, domestic initiatives, Integrity Commission activities, and a redressing of key principles at societal-level. While this does not necessarily translate to prosecutions and convictions, given it will likely be some time before the first bribery conviction, certain things are positively measured such as the creation of a whistleblower programme or no leaks of confidential information from the Commission’s processes, and introduction of a register of interests. 5.5.4. AML Regime TCI has been proactive in enhancing its AML framework. Its recent NRA acknowledged its vulnerability to ML, which has also been identified by various international assessors. Given its history, and evidenced by the current Special Investigation and Prosecution Team (‘SIPT’) trail involving ML charges, it is not unreasonable to suggest there was formerly an absence of recognition of this vulnerability. This is all the more serious when considering foreign criminal cases in which TCI entities have been implicated. That said, TCI is constantly evolving its AML regime in furtherance of meeting international standards. This section considers some of these measures as well as outlining some ongoing risk areas. Prior to the CFATF 2008 MER, the Auld Report identified a serious crisis of ethics in public life. Given allegations of officials’ misconduct at the time of the MER, it is unsurprising that political will was lacking in acknowledging ML as a problem, or that its financial system had, or could, facilitate the transiting of illicit wealth at home or from overseas. This was set against a backdrop of crown land being sold to developers at an alarming rate depriving government of revenue and enriching those brokering the deals.798 For example, it was reported that a Slovakian developer, accused of engaging in corrupt dealings with the former Premier, had allegedly entered into a 99-year lease for 222 acres of land for $1.799 The suggestion that both controls and political will were weak is, in part, supported by CFATFs assessment in 2008 that TCIs AML framework had significant problems.800 The MER identified serious AML deficiencies: NC with 15 Recommendations such as R.5, R.6 and R.10, and PC with 24 Recommendations including R.1 and R.13.801 In consequence, TCI was placed under ‘expedited follow-up’, requiring regular reports to CFATF Plenaries. 798 TCI Weekly News (21 July 2012) ‘Hoffmann hands back Salt Cay land – Developer agrees to out of court settlement’. 799 Ibid. 800 CFATF (2008) supra 671. I am also grateful for contextual background on this by Mr Paul Coleman, Director of AML Supervision, TCI FSC. 801 See, CFATF (2016) TCI 13th Follow-Up Report to the 3rd Round MER, for full list, [5]. 143 This status remained in 2010, with CFATF concluding that limited progress had been made and that most of the Core and Key Recommendations were outstanding.802 At the May 2011 4th follow-up, TCI was told it had to report back in November 2011 for the 5th follow-up, given that seven Core and Key Recommendations were either not or partially met. In 2012, TCI graduated the expedited process based on progress made with implementing findings and addressing deficiencies. The 2012 Report recommended that TCI be allowed to exit the 3rd Round follow-up process.803 Action to address deficiencies was paramount, in a similar sense to the need for improving governance and anti-corruption standards following direct rule. CFATF stated it “acknowledges the significant progress made by [TCI] in improving its AML/CFT regime and notes that [TCI] has established the legal and regulatory framework to meet its commitments in its agreed Action Plan regarding the strategic deficiencies that the CFATF had identified. [TCI] is therefore no longer subject to the CFATF International Co- operation Review Group’s monitoring process”.804 This demonstrates that since 2008, TCI has worked under the supervision of the regional monitoring body, which has enabled engagement in vulnerability and risk-identification, bringing many aspects of its regime into compliance. The 2016 13th follow-up report outlined TCI is now C with 30 of the FATF 40+9 Recommendations, LC with 7 recommendations, PC with 10 and NC with 2. Other developments identified include TCIs increased focus on enacting, amending and implementing legislation to strengthen its AML framework, as well as the extent to which implementation of these have been successful.805 The Report noted that between 2009-2015, TCI commenced 25 ML investigations, with 11 resulting in prosecutions. Of this, 9 are ongoing and 2 have been completed resulting in 1 conviction. Of the 25 instances of reported ML, 4 resulted in restraint orders for which civil recovery followed in 3 cases, one of which was a confiscation of $10m.806 Despite the low conviction rate, this represents quite a high number of prosecutions from investigations. The next round of evaluations is underway, which will centre on technical assistance and effectiveness. Virtually all jurisdictions engaged in the 4th Round MERs face challenges with regards to the effectiveness component. However, given that TCI has recently conducted and published its first NRA, it demonstrates preparedness to engage in the process. 802 Ibid, [4]. 803 Ibid, [8]. 804 CFATF, TCI: ‘Jurisdiction that was under CFATF-ICRG review and has made significant progress in addressing its AML/CFT deficiencies: Turks and Caicos Islands’. 805 See CFATF (2016) supra 801, para 19, [8] for a full list of legislation enacted in TCI since the 2008 MER. 806 Ibid, [20] and at Report Annex 1, [27]. 144 TCI has an AML Committee established by statute807 chaired by the Attorney General. Its members include the Collector of Customs, FSC Managing Director, Commissioner of Police, FIA Director and DPP. Its functions are provided in the Proceeds of Crime Ordinance and include the development of a national action plan to assist in co- ordination between authorities. It played a foundational role in the NRA. Among other things, it advises on policy development, as well as TCIs participation in international AML initiatives.808 The FSC, is tasked with oversight of the financial sector,809 offshore activity, and AML/CFT. Reporting to the Governor, its statutory functions include administering the Financial Services Ordinance; supervising conduct of financial services business, monitoring effectiveness of the Ordinance in providing for regulation to meet internationally accepted standards; promulgating codes of conduct in financial services; and, promoting continuing development of professional standards.810 It is the supervisory authority of Designated Non- Financial Businesses and Professions (‘DNFBP’)811 and of the non-profit sector.812 Emphasising the importance of inter-departmental collaboration in small jurisdictions, the FSC was instrumental in producing the NRA.813 In its 2016-2017 Annual Report, its Director, Niguel Streete, outlined some of the Commission’s training and supervision initiatives. These included: co-sponsoring a seminar on risk-based supervision with the Caribbean Group of Banking Supervisors from 11 jurisdictions; establishing partnerships with the international insurance sector; and improving the Commission’s strategy for regulating Producer Owned Reinsurance Companies. The Commission also reported that it was giving technical assistance to the government’s beneficial ownership registry, not least by hosting and staffing it.814 The NRA (covering 2014-2017) was published in August 2017 by the AML Committee. It was the first of its kind in TCI and analysed its regulatory and supervisory frameworks. The purpose was to enable TCI to identify AML/CFT vulnerabilities and risks requiring greater resource allocation. It concluded that the risk of ML in the islands is “Medium-High”, and TF “Low”. The NRA noted TCIs archipelagic structure making it 807 Section 115, Proceeds of Crime Ordinance 2007. 808 TCI Government (2017) ‘National Risk Assessment on Money Laundering and Terrorist Financing, [36]. 809 TCI Financial Services Commission Ordinance 2007. 810 For complete remit, see FSC website: ‘Functions’. Mandate further reinforced in Proceeds of Crime Ordinance Cap 3.15, section 161(1), supra 774. 811 TCI NRA (2017) supra 808, [37]. 812 Section 3, Non-Profit Regulations, 2014. 813 In its foreword, the Attorney General paid tribute to the work of the FSC, in particular Mr Paul Coleman, in providing guidance throughout the process. 814 TCI FSC Annual Report 2016/2017, [10-13]. 145 susceptible to drug and cash smuggling via watercraft.815 This has also been identified by others, such as the US Department of State816 whose Narcotics Control Report and Assessment both point to successful counter-narcotics initiatives TCI has engaged with, including counter-narcotics cooperation efforts as part of Operation Bahamas-TCI.817 This puts context to the NRAs conclusion that narcotics and cash smuggling from overseas is not prevalent today, despite formerly being so. With regards to ML, the NRA indicates that financial flows in and out of TCI present ML opportunities. This is partly due to TCIs financial sector and offshore services market, as well as luxury property – a market in which illicit wealth is commonly used.818 Both are recognised as being stages and tools in the laundering process.819 According to FIA data, TCI is particularly prone to capital emanating from North America and that predicate crimes include smuggling, tax evasion, drug trafficking and fraud.820 This point is further supported by aforementioned overseas criminal cases, such as US v Hall [2013] and US v Chapman [2013]. Domestically, TCIs implementation of legislation and enforcement against ML is shown to be productive. For example, the SIPT was appointed to try nine individuals, including former government Ministers, for 24 offences of ML. While the trial is ongoing, the data in the NRA at least shows willingness to hold those charged to account. The NRA considered the level of SARs to be low for TCIs risk profile, given its status as an OFC and proximity to North America.821 The effect of this is that if there is the perception that SARs are low, or inconsistent with the risks known to the jurisdiction, then this exposes TCI to potential ML abuse through financial transactions. Data provided by the AML Committee showed that there were 177 SARs submitted between 2014 and 2017, with the vast majority from the financial sector.822 Of the total SARs received, 36% came from commercial banks.823 TCIs real-estate market continues to be an identified ML risk, doubtless exacerbated by its increasing luxury tourism market.824 Its real-estate sector recovered strongly following the global recession. TCI has seen increasing international arrivals and stop-overs (435,000 815 There is also an issue with illegal immigration due to the ease of boats being undetected. 816 US Department of State (2018) Bureau for International Narcotics and Law Enforcement Affairs, International Narcotics Control Strategy Report, Vol. 1, ‘Drugs and Chemical Control’, [105]. 817 See, TCI NRA (2017) supra 808 [9]; and Ibid, [99]. 818 See, Rameur, C. (2019) ‘Understanding Money Laundering through real estate sectors’, European Parliament Research Briefing, European Parliamentary Research Service PE633.154. 819 Global Witness (2017) supra 58. 820 TCI NRA (2017) supra 808, [9]. 821 Ibid, [11]. 822 Ibid, [34]. 823 In 2016/17, the FSC reported that 79 SARs were filed, see Appendix II. 824 CFATF (2008) supra 671, [15]. 146 in 2016)825 and an increase in visitors from the UK (around 80% of total), Canada, Europe and wider-Caribbean. Property is expensive, with the average apartment being $940,000 and villas averaging $1.37m.826 Illustrating this high-value market, one villa sold for $27.5m in 2016. The NRA also found that risks include the self-employed nature of many agents and relative ease of obtaining an agent’s licence.827 The NRA asserts that the difficulty of achieving AML/CFT compliance is supported by “low levels of suspicious activity reporting to the FIA” with only two disclosures, across 2016 and 2017.828 There is further concern relating to the inexperience of real-estate practitioners and other DNFBP in terms of AML/CFT and an imperative to provide training through the regulated framework. They recommend that entry requirements to operate as agents should be raised, and conclude that this sector’s risk of ML is “Medium-High”. Contextually, it is important to note that TCIs development has been enhanced by construction of hotels and villas in Providenciales and Grace Bay. Consequently, there is significant capital flowing as a result of such activity. During and since the NRA, the FSC and FIA have conducted a series of awareness-raising and training activities involving public and private stakeholders, such as the Bar Council, Real-Estate Association and DNFBPs. The FSC held 12 training events between 2011 and 2015, collaborating with professional associations, as well as audit companies, in many instances receiving hundreds of participants.829 Participation in these sensitization initiatives indicates proactivity on the part of these associations. In terms of legislation, 15 pieces of relevant legislation have been enacted in recent years including the Bribery Ordinance, Trafficking in Persons Ordinance, Prevention of Terrorism Ordinance and the AML/PFT (Prevention of Terrorist Financing) Regulations and Code in 2011.830 Moreover, there has been the establishment of various initiatives and institutions tasked with oversight, compliance and education, and ensuring that the legislation acts as a deterrent through adequate enforcement. While it is evident that progress is being made, there are identified risk-areas, not particularly with TF, but with SARs or lack thereof. TCIs exposure to ML in general, and through its property market, presents challenges. This is concerning when set against projected growth in the construction sector of an unprecedented scale.831 By implication, regulatory controls need to advance to ensure that 825 TCI Tourist Board (2016) supra 624. 826 TCI NRA (2017) supra 808, [110]. 827 Ibid, [113]. 828 Ibid. 829 CFATF (2016) supra 801, [9] and Report Annex 2, [29] 830 Ibid, [12]. 831 Turks and Caicos The Sun (1 June 2018) ‘Huge construction and investment boom’. 147 past impropriety in this sector is not repeated. Importantly for TCIs development, it is about incentivising individuals and organisations to join the government in these undertakings. Initiatives might be met with resistance, particularly when it is visible that international standards are not always consistently applied in larger developed countries. However, TCI has moved from a system of imposing rules on organisations to realising the benefit in working with DNFPBs and engaging in broader discussions realising they know their business best. TCI has demonstrated regional leadership and advocacy with regards to AML compliance. Its wider involvement and engagement with CFATF buttresses this point. In 2015, TCI was unanimously elected CFATF Deputy Chair,832 and Chair for the 2016-2017 term. Set against the work of the National AML Committee and resulting NRA, this evidence demonstrates that TCI is investing both time and resources in these issues and seeking to strengthen underlying appreciation of them. This will doubtless auger well in preparation for the vigorous effectiveness assessments in the upcoming 4th Round MER. The CFATF on-site evaluation took place in September 2018 with the final report due for publication in June 2019. While TCIs AML framework has certainly been enhanced in terms of legislation, membership and engagement with regional monitoring groups – measuring the effectiveness of this internationally-advocated framework is difficult. This is because while there is quite a high level of prosecutions (11), including those ongoing in the SIPT trial, there has only been 1 ML conviction in the territory.833 This low number does not necessarily mean that the AML regime does not work. The criminal justice system in common law jurisdictions is based on the presumption of innocence, adversarial litigation, trial by independent tribunals of fact, and burden of proof which rests with the prosecution to the standard of beyond reasonable doubt. Not everyone prosecuted is convicted, so the fact that TCI has only had 1 conviction, yet quite a high number of prosecutions, does not necessarily diminish the successes it has had in reforming its AML regime. The lack of more convictions may be explained by other factors such as complexity of trials, difficulty in jury selection, or the fact that many of the outstanding prosecutions for ML in TCI are presently ongoing and thus indeterminable. At this early stage in TCIs AML/CFT modern framework, it is suggested that initial success or effectiveness can be judged by addressing deficient legislation – which serves many purposes, such as the deterrent function of law, as well as the fact it has the framework in place to investigate and 832 TCI Attorney General’s Chambers (2016) ‘CFATF XLIV Plenary’, November 2016. 833 CFATF (2016) supra 801, [11]; and US Dept. of State Countries/Jurisdictions of Primary Concern: Turks and Caicos. 148 bring prosecutions for ML. Such circumstances were enough for FATF to deem that the deficiencies in TCIs AML legal framework were addressed adequately.834 However, while it is accepted in a criminological sense that the general presence of a system of criminal rules and laws deters people from engaging in criminality, the extent to which deterrence is effective depends on the likelihood of apprehension and punishment, as well as its severity. Given the early stages of reformed AML and anti-bribery legislation, it is impossible to measure the utility of those rules based on current conviction statistics. However, the fact that prosecutions are high delivers at least the perception that law enforcement’s response thereunder is positive rather than de minimis. In other words, if one engages in ML there are the laws in place, enforcement frameworks being utilised, and prosecutorial willingness to bring charges. 5.5.5. Company Law Reform, Beneficial Ownership and Transparency TCIs government has engaged in statutory reform in the area of company law and beneficial ownership information.835 Particularly with the latter, this is set within increased international standards on transparency. Part IX, section 145 Companies Ordinance 2017 created a register of beneficial owners of companies.836 Prior to this reform, TCIs beneficial ownership framework was less robust with far less reporting requirements for companies. Beneficial owners are defined in the Ordinance,837 similarly to other statutory definitions.838 Section 9(3) states that “a person applying to incorporate the company shall provide the Commission with the prescribed beneficial ownership information in relation to each person who will … be a registrable person in relation to the company”. Under the Ordinance, only the person proposed as the company’s registered agent can make an application for incorporation of a company.839 The legislation requires companies to maintain a register of beneficial ownership, directors, members, charges and notices,840 which must be kept at the offices of the registered agent of the company. The Ordinance requires all TCI companies to have a registered agent at all times.841 It is the agent’s responsibility to submit documents to the Commission. The agent must be a licensed and regulated company manager/agent,842 834 Ibid, [11]. 835 TCI Companies Ordinance 2017. 836 Ibid, Section 156. 837 Ibid, Section 146. 838 For example, section 6, UK Money Laundering Regulations 2007. 839 Section 9(1) TCI Companies Ordinance 2017. 840 Supra 835, Section 132(2). 841 Ibid, Section 43. 842 TCI Company Management (Licensing) Ordinance. 149 and among other things is responsible for filing documents and maintaining information at their offices. There are 37 such registered entities in TCI.843 There is a “reasonable steps” requirement on the company to ascertain and identify beneficial owners.844 Section 149(2) provides that the company is entitled to rely on the written response of a person in relation to this without further inquiry, provided it was made in good faith. This arguably presents risks to enforceability given it places reliance on good faith and accuracy of representations. The agent is also required to update the register of beneficial ownership when the company becomes aware of any changes to beneficial owners and registrable persons.845 As such, there are corresponding responsibilities of the company to keep information up to date,846 but principally the responsibilities adhere to the company’s registered agent. All TCI companies were required to voluntarily register under the Ordinance by November 2018, which returned a response rate of 85%, with 15% (roughly 1000 companies) failing to respond. The effect of this was that they would then be automatically registered and would have to comply with the filing of notices, failing which they would be struck off. Companies (via their agents) are required to deliver a notice to the FSC, no more than 14 days following incorporation, setting out the prescribed beneficial owners’ particulars.847 Moreover, any changes must be notified to the Commission no more than 14 days after such change. Disclosure of information in the register is prohibited, save for certain circumstances under section 159, such as police requests. This framework departs from the old method of placing such information exclusively in the hands of companies. Its functional impact places greater competence with the regulator, and also more stringent requirements on companies and their agents, who are subject to FSC oversight. Contraventions, like failing to provide updated information to the FSC, can result in a $50,000 fine (although, the amount raises questions of proportionality). Despite the international standard on beneficial ownership information being unsettled, the updated legislation complies with FATF R.24 which advocates that such information should be centrally known.848 Buttressing this point, TCI also entered into an EOI Agreement with the UK with respect to sharing beneficial ownership information in April 2016.849 This commitment is 843 TCI Financial Services Commission Website, List of Company Managers and Agents. 844 Ibid, Section 149(1). 845 Ibid, Section 152(2). 846 Ibid, Section 154. 847 Ibid, Section 157. 848 Also, UNCAC emphasises the need to ascertain beneficial ownership information, as per Articles 14 and 52. 849 UK Government (2016) Exchange of Notes between the Government of the United Kingdom and the Government of TCI in respect of the sharing of beneficial ownership information, para 2. 150 acknowledged to be made in the context of internationally-accepted standards, such as the EU’s Fourth ML Directive, FATF R.24, and the G20 High level Principles on Beneficial Ownership Transparency.850 The Exchange Agreement enables mutual cooperation between enforcement authorities investigating ML, TF, tax evasion, corruption, and other economic crime. It provides law enforcement with automatic provision of beneficial ownership information. Their commitment goes further with the Multilateral Convention on Mutual Administrative Assistance in Tax Matters; signing at least the OECD-required number of TIEAs, creating legislation to implement US (and UK) Foreign Account Tax Compliance Act,851 and the automatic OECD CRS.852 TCIs cooperation with the UK in this regard, as well as compliance with the above standards, indicates commitment to international transparency cooperation on beneficial ownership and information exchange.853 Further company law reforms include those under the Companies and Limited Partnerships (Economic Substance) Ordinance, which implement EU standards on economic substance requirements for entities854 effective as at January 2019. This legislation aims to ensure TCIs omission from the EU blacklist of harmful tax jurisdictions, in which it was originally greylisted and removed in March 2019.855 Paradoxically, the above recently-established framework is being eschewed by the UK in favour of public registers, despite this not being the international standard. TCIs regime represents a viable alternative to this, yet is being subject to unilateral change. TCIs efforts in reforming and implementing standards in good faith have clearly been disregarded, something which is surprising given the UK recently acknowledged that despite powers given to law enforcement, the exchange mechanisms were rarely used.856 5.5.6. Civil Recovery Programme The SIPT trial and civil recovery programme evidences a renewed sense of accountability in TCI. It demonstrates action against those who compromised power to the islands’ detriment. It shows the international community that domestic controls are being utilised, rather than the former perception that the lack thereof enabled its system to be abused. It is fair to suggest that those operating within a culture of vague rules, complemented 850 Ibid, para 3; and G20 (2014) High-Level Principles on Beneficial Ownership Transparency, para 4. 851 US Foreign Account Tax Compliance Act 2010. 852 G20 (2014) supra 850, para 4. 853 Ibid. 854 For background, see chapter 4, section 4.6.6. 855 TCI Weekly News (18 March 2019) ‘TCI removed from EU tax haven greylist’. 856 UK FAC (2019) supra 322, [15]. 151 by their popularity and vision for TCI, did not consider they would have to account for their actions. Crown land has been a politicised asset in TCI for years and is the most precious sustainable development resource. Decisions pertaining to its disposal rest with Ministers, which presents evident procedural risks. It is incumbent on those in office to raise awareness about the rarity of Crown land which, in Providenciales, accounts for a quarter of all land. This includes land occupied by government offices, national parks, housing and hotels. It can be sold for commercial or residential development. Sir Robin Auld highlighted that Crown land was viewed as dispensable and not valued correctly. There was a culture which empowered people to engage in ‘land flipping’857 for substantial profits and retuning to a Minister to purchase more. While decisions of the past are still with TCI, it is clear from this research that protecting land is now a major development priority. The Auld Report recommended establishment of a recovery unit858 which, while controversial, has seen the most successful legal proceedings brought to date. In May 2013, the UK government reported that $19.5m and 2500 acres of crown land had been recovered,859 later rising to $23.3m and 3100 acres.860 There have been some 70 cases involving recovery of land, cash and damages. It has been considered one of the largest asset recovery programmes in the world. In May 2013, the recovery team861 emphasised that while cash represents a more pressing immediacy due to domestic economic circumstances, the recovery of improperly-sold land represents the future prosperity of the islands.862 A finite resource, this will have significant long-term impact on TCIs development. Examples of successful cases include judgment for $1.35m in damages against Richardson Arthur863 in respect of land flipping. Arthur acquired crown land for $50,000 and sold it immediately for $1.35m. It was found that a former Minister breached fiduciary duties by directing use of an outdated valuation. Cases like this demonstrate the serious abuses which occurred in the management of TCIs “prime asset”.864 With the civil recovery cases, money is returned to the TCI government. Civil mechanisms can be utilised either in conjunction with criminal procedures, or when they are 857 Where land is improperly sold for an under-market value and sold-on almost immediately for a significant uplift. 858 Auld Report, supra 306, [225]. 859 UK Government (23 May 2013) Governor’s Office Waterloo Grand Turk, Press Release: ‘Civil recovery retrieves $19.5m and 2500 acres with more to come’. 860 UK Government (27 November 2013) Governor’s Office Waterloo Grand Turk, Press Release: ‘Acting Attorney General welcomes further civil recovery win’. 861 Overseen by the Attorney General’s Chambers and a team of London lawyers. 862 Supra 559, remarks of Laurence Harris. 863 Ibid. 864 Ibid. 152 unlikely to yield results.865 There appears a recent trend in enhancing civil recovery regimes, for example the UK’s adoption of UWOs. The SIPT trial is in its fourth year and its duration has been excessive which places increasing importance on civil recovery because of the inherent risks of a lengthy trial. These could arise from no-case submissions based on lacking case management, or other grounds for appeals under the constitutional right to a timely hearing. However, like the French maxim Là où il y a de la terre, il y a la guerre (where there’s land, there’s war), such proceedings are costly, particularly when recovering sizable portions of land. Defendants in civil866 and criminal proceedings867 have made full use of TCIs highest appeals court, the UKPC. The criminal trial’s cost is nearing $100m,868 and civil recovery also requires significant resources. Government expenditure in 2013-2014 for the SIPT was $4.66m, and $6m for civil recovery. One conclusion is that the criminal procedure has yet to return tangible results, whereas the civil procedure has achieved success. Despite its costs, it is inarguable that it represents some value for money. In 2013, the team stated their work represented a 50% return on investment.869 When examining the tangible outcomes of the Auld Report, the civil recovery is fulfilling various objectives in the context recovering development resources. However, it must also be noted that most of the land recovered have been single parcels on Salt Cay, with one parcel being hundreds of acres. This indicates that its success ought to be treated with caution as significant land still remains under action. 5.6. Natural Disasters and Development Concerns Contextualising TCIs will and ability to comply with standards, and the viability of those in its context, requires a discussion of other development concerns. TCI graduated DfIDs aid programme in 2003.870 However, given TCIs financial and constitutional difficulties later that decade, DfID committed to a 5-year financial arrangement through commercial bank-lending.871 DfIDs 2011-2015 Operational Plan also stated that it would provide emergency humanitarian response if needed. However, in 2018, the UK 865 Van de Does de Willebois, E., and Brun, J-P. (2013) ‘Using Civil Remedies in Corruption and Asset Recovery Cases’, Case Western Reserve Journal of International Law, 45: 615-651, [615]. 866 See, Akita Holdings Limited (Appellant) v The Honourable Attorney General of TCI (Respondent) (TCI) [2017] UKPC 7. 867 See, Misick and others [2015] supra 720. 868 UK FAC (2018), supra 340, evidence of TCI Premier Sharlene Cartwright Robinson, Q165. 869 TCI The Sun (28 October 2013) ‘US$13 million spent on Turks and Caicos Islands Special Prosecution and Civil Recovery Payments in Last Financial Year’. 870 DfID (2012) supra 16, [3]. 871 Ibid, [2]. 153 International Development Secretary announced a change in foreign aid rules had been agreed with the OECD and funding would be provided, particularly in cases of future natural disasters. TCIs economy has seen periods of substantial economic growth, such as real GDP growth of 11.4% in 2005, 17.9% in 2006 and 8.3% in 2008.872 However, it also suffered a significant crash in 2009 where GDP decreased by 19.6%, partly due to the global financial crisis, but doubtless exacerbated by the constitutional crisis following the Auld Report. Today, while relatively prosperous,873 TCI is susceptible to natural disasters874 and is under constant emergency risk.875 In 2017, Hurricanes Irma and Maria highlighted the fragility of TCIs infrastructure and the inadequacy of response and strategic contingency. This represents a risk of seismic proportion to small populations who rely predominantly on tourism for economic stability, complemented by financial services. The hurricanes caused widespread damage, closing hotels, displacing residents, injuring people and disrupting public services including schools, hospitals and utilities.876 The UK committed £32m in relief,877 and in the JMC in November 2017, the Prime Minister announced there would be £70m funds and £300m loan guarantees.878 Relief aid included military personnel, vessels, food, shelter kits, solar lanterns and water. However, there was prominent criticism about the response, which noted bad planning and that the sum was split between territories. The Shadow Foreign Secretary noted that the response was “too little and too late”.879 The Chairs of the Foreign Affairs and International Development committees stated: “We are concerned that many in the UK’s overseas territories … are still in grave need … our response still requires improvement and the arrival of HMS Ocean in two weeks’ time will be later than any of us would wish”.880 Most criticism was not at the type of assistance, but that the response should have been contingent on the predictability of the hurricanes.881 872 TCI Statistics Office (2018) National Economic Statistics. 873 Jury, M.R. (2013) ‘TCI Climate and Its Impacts’, Earth Interactions, Vol 17, Paper 18: 1-20; UN ECLAC, Disaster and Damage Assessment, TCI, October-December 2008. 874 Ibid, [10]. 875 TCI Tourism (5 September 2017) ‘Visitors Advisory on Hurricane Irma’. This memo contextualises the sense of emergency in TCI. 876 TCI Government (9 Feb 2018) ‘Update on Restoration of Government Services Post Hurricanes Irma and Maria’, Press Release. 877 UK Government (9 September 2017), ‘PM statement on Hurricane Irma’, Press Release. 878 UK FAC (27 February 2018) ‘The UK’s response to hurricanes in its overseas territories’, [9]. 879 HC Deb (12 Sept 17) Vol. 628, Col. 641. 880 The Independent (8 September 2017) ‘Irma: UK Government defends response to hurricane after Corbyn says it ‘should have acted much faster’’. 881 Evening Standard (8 September 2017), “Government’s response to Hurricane Irma was not fast enough’, Jeremy Corbyn Says’; and The Independent (8 September 2017) supra 880. 154 5.7. Characterising the UK’s Relationship with TCI One of the UK’s principal OTs policy objectives is to ensure their good governance.882 As has been re-emphasised over time, the relationship is one of partnership.883 There have been many theories of partnership,884 and an increasing emphasis on public-private sector partnerships to disrupt economic crime.885 It could be argued that some of the above instances confirm that this partnership only manifests retroactively. Following the 1986 crisis, Lennon (1986) suggested that Whitehall had followed a policy of “benign neglect” towards TCIs inhabitants.886 There is some support for independence in TCI as its goal,887 and there has also been speculation of TCI becoming part of Canada. The UK Government’s policy for the OTs could not be worded more intelligibly: “a unique constitutional relationship, built on a shared history, common values and a spirit of collaboration and partnership”.888 The direct rule periods were arguably retroactive investigation rather than preventive action, which suggests this policy needs rethinking. However, the UK had no other choice and, as an FCO Minister stated: “these are some of the worst allegations that I have ever seen about sitting politicians”.889 Direct rule was perceived by many as an infringement on TCIs right of self-rule and an erosion of democracy and institutions.890 Absolute authority sat with the Governor and Interim Administration. Elections were prohibited, and there was tension about taxation without representation. In a UN regional seminar, Conrad Howell stated “the handling of 882 FCO (1999) supra 299, [12]. 883 See: FCO (2012) supra 297; and UK Government (2015) supra 298. 884 For background on partnerships see: Carnwell, R., and Carson, A. (2004) ‘The concepts of partnerships and collaboration’, [3-21] in Carnwell, R., and Buchanan, J. (eds) 2004 Effective Practice in Health, Social Care and Criminal Justice (2nd ed) Open University Press; Binnendijk, H. (2016) ‘The Partnership Setting’, in Friends, Foes, and Future Directions: US Partnerships in a Turbulent World: Strategic Rethink, Rand Corporation, 3-14, [3]; and, Williams, B. (2000) ‘Youth Offending Team and Partnerships’, British Society of Criminology: Selected Proceedings, Vol. 3. 885 For examples and importance, see Keatinge, T. (2017) ‘Public-Private Partnerships and Financial Crime: Advancing an Inclusive Model’, RUSI Commentary, 1 December 2017; UNODC (2011) ‘Public- private sector partnership is crucial in tackling organised crime’; and Avina, J. (2011) ‘Public-private partnerships in the fight against crime: An emerging frontier in corporate social responsibility”, Journal of Financial Crime, 18(3): 282-291. 886 Financial Times (1 November 1986) ‘Corruption in TCI: A Little Local Difficulty’. 887 Montserrat Reporter (26 April 2013) ‘Turks and Caicos still looking towards independence, says Premier Rufus Ewing’. I am also grateful to Hon. Akierra Missick MP (former TCI Deputy Premier) for this insight. 888 UK Government (2017) Overseas Territories Joint Ministerial Council 2017 Communiqué, para 3. 889 HC Deb (16 March 2009) ‘Written Ministerial Statement – TCI: Governance’, Col 39-40WS. 890 UN Third International Decade for the Eradication of Colonialism (2011), Caribbean regional seminar on the implementation of the Third International Decade for the Eradication of Colonialism: goals and expected accomplishments, Kingstown, St Vincent and the Grenadines, 31 May – 2 June 2011, Statement by TCI All-Party Commission - Of the Constitution and Electoral Reform, remarks by Rev. Dr. Conrad Howell. 155 TCI for the last two years … resoundingly makes the case for the Eradication of Colonialism”.891 Similar resistance was seen in 1986 where the Chief Minister stated: “The imposition of direct rule … shows the British imperialistic and colonialist attitude which one would have thought was abolished years ago”.892 In 2006, the Premier called on islanders to “fight against the occupation of the foreign invaders”.893 Generally, in both cases, there has been the view that action was too late and generally resistance was rife toward interventionism,894 despite its necessity. This raises the issue as to whether the UK government has been a good governance partner. While intervention led to positive actions such as law reform and restoration of self- rule after winning the UK’s confidence, the fact remains that TCI has lived through direct rule twice in 25 years: unprecedented for OTs. Therefore, it could be argued that the UK government had repudiated its own policy and allowed national emergencies to precipitate.895 When a pattern emerges over a relatively short time, the approach needs re-evaluating. As Clegg notes, successive governments since the 1980s have attempted meaningful improvements to the UK-OTs’ relationships.896 Reviews were undertaken in 1978, 1992 and 1999, motivated from existing problems, such as the 1995 Soufrière Hills Volcano eruption in Montserrat. While that response was generally deemed successful, there were criticisms.897 DfIDs evaluation of the Montserrat crisis noted that there was no contingency planning on how an emergency would be managed in the OTs, particularly “in circumstances that raised difficult issues of governance and risk management”. It detailed that ad hoc arrangements were implemented “reactively as the eruption progressed”.898 While different to TCIs direct rule, this example points to the UK’s strategy in monitoring and assisting OTs, as similar criticisms followed the 2017 hurricanes. Prior to the Auld Commission’s call for immediate action, TCIs problems had not been immobilised. While crises such as hurricanes often occur immediately, economic or political ones rarely emanate spontaneously. The 1930s Great Depression was not solely attributable to the market crash, but a changing economic landscape including the Federal Reserve changing its credit policy in 1928 making it more difficult to borrow, combined with 891 Ibid. 892 Financial Times (1 November 1986) supra 886. 893 Caribbean Insight (2009), supra 669. 894 HC Library (2012) supra 668, [6]. 895 Auld Report, supra 306, [16]. 896 See, Clegg, P. (2013) ‘The United Kingdom and its Caribbean Overseas Territories: Present Relations and Future Prospects’, Caribbean Journal of International Relations & Diplomacy, 1(2): 53-64. 897 DfID (1999) ‘An Evaluation of HMG’s Response to the Montserrat Volcanic Emergency, Vol. 1, Ev. 635, [1]. 898 Ibid, [2]. 156 bank borrowing for speculation becoming more expensive.899 Similarly, in the collapse of Lehman Brothers, the indicators were apparent yet management were not proactive in ascribing earlier risk-management provisions.900 Regulators and credit agencies were also culpable, giving top ratings to low quality sub-prime securities, many of which later downgraded or defaulted.901 The assertion here is that causes of crises are often incremental, thereby making crises avoidable if risks are intelligible. By the 1999 White Paper, a new approach towards the OTs appeared to be conceptualised. Baroness Symons suggested that the relationship was simply not working.902 The Paper emphasised partnership based on mutual obligations and responsibilities.903 The paramountcy of good governance was further emphasised in the FCO 2003 strategy report.904 Clegg posits a key question: has the spirit of the 1999 White Paper amounted to nothing? With the few examples discussed, it appears that in many aspects the UK’s actions have not been pre-emptive enough to meet the spirit of this policy. The Auld Report noted that there were “chronic ills collectively amounting to a national emergency”.905 A “chronic condition” is of slow progression,906 and Sir Robin’s assessment clearly conjects that TCIs problems were rather more enduring than an overnight calamity. TCI generally responded well to the imposed requirements. Therefore, identifying problems and implementing measures prior to a national emergency being declared, might have proven effective. However, when examining the two instances of direct rule holistically set against the islands’ history, it is worrying that repetitive behaviour has been seen decade-to-decade,907 leading to the conclusion that recidivism risks present ongoing challenges. The most recent exploration into the TCI-UK relationship came in 2018/2019 in the FAC Report. While aid, funding, concerns about Brexit, and education were raised in oral evidence,908 one major concern was the constitutional tensions arising from SAMLA. As was 899 Crafts, N., and Fearon, P. (2010) ‘Lessons from the 1930s Great Depression’, Oxford Review of Economic Policy, 26(3): 258-317, [290-291]. 900 Mwauto, J.K.M. (2014) ‘The Failure of Lehman Brothers: Causes, Preventive Measures and Recommendations’, Research Journal of Finance and Accounting, 5(4): 85-91, [89]; and Sorkin, A. R. (2009) Too Big to Fail: Inside the Battle to Save Wall Street, London: Allan Lane. 901 Hill, C.A. (2010) ‘Why Did Rating Agencies Do Such a Bad Job Rating Subprime Securities?’, University of Pittsburgh Law Review, 71: 585-608, [585]. 902 International Development Committee (1997) Montserrat, First Report, House of Commons, 18 November 1997, Baroness Symons, [162]. 903 FCO (1999) supra 299, [8]. 904 FCO (2003) ‘UK International Priorities: A Strategy for the FCO’, Cm 6052, [42-3]. 905 Auld Report, supra 306, [17; 218]. 906 World Health Organisation (2016) ‘Noncommunicable Diseases’. 907 Blom-Cooper Report, supra 655, [98-99]. 908 UK FAC (2018) supra 340, remarks of TCI Premier, Q165. 157 suggested in chapter 7, its non-consultative nature demonstrates lack of partnership and collaboration over arguably devolved issues. 5.8. Summary TCI has faced fundamental development concerns across many dimensions which have undermined the viability of implementing certain international standards. Persistent corruption allegations have stinted the development of important aspects like the rule of law, and undermined institutions to the point of crisis. Over 30 years, unaccountability thwarted TCIs development and UK intervention has been necessary to combat it. In the past 10 years there has been significant reforms across legislation, regulation and institutions. However, tension continues today in the context of SAMLA and development aid. Systemic corruption findings not only affected its development, in that it lost its sovereignty, millions in concessions and thousands of acres of crown land, but also inhibited TCIs regulatory and compliance developments. Even to this day, capacity issues affect TCI, demonstrated by the protracted disposal of corruption and ML cases. While not significantly named in recent offshore data- breaches, it is concerning that in recent years TCI has been connected to serious overseas cases of ML, fraud and conspiracy to commit bribery. However, TCI must also be credited as it has shown significant progress since 2012. It has implemented various international standards such as EOI, TIEAs and central registers of beneficial ownership, which have been found to be viable in their context. Despite the UK’s desire for public registers, TCIs central system appears a viable alternative in the domestic context given it is not a prevalent incorporation jurisdiction and that exchange mechanisms are already in place. It has reformed many important laws which the international community have deemed necessary to tackle suspect wealth. This shows their ability and willingness to comply with international standards. Such laws, combined with new regulatory initiatives, act to strengthen institutions and standards for domestic corruption prevention and control – examples being the register of MPs interests and anti-bribery legislation. It has enhanced its AML regime legislatively in terms of POCA, reformed its company laws and information reporting requirements, and adopted economic substance legislation to avoid EU blacklisting attempts. Its legal reforms have empowered its statutory bodies, such as the AML Committee and Integrity Commission, under which public integrity education is now a development strategy. The NRA and engagement with CFATF also demonstrate willingness to cooperate in internationally-accepted risk-based AML processes. Compared to affairs in the 1980s and the 2000s, evidence in this chapter demonstrates TCI has since made progress. 158 Finally, as for the one-size-fits-all question, the research on TCI clearly evidences a unique territory compared to Bermuda. Given its unique development concerns, the question of imposing substantive changes to its model (such as through public registers) in the middle of significant reform is questionable. However, considering evidence from criminal cases in the US, the converse argument is that TCI entities are still being used to subvert onshore domestic laws, thereby handling suspect wealth, which may provide some justification for the imposition of further standards. 159 CHAPTER 6 ANGUILLA Summary Anguilla is the least developed of the three territories with regards to its response to suspect wealth and the meeting of international standards. Accompanying this are fundamental development concerns, such as connectivity, capacity, need for legal reform, and lack of economic diversification. Anguilla-entities were significantly mentioned in the Panama papers, and its OFC services have been implicated in cases and reports of serious misconduct overseas and receiving suspect wealth. With reference to the research questions, this chapter demonstrates that Anguilla has shown some willingness to adopt and adhere to international standards. Its ability to implement these has been affected by capacity issues. Nonetheless, its AML regime has been successfully reviewed and it has recently reformed some important legislation, which indicates progress in some areas. On the other hand, proactivity is lacking with regards institutional development, legal and constitutional reform, which impacts its ability to implement certain standards. 6.1. Anguilla: An Overview Anguilla is a parliamentary dependency under constitutional monarchy located in the Eastern Caribbean Sea. A population of 14,764,909 it is located 20km north of Saint Martin and 96km west of St Kitts. As a gateway to the Panama canal, it sits in a shipping super- highway.910 Its main economic sources are tourism, financial/business services, agriculture and fishing.911 Anguilla has been a British territory for 368 years. In the 1830s, Anguilla unionised with St Kitts and Nevis, forming St Kitts-Nevis-Anguilla, largely for administrative purposes on Britain’s recommendation. In the 1950s, Anguilla became part of the West Indies Federation, and statehood after the Federation collapsed in the 1960s. While the 1960s and 1970s saw increasing independence across the Caribbean, such as Barbados (1966), the Bahamas (1973) and St Vincent (1979), Anguilla resisted St Kitts and the UK Government 909 See Appendix II. 910 Anguilla Government (2017) supra 15, [14]. 911 Other than tourism and financial intermediation, other significant economic contributors in 2016 include construction (6.73% of GDP), real estate (13.96% of GDP), transportation, storage and communications (10.81% of GDP) and fishing (2.72% of GDP), see, ECCB (2018) ‘Anguilla GDP (Annual) 2016’. 160 to remain British. The Anguillian Revolution (1967-1969) replaced the St Kitts administered colony with direct British colonialism.912 Anguilla became a separate Dependent Territory of the UK in 1980 and has remained an OT. Anguilla is internally self-governing. Its Assembly has 7 elected members, 2 ex officio and 2 appointed members. The main political parties are the Anguilla United Front and the Anguilla United Movement. The Queen appoints a Governor who appoints a Chief Minister. The present Governor is H.E. Tim Foy and Chief Minister is Hon. Victor Banks. Anguilla’s legal system is based on English common law. It includes domestic statutes such as the Anguilla Constitution Order 1982 – a widely-regarded outdated instrument.913 Anguilla is part of the Eastern Caribbean Court. Its High Court hears criminal and civil matters including appeals. Anguilla’s final court is the UKPC. Former Chief Minister, and ‘Father of the Nation’, Ronald Webster, famously distrusted the British,914 despite being the instigator of the Revolution.915 Recently, the Opposition Leader, Hon. Pam Webster, noted that the present government displays good relations with Britain, yet they often “say one thing to the electorate and another thing to the British”.916 The Governor occupies a position of controversy, because more power rests with the Anguillian Governor than in many other OTs.917 While not a prevalent issue, independence discussions recently surfaced due to political differences between the Chief Minister and Governor.918 Exemplifying further constitutional tension, some consider the fallout from hurricane Irma and the beneficial ownership question mirrors past tensions.919 Successive governments have experienced difficulty in engaging with the UK government and the fact remains that effective representation is often difficult to reconcile with decisions taken by the UK at international level affecting Anguilla, section 51 SAMLA being an example. Despite such instances, Anguilla’s Government regularly emphasises their value of 912 Petty, C. L. and Hodge, N. (1987) Anguilla’s Battle for Freedom 1967, Petnat Publishing Co., [6]. 913 See: Anguilla Government (2017) supra 15, [3]; and, The Anguillian (26 July 2013) ‘Another Case for Constitutional Reform – by Hon. Haydn Hughes’. 914 The Anguillian (26 March 2018) ‘Pam Webster Update 23 March 2018 – The British Government’s Response to Hurricane Irma – what does it mean to those who crave Anguilla’s independence?’. 915 New York Times (22 January 2017) ‘Ronald Webster, Leader Who Plotted Anguilla Revolution, Dies at 90’. 916 Supra 914. 917 There have been many protests against the Governor in recent years. For example, in 2011: see: United Anguilla for Transparency (10 November 2011) ‘Another Protest Against British Governor’; and again in 2011, see: Caribbean 360, (14 December 2011), ‘Anguilla chief minister leads protest against governor’. 918 For example, in 2011 the Governor refused to sign-off on the Chief Minister’s budget, following which there were some calls in Anguilla for a Scottish-style independence referendum. 919 Supra 914. 161 the UK relationship. From the literature and informal discussions with Anguillians, there appears a genuine sense of pride at Anguilla’s fight to remain British.920 Anguilla’s GDP per capita is $21,780. Thus, it is too wealthy to receive UK aid.921 Tourism is Anguilla’s main economic source,922 yet it cannot accommodate mass tourism due to developmental shortcomings, such as an airport of inadequate size. Focusing as a luxury tourism destination,923 Anguilla receives 80,000 visitors annually. Its environment is largely protected by extensive private and indigenous ownership. In September 2017, Irma devastated Anguilla and its people. Its tourism industry, upon which it significantly relies, faced extreme adversity. Visitor arrivals decreased from 18,114 in January 2017 to 4,984 in January 2018,924 representing the lowest for January since 1993. Following Irma, GDP fell by 2.7%.925 Like Bermuda and TCI, Anguilla has an indirect taxation system. The IMF (2012) noted that Anguilla’s tax revenue is “disproportionately concentrated on a few volatile and transitory revenue sources”.926 Its lack of economic diversification is challenging, particularly when tourism can be unpredictable with the constant natural disaster risks. Like other OTs, it is commonly labelled as a zero-tax jurisdiction.927 In 2014, Anguilla achieved a surplus of EC$4.1m.928 It collected EC$185.3m in revenue, with 84% collected from indirect tax and 16% being non-tax revenue. Government revenue increased by EC$10.8m from 2013- 2014.929 However, as well as the generic criticisms of indirect tax systems, the IMF (2012) posited that Anguilla’s system is overly complex and an accumulation of ad-hoc measures. They suggested that the collection exercise for import duties was riddled with inconsistencies and approximately 40% of import duty revenue was being lost due to concessions and exemptions.930 Anguilla’s indirect taxation model has been a notable factor in recent blacklisting efforts, such as the Netherlands whose criteria included if the jurisdiction collects 920 For example, see Anguilla Government (2018) ‘Anguilla & Brexit: The Solution’, [3]. See also, Appendix II. In terms of total contribution to GDP, tourism accounted for 21.2% in 2016 and contributed to 20.7% of employment in travel and tourism. See: World Travel and Tourism Council (2017) ‘Travel & Tourism Economic Impact 2017: Anguilla’, [7]. 921 DfID (1 November 2018) supra 323. 922 Supra 914. 923 Anguilla Government (2018) Supra 920, [16]. 924 Anguilla Government, Statistics Department, Tourism Statistics Summary – January 2018. 925 Oxford Economics (2017) ‘Country Economic Forecast: Anguilla, November 2017’, [1]. 926 IMF (2012), ‘United Kingdom-Anguilla-British Overseas Territory: Staff Report for the 2011 Article IV Consultation’, [13]. 927 Deloitte (2018) ‘International Tax: Anguilla Highlights’, [1]. 928 Anguilla Government (2014) ‘Annual Statement of Financial Statements for the Financial Year 2014’, [7]. 929 Ibid. 930 IMF (2012) supra 926, [13]. 162 no corporate tax.931 Interestingly, and given fiscal sovereignty, the recent FAC Inquiry did not once mention the fiscal circumstances of the territories. 6.2. Anguilla’s Development as an OFC Anguilla entered the offshore financial services market shortly after the enactment of its Companies Ordinance in 1994. At this time, the UK Parliament noted that the Government provides “considerable assistance towards developing the sector’s regulatory framework and expertise”.932 Prior to the early 1990s, only international banks operated there, with Anguilla’s first domestic bank opening in 1994. Since then, Anguilla’s financial sector has grown, as has its offshore market. It is significant relative to its size, yet small compared to Bermuda or Cayman. Anguilla is the fifth largest captive insurance market in the world. While accounting for less than 0.1% of global offshore business, the IMF (2012) noted Anguilla’s intention to expand its offshore service offerings as a means of economic diversification.933 Financial services accounted for 9.13% of GDP in 2016.934 Domestic banking is regulated by the Eastern Caribbean Central Bank (‘ECCB’) and its OFC activity, including offshore banking, is regulated by the FSC. Its offerings are diverse, including IBCs, corporate and trust services, company management, captive insurance, foundations and offshore banking. In terms of the business infrastructure supporting its financial sector, there are some 40 law firms, but no major accounting firms have offices in Anguilla. Drawing upon data on Anguilla’s financial and offshore activities, its sector comprises the following services: 931 Netherlands Government (28 December 2018) Press Release: ‘Netherlands publishes own list of low- tax jurisdictions in fight against tax avoidance’. 932 HC Deb (4 March 1994) Vol. 238, cc25-8W, Lennox-Boyd MP. 933 IMF (2012) supra 926, [6]. 934 See Appendix II. 163 Table 4: Data on Anguilla’s Financial Sector Source: TJN FSI (Anguilla); Know Your Country Anguilla Risk and Compliance Report, January 2017 Anguilla’s financial centre has received adverse international attention. This includes being mentioned in data-breaches, being implicated in international financial crime cases, or reports about its perceived lack of transparency. Notwithstanding the problems discussed in this thesis about blacklisting and greylisting, Anguilla avoided being placed on the 2018 EU blacklist, yet it was placed on its greylist. It was not included in the list of countries which were subsequently added to the blacklist in March 2019. However, it was added to the Netherlands blacklist. The effects of one EU member unilaterally blacklisting third countries raises questions of proportionality, particularly when it stands in contrast to the EU’s assessment of Anguilla as a greylisted country. In circumstances which are not clearly defined, it is difficult to determine whether reputationally it is more serious that Anguilla is greylisted by the EU, or blacklisted by the Netherlands. 6.3. Anguilla’s role in International Economic Crime Unlike Bermuda and TCI, Anguilla was implicated in both the Panama and Paradise papers – significantly moreso in the former. While its government avers that the territory is Service/Product Quantity Domestic Banks 2 Offshore Banks 5 Captive Insurance Companies 275 Money Services Businesses 2 Limited Liability Companies 28,525 Trust and Company Service Providers 65 Investment Funds/Collective Investment Schemes 38 Foundations 40 Partnerships (Limited) 40 164 “relatively unaffected by corruption”,935 this section considers evidence and information from cases and reports which demonstrates that Anguillian offshore services, including companies and bank accounts, have been utilised for foreign misconduct, or to dispose of criminal proceeds. Setting the tone by drawing upon data from the Panama and Paradise papers, successive data-breaches are important sources of information as they have been specifically cited and used in policy and law-making, notably in debates about SAMLA and the Criminal Finances Act. However, there are significant evidential difficulties with the data-breaches and while there have been some cases, many enforcement bodies, including governments, have faced evidential and ethical problems in viewing the information. Anguilla was heavily implicated in the Panama papers. The table below shows data from the ICIJs “Panama papers data-base” on Anguilla-registered entities named in the Panama papers. Table 5: Data from Panama papers on Anguilla-registered entities Company Type Anguilla (Registered) Active 1868 Bad debt account 3 Changed agent 27 Defaulted 1054 Discontinued 13 Dissolved 44 In transition 23 Inactivated 8 Relocated in new jurisdiction 2 Resigned as agent 6 Shelf company 200 Shelf company not possible to sell 4 Trash company 1 Grand Total 3253 Source: ICIJ Database – Panama Papers The table shows that 3253 Anguillian-incorporated companies were named in the Panama papers. Of these, the data shows that a significant portion of these were not active at the time 935 Anguillian Government London Office (2017) supra 15, [20]. 165 of publication, leaving 1868 active. In some cases, the companies were struck-off, dissolved, in liquidation, re-located in another jurisdiction, discontinued or shelf companies. For active or inactive entities, other than names and registered addresses, there is no additional data provided by the ICIJ to indicate what the company’s purpose was, other than the fact it is, or was, incorporated in Anguilla. In the case of the Paradise papers, Anguillian entities were mentioned sparingly. Only one Anguilla-registered company was named. While being mentioned in this data-breach is adverse, given the negative attention attributed to jurisdictions named, data shows that the named entity’s status at the time of the publication was “closed”.936 The implication of Anguilla in the Panama papers is, of course, not de minimis. Given that there are approximately 28,000 limited companies registered in Anguilla, publication of 1868 active entities is a significant number. However, what is perhaps more concerning is the purported role of MOSSFON, the then fourth largest offshore law firm in the world. As evidence presented in chapter 2 demonstrated, MOSSFON was essentially a wholesale provider of company incorporation. Given MOSSFON was the target of the information published by the Panama papers, and that it since closed due to reverberations from the leaks, this particular link to Anguilla is worth considering. There may be grounds for drawing adverse inferences with regards to MOSSFON and its use of Anguilla as a jurisdiction of choice in which to incorporate entities. This is particularly concerning when there are serious allegations against MOSSFON for professionally facilitating criminality,937 and given that it was reported that MOSSFON had not taken steps to ascertain the ultimate identities and owners of a significant portion of its clients’ companies registered in Panama and BVI, for example.938 Such circumstances gives increased credence to the fact that Anguilla needs, at least, a central register of beneficial ownership of companies, something it has recently committed to implementing. However, given Anguilla is in the offshore services market, it is unsurprising that it was named in the Panama papers. The evidence that Anguilla is home to thousands of companies is, in and of itself, is nothing revealing. As the ICIJ acknowledges, simply naming entities does not infer criminality. Given that MOSSFON did not undertake DD in respect of many its clients, it is concerning that this may have occurred with respect to 936 ICIJ Offshore Leaks Database, ‘Paradise papers’. 937 For example, BBC News (4 April 2016) ‘Panama Papers: Mossack Fonseca ‘helped firms subject to sanctions’; BBC News (4 April 2016) ‘Panama Papers: Mossack Fonseca link to Brink’s Mat robbery’; and US Department of Justice (4th December 2018) Press Release: ‘Four defendants charged in Panama papers Investigation for their roles in Panamanian-based global law firm’s decades-long scheme to defraud the United States’. 938 BBC News (20 June 2018), ‘Panama papers: Mossack Fonseca was unable to identify company owners’. 166 those Anguilla-registered entities it either incorporated or managed. However, this should only be treated as an inference until otherwise proven. Illustratively, the memoirs of lawyer-turned-money launderer, Kenneth Rijock recalls the ease of transporting and depositing millions of illicit drug-trafficking proceeds into Anguilla from the US in the 1990s. He suggested that an environment of corruptibility and assistance of professionals facilitated his operations.939 While such cases are not uncommon in the region,940 and notwithstanding Rijock’s participation in financial crime conferences941 and testimony to US Congress,942 Rijock’s allegations about Anguilla are contained in a popular book and there is limited information on his criminal proceedings, in which such information relating to Anguilla would be tested. In 2009, Global Witness published a report heavily implicating Anguilla over flight capital from the Republic of Congo.943 In the report, Anguilla’s financial services and regulators were accused of enabling Congolese officials to funnel public oil revenues through offshore entities and shell companies.944 It charges Anguilla with peddling secrecy and for not publishing details of company ownership.945 The report claims the Congolese President’s son, Denis Christel Sassou Nguesso, who was also head of a public sales agency for Congolese oil, paid credit card bills using offshore accounts with money relating to Congo’s oil sales.946 It was alleged that offshore structures allowed Nguesso to spend sizable funds from oil revenues on luxury goods, including putting shares in trust to conceal ownership and use of Anguilla- incorporated companies). His spending habits, contrasted with the majority of Congo’s citizens living daily on less than a dollar, are discussed in Sharman (2017).947 Global Witness contacted Anguilla’s FSC for information as to their knowledge that Anguillian companies appeared to be facilitating this. They concluded that the PEP provision of the modern AML/CFT regulations are ineffectual if initial DD “fails at the first hurdle to identify that the customer is indeed a PEP … Banks should not be able to rely on intermediaries to do their due diligence for them”.948 Global Witness takes credit for alerting the regulator to these allegations. However, a year passed before the company was struck off and they criticise the 939 Rijock, K. (2013) The Laundry Man, New York: Viking, Penguin Books. 940 See above examples in chapter 5 on the conviction of former Chief Minister of TCI, Norman Saunders, and allegations against Bahamian Prime Minister Lynden Pindling. 941 21st Cambridge International Symposium on Economic Crime, 2005. 942 Testimony of Kenneth Rijock prepared for delivery on May 15 2000, before the US Congressional Subcommittee on Financial Institutions and Consumer Credit, in support of HR 240, the Bulk Cash Smuggling Act 1999. 943 Global Witness (2009) supra 87. 944 Ibid, [7]. 945 Ibid, [63]. 946 Ibid, [50]. 947 Sharman (2017) supra 32, [16]. 948 Global Witness (2009) supra 87, [66]. 167 regulator’s protracted response,949 and that Anguillian companies continued to provide services for Nguesso, despite UK High Court proceedings stating the he and his company were “unsavoury and corrupt”.950 While there has not been any criminal proceedings emanating in relation to the Anguillian-Nguesso connection, the allegations by Global Witness raise questions about the extent to which Anguillian companies and services may have facilitated misconduct of a PEP, and the extent to which its regulators may have been unaware, or wilfully blind, to this possibility. The Nguesso family still rule Congo, but some members have recently been implicated in criminality in France951 and Switzerland.952 However, the extent to which Anguilla is implicated seems to be confined to Global Witness’s allegations in 2009. While this report is a decade old, and it was 2007 when Global Witness first made contact with the FSC about the allegations, TIs 2018 report The Cost of Secrecy republishes the allegations about Nguesso and Anguilla. TI often collaborates with Global Witness, such as joint evidence submitted to FAC Inquiry. However, the fact that these allegations are used to imply that Anguilla is still secretive, is problematic. Notwithstanding the severity of the allegations, it does not take into account changes to Anguilla’s response to suspect wealth since then. There have also been several high-profile criminal cases internationally which have implicated Anguillian entities or accounts being used to facilitate criminality in other jurisdictions, principally through ML. In those cases resulting in convictions, the entities or accounts would be ‘issues of fact’ and therefore the cases represent useful evidence implicating Anguillian vehicles. They might serve as better evidence than the Panama papers, given its data omits important context. However, it should be noted that while these cases are serious, searches of publicly-reported criminal cases naming Anguilla do not return many results. Moreover, many reported cases from countries like the UK and US go back some years, which also indicates a low level of recent reported cases. Therefore, the below evidence does not suggest an endemic problem, rather it illustrates that Anguilla’s OFC has been connected to criminality elsewhere. Although, this can also be said for any jurisdiction named in financial crime cases with a cross-border element. 949 Ibid, [65]. 950 Ibid. 951 France 24, (25 June 2017) ‘Congo president’s daughter charged with corruption in France’. 952 Reuters (26 September 2018) ‘Ex-Guvnor employee says firm bribed Congo Republic president, others: document’. 168 In the UK case of R v McInerney [2009],953 a private prosecution was brought against a banker who had acted for fraudulent traders operating boiler rooms954 defrauding 1700 investors of £27.5m. McInerney was enlisted to distance the perpetrators from its proceeds and, in doing so, opened accounts for three companies in order to receive the illicit wealth. McInerney arranged transfers to a series of world-wide offshore accounts operated by the defendants, which had been established after companies were registered in jurisdictions including Anguilla. McInerney was imprisoned for 4.5 years. This case demonstrates the role a financial services professional played in laundering millions with the use of offshore- registered companies and accounts. Similarly, in the well-documented case of Marc Dreier, the American lawyer convicted for operating a ponzi-scheme, recovered assets under receivership included proceeds of his fraud linked to Anguilla. The report showed an account with $11.5m therein which were liquid remnants of the fraud. This account was maintained by a company established by Dreier and others to purchase planned residential properties in Anguilla. Anguilla was also mentioned as a destination where Dreier utilised ill-gotten gains through purchasing luxury property, as well as transferring the proceeds of his fraud into personal accounts which were purportedly used for his Anguillian properties.955 Anguilla was implicated in the Australian criminal case involving the collapse of Trio Capital, the largest fraud in the history of the Australian funds management industry.956 One of the investment schemes proven to be a fraudulent investment vehicle957 was found to have extensively utilised tax havens including Anguilla to perpetrate and layer the fraud. Supreme Court Justice Palmer vocally criticised tax havens, stating: “If one wants to conduct financial operations as far away as possible from the scrutiny of tax authorities, investment regulatory authorities and investors themselves … if one wants to conduct financial operations dishonesty or illegally – then it is to those jurisdictions that one goes … to operate fraudulent schemes and to move money around the world in secrecy”.958 953 R v Michael McInerney [2009] EWCA Crime 1941. 954 A ‘boiler room’ is a high-pressure selling environment whereby individuals apply unduly-pressurised selling techniques, usually via telephone, to persuade unsuspecting investors to engage in speculative, or even fraudulent, trading. Such practices can be deemed illegal or, at least, contrary to securities trading ethics. 955 US v Marc Dreier [2009] US District Court, Southern District of New York, S1 09 Cr. 085 (JSR), Government’s Sentencing Memorandum, [7]. 956 Kumar, L. (2013) ‘Hedge fund regulation in Australia: mitigating fraud risk in an environment of mandated disclosure’, PhD Thesis, University of Wollongong, [299]. 957 Parliament of Australia, Joint Committee on Corporations and Financial Services (2012) ‘Inquiry into the Collapse of Trio Capital’, [16]. 958 Trio Capital Limited (Admin App) v ACT Superannuation Management Pty Ltd & Others [2010] NSWSC 286, per Palmer J, [22]. 169 Anguilla was also implicated in the 2010 Flash Crash scandal.959 In US v Navinder Singh Sarao [2016], a UK trader pleaded guilty to wire fraud and spoofing. His actions were blamed by the US Commodity Futures Trading Commission as exacerbating the market crash. According to court documents, at the time of the crash, Sarao took “significant steps to protect his assets … [he] established, in 2012, International Guarantee Corporation, incorporated in Anguilla”.960 One of his wealth management assistants is seen describing the Anguillian company as having been created as part of tax planning work on Sarao’s behalf.961 In US v Sam Currin [2006]962 the defendant, a former US Attorney, had established an offshore company and bank account for it in Anguilla for the purpose of receiving thousands of dollars in undisclosed income. As well as tax fraud, he pleaded guilty to offences of ML and obstruction in relation to $1.45m proceeds from a securities fraud scheme. In US v Daniel Gordon [2005],963 a former Merrill Lynch trader was sentenced for embezzling $43m by telling his employer he needed $43m to purchase insurance to cover trading losses, instead sending the money to a company he had incorporated in Anguilla. An Anguilla-registered company was also implicated in US v Dandong Hongxiang Industrial Development Co Ltd and others [2016].964 The company, ‘Deep Wealth’, was a front company implicated in the complaint, which alleged that the defendants provided services on behalf of the Korea Kwangson Banking Corp – an organisation sanctioned for links to weapons development in North Korea.965 Many of these matters demonstrate that Anguilla has been a jurisdiction of choice for criminals, professional enablers and, at times, former or incumbent officials to transit, layer and conceal wealth obtained through suspicious, or outright criminal, means. However, given that these matters span the past 15 years, they should not necessarily be taken as indicative of present circumstances, but certainly illustrative of former problems. The reality is that in absence of controls and robust legislation, jurisdictions which offer such services can be, and 959 This was a trillion-dollar US market crash which lasted for just over half an hour, before the markets rebounded. For background, see: Supplemental Affidavit of Mr Wible, US Department of Justice Prosecutor, sworn on 18th September 2015, available at, Navinder Singh Sarao v The Government of the United States of America [2016] EWHC 2737, para 7. 960 US v Navinder Singh Sarao [2015], US District Court, Northern District of Illinois Eastern Division, [24], see: US Department of Justice, Press Release (9 November 2016) ‘Futures Trader Pleads Guilty to Illegally Manipulating the Futures Market in Connection With 2010 “Flash Crash”’. 961 Ibid. 962 US v Sean Currin [2006], US District Court, Middle District of North Carolina, see: NBC News (11 February 2006) ‘Ex-U.S. attorney pleads guilty in tax fraud case’. 963 US v Daniel Gordon [2005], US District Court, (S.D. Tx) Houston, see: https://www.sec.gov/litigation/complaints/comp18515.pdf. 964 US v Dandong Hongxiang Industrial Development Co Ltd., an others Ma Xiaohong, Zhou Jianshu, Luo Chuanxu, and Hong Jinhua [2016], US District Court, District of New Jersey, 2:16-MJ-06602. 965 US Department of the Treasury (8 November 2009) Press Release: ‘Treasury Designates Financial Institution Tied to North Korea’s WMD Proliferation’. 170 have been, abused – as the above cases demonstrate. This is not simply a matter confined to criminality within the jurisdiction, but it shows that this Anguilla has been abused by criminals operating in all corners of the world: from New South Wales to New York. However, they raise the issue as to whether these instances were facilitated by lack of will, lack of compliance and/or controls, ignorance or a combination. 6.4. Anguilla’s Response to Suspect Wealth Despite the above identified instances implicating Anguilla, the territory shows commitment and competence in some areas. However, Anguilla does have fundamental development concerns which acts as an explanation to challenges of implementation. In this section, Anguilla’s response to suspect wealth and the meeting of international standards will be considered by examining legislation, regulation and compliance initiatives, as well as evidence from international AML monitoring reports, in order to gain a fuller picture than the one presented thus far, the evidence of which has painted a less positive view of Anguilla’s framework. 6.4.1. AML Regime In November 2015, CFATF stated that Anguilla had made “significant progress in addressing the deficiencies identified in [the] 2010 MER and therefore agreed that Anguilla should exit the follow-up process”.966 As such, Anguilla is not on the FATF List of AML Deficient Countries.967 While this sets a positive tone of Anguilla’s modern approach to AML/CFT and implementation of international standards, it is necessary to discuss the position circa 2010 in more depth. Of FATFs 40+9 Recommendations, Anguilla was assessed as: C (11), LC (17), PC (19) and NC (2).968 Many factors underlying the assessment were the inability to measure effectiveness, for example the lack of ML prosecutions, confiscations or seizures at the time, or that legislation and regulations had only been recently enacted. At the time of writing, the most recent assessment in the 8th Follow-Up Report (2015) concluded that Anguilla had addressed deficiencies in its adherence to Core and Key Recommendations to a level at least LC, with 3 being at a “substantial level of compliance”.969 966 CFATF (2015) Anguilla 8th Follow-Up Report, [4]. See also, The Anguillian (14 December 2015) ‘Press Statement by Hon. Attorney General Rupert Jones’. 967 Know Your Country (2018) Anguilla Risk and Compliance Report, January 2018, [1]. 968 CFATF (2010) 3rd-Round MER: Anguilla, [184]. 969 CFATF (2015), supra 966, [4]. 171 Specifically, these are R.5, R.13, SRIV, R.23 and R26, which were rated PC or NC in the 2010 MER.970 In terms of effectiveness since the MER, the report noted that Anguilla had several ML investigations, prosecutions and convictions.971 Between 2011-2015, there were 35 ML prosecutions resulting in 5 convictions. On asset recovery, some EC$1m property was restrained, and some EC$326,000 frozen. Confiscation, seizure and forfeiture has been less prominent, with only EC$5,022 seized and EC$4,361 forfeited in 2014, with nothing in the other years. Anguilla’s CFATF compliance record indicates the viability of the FATF AML regime in its context. Anguilla’s legislative AML response has been strengthened since creating the POCA in 2009, later enhanced in 2013 when a consolidation exercise took place with the Financial Services (Amendment) Act 2013 and the Proceeds of Crime (Amendment) Act 2013. As well as POCA, AML is controlled via regulation such as the AML/CFT Regulations and the AML/CFT Financing Code applying AML controls to non-profit organisations and, importantly, CSPs.972 Anguilla’s POCA is modern and in line with POCA frameworks in other common law jurisdictions like the UK. Anguilla also has confiscation provisions in its drug trafficking legislation,973 yet from available data it is unclear whether these have been used in the Act’s history.974 Most recently, FATF was unable to measure effectiveness of legislative implementation due to the recent enactment of statutes.975 In 2020, Anguilla will undergo FATFs 4th Round MER. As has been the case in other jurisdictions, Anguilla announced it would undertake a preparatory NRA. This is designed to ensure compliance with FATF standards, underscore values and identify risks across the public and private sectors through NRA engagement initiatives – such as awareness-raising for DNFBPs. Anguilla successfully passed through the 3rd Round process in November 2015. As such, the NRA has been labelled an opportunity to identify ML, TF and other white-collar crime risks, but also to strengthen institutions which are integral for Anguilla’s long-term progress. The NRA will continue until 2021, yet its progress has been severely hindered due to hurricane recovery. Provided it is not side-lined, the NRA will give Anguilla the opportunity to set the tone for positive engagement in the MER with risk-areas identified and stakeholders, including DNFBPs, actively participating. Given Anguilla’s OFC has been implicated as facilitating ML, such as through purchasing luxury properties, the role of the FSC in engaging with the real-estate sector will be critical. Like TCI whose NRA identified 970 CFATF (2015) supra 53. 971 Ibid, [6]. 972 Schedule 2, AML/CFT Regulations (Anguilla). 973 Section 4, Drug Trafficking Offences Act (Designated Countries and Territories) Regulations, 2004. 974 I am grateful for this insight from Don Mitchell QC CBE, former Caribbean Supreme Court Judge. 975 CFATF (2015) supra 966, [5]. 172 similar risks, Anguilla’s luxury property market presents ongoing ML risks which the NRA should prioritise. In circumstances where the NRA is lacking, it is difficult to assess the extent to which certain services in Anguilla’s financial sector are acknowledged as high risks for ML. Given the string of successful reviews and upwardly mobile engagement with CFATF AML initiatives, it is unsurprising that the Chief Minister claims Anguilla has made significant progress since 2009.976 While caution should be given to attributing weight to such comments given its bias, it is fair to say Anguilla has made positive progress in the eyes of FATF. While FATF is the unchallenged standard setter, it has been argued that some of the standards and guidance given are incomputable with each other. For example, R.10 deals with DD for financial institutions – and there have been instances whereby CFATF seminars which have focused on these best practices have sought to advise licenced company managers that they should follow those DD requirements imposed on banks. As retired Caribbean Supreme Court Judge, Don Mitchell QC CBE observed, under section 19 Companies Management Act, company managers cannot receive client funds or hold them on trust in the same way as financial intermediators, such as banks do. Given that company managers do not engage in financial transactions, Mitchell suggests such advice is misapplied.977 Other AML assessments include the 2016 US Department of State’s International Narcotics Control Strategy Report. It concluded that Anguilla was a ‘monitored jurisdiction’ and cited ML vulnerability, compounded by factors like the use of bearer shares and the ability to register companies online. Drawing upon the accepted risks that IBCs can facilitate ML, the report notes that IBCs can hold accounts in Anguilla, despite not having required physical presence there, nor being permitted to transact business in the jurisdiction. As such, it suggests there is a possibility for concealing the true nature of business undertakings in Anguilla.978 976 The Anguillian (20 February 2017) ‘Anguilla Fighting Money Laundering, Terrorist Financing – Wants to be Clean Again Next Evaluation’. 977 Mitchell, D. (2016) ‘Financial Regulatory Issues’, Paper presented on the topic of ‘Financial Regulatory Issues Affecting the Commonwealth Caribbean’, OECS Bar Association’s Annual Law Fair and Conference, 16 September 2016, St Lucia. 978 Know Your Country Report, Anguilla (2017) supra 967, [5-6]. 173 6.4.2. Regulatory Environment At Anguilla’s Financial Services Industry Day (2016), the FSCs regulatory efforts were noted by various stakeholders.979 CFATFs 8th follow-up observed that the FSCs activity was responsible for bringing Anguilla up to compliance with many Key recommendations, such as R.23 (DNFBPs) to a LC rating.980 Other examples include the establishment of the AML/CFT Legal Services Unit within the FSC tasked with implementing a DNFBP regulatory regime, and its training programmes were also cited when considering the extent to which Anguilla had adopted CFATFs MER.981 The FSC was created via the Financial Services Commission Act 2003. As a statutory body, its role is to enable Anguilla to meet international standards on financial regulation. Its wide statutory remit includes enforcing regulatory codes, considering licence applications, supervising AML/CFT compliance of licensees and externally regulated service providers, taking action against those carrying on without licences, supervising the administration of the Registry Acts by the Commercial Registrar, monitoring effectiveness of AML/CFT regime and advising the Governor on such matters.982 As part of its function, the FSC engaged in a seven-year exercise to educate company managers about their responsibilities under the AML/CFT Code and Regulations.983 Its education function includes seminars, training sessions, small meetings and publications via its website, culminating in Industry Day presentations. Following this, the FSC conducted offsite reviews between 2015-2017 and, for the first time, published an extensive report of enforcement action. Publicising enforcement action carries a deterrent function and raises public awareness. The aim was “to ascertain the level of compliance with customer due diligence provisions of the AML/CFT legislation by its licensees carrying on company management business”.984 The FSC reviewed 51 licensees and imposed administrative penalties against 13 that did not comply with legislative obligations.985 Examples of misconduct included failing to conduct a customer risk assessment for one company, including to identify the principals as PEPs;986 failure to apply customer DD measures including not 979 Government of Anguilla, Anguilla Financial Services Industry Day Seminar (15 December 2016), see also, Rogers, C.K. (2 August 2016) ‘The shape of the international financial services industry post- Panama papers: a view from Anguilla’, Cayman Financial Review. 980 CFATF (2015) supra 966, [3-4]. 981 Ibid, [4]. 982 Section 3, Financial Services Commission Act 2003. 983 AML/CFT Code, R.R.A. P98-5; and AML/CFT Regulations, R.R.A P98-1. 984 Anguilla FSC (2017) Offsite Reviews 2015-2017 Report. 985 Ibid. 986 In contravention of s10(4) AML/CFT Regulations and ss10-11 AML/CFT Code. 174 obtaining official identification documentation;987 and not keeping records nor making them available on a timely basis when lawfully requested.988 While some fines are very small, in one instance only EC$100 for failing to conduct ongoing monitoring and to update the expired identification documentation for one principal of a customer, the total penalties were EC$178,750. Given the report omits specific information about the entities, it is not certain whether the fines served any deterrent or punitive functions for the entities concerned, or others. Absent information about the entities financial circumstances, it is impossible to judge the extent to which this review process was a success. However, given some enforcement actions were completed, and that the process itself was engaged in as a first-of-its-kind in Anguilla, it demonstrates a sense of proactivity on the regulator’s part and utilisation of the offshore review process which is advocated by the modern international AML framework. Given earlier allegations pertaining to the FSCs lack of proactivity in dealing with the entity purportedly controlled by a Congolese PEP, it seems the FSC is engaging in an increasing level of internationally-accepted processes to strengthen its AML regime. 6.4.3. Beneficial Ownership of Companies, Transparency & Company Law Reform Given reports have implicated Anguillian companies as being used to commit or facilitate crime overseas, and that Anguillian property has been implicated as disposing of the proceeds of crime, it is worth considering the position with regards to company beneficial ownership information. As stated throughout this dissertation, there is an accepted and obvious link between anonymous companies and their ability to handle criminal property. Beneficial ownership transparency is a very current issue with SAMLA, so this section shall consider this substantive issue and Anguilla’s response to date. Anguilla does not presently have a central register of public beneficial ownership information. However, its companies regime has undergone modernisation in recent times. This is a direct result of enhanced regulatory obligations, doubtless exacerbated by the intensifying spotlight on the offshore industry following the Panama and Paradise papers. Beneficial ownership is now a serious matter of international relations and public policy – beyond the ideas of investigation and enforcement upon which it is designed. Anguilla’s approach in recent times demonstrates appetite to engage in transparency and cooperation, yet accompanied by a desire to uphold legitimate privacy rights. As is evidenced by the Panama papers, company incorporation is an important component of Anguilla’s financial 987 In contravention of s10 AML/CFT Regulations and ss10, 13, 14, 16 and 17 AML/CFT Code. 988 In contravention of s17 AML/CFT Regulations. 175 industry. Anguilla is presently working to make information available and accessible to foreign governments. However, the majority of the world’s countries do not yet have central registries which exchange information, and Anguilla’s beneficial ownership model has traditionally centred on a summons procedure. If the Registrar had reason to enquire as to the ownership or control of an Anguillian-registered company, a summons could be obtained. As such, beneficial ownership was exclusively a matter for the Commercial Registrar.989 Anguilla is the least developed of the three territories this thesis concerns with regards to keeping information on beneficial ownership centrally and making it accessible to foreign governments. However, before a conclusion is drawn from this, there are important contextual factors – including that the international standards on beneficial ownership are changing with great frequency; that Anguilla has been heavily preoccupied with the collapse of its domestic banking sector and the consequent banking resolution;990 and hurricane recovery. For example, the then Attorney General, Hon. John McKendrick QC, recalled that he spent three months living in temporary accommodation without mains power or running water following hurricane Irma991 – shocking for the territory’s principal law officer. The UK government’s announcement of SAMLA 7 months after the hurricanes was seen by many as insensitive992 particularly given the long duration of rebuilding efforts. In terms of its domestic companies legislation, Anguilla requires all companies to keep essential records,993 including keeping a register of shareholders and directors. The Companies Act requires the names of directors (legal or natural persons) to be provided to the Commercial Registrar upon incorporation.994 Reporting of changes to such information is not required in Anguillian law. The Registrar’s ambit includes administrative tasks such as online incorporation and registration.995 The Registry maintains the register which includes IBCs, Limited Liability Companies, and Foundations. While the Registry exists to also market the effectiveness of incorporation via its new online function, it makes clear that Anguillian authorities will cooperate fully with competent foreign enforcement agencies. Anguilla has various MLA Treaties in place with foreign jurisdictions, including the US,996 which secures 989 Section 2, Companies Registry Act. 990 Rogers, C.K. (2016) ‘British Overseas Territories in the Caribbean agree to central registries of beneficial ownership information – the first step on a slippery slope to full disclosure has been taken’, Cayman Finance Review, 28 January 2016. 991 I am grateful for insight provided by Hon. John McKendrick QC, then Attorney General of Anguilla. See also, McKendrick, J. ‘A Tropical Attorney General’, Inner Temple Year Book 2018-2019, [134-135]. 992 Remarks of John McKendrick QC, 36th International Symposium on Economic Crime, 6 September 2018. 993 Companies Act (Anguilla), Section 154(1)(d). 994 Ibid, Section 7(1)(g). 995 Anguilla has recently implemented an online company registration portal to decrease business costs and enhance efficiency. 996 Mutual Legal Assistance (United States of America) Act 2000. 176 bilateral cooperation in evidence gathering and information sharing in matters of crime and tax.997 In the most recent CFATF report, Anguilla received 3 MLA requests in 2015 under the Criminal Justice (International Cooperation) (Anguilla) Act; and 2 under the MLA (USA) Act. It sent 1 MLA request under the latter Act.998 Anguilla has shown proactivity as regards committing to international changes on beneficial ownership, away from the outdated method of placing it exclusively in the hands of companies. In 2014, the Government launched a public consultation on beneficial ownership transparency.999 In furtherance of Anguilla’s 2013 commitment to fully implementing FATF standards on this, the consultation was to assess the public’s view on whether the register should be centrally held or publicly accessible. In 2016, the UK and Anguilla signed an Exchange of Notes Agreement enhancing mutual cooperation on beneficial ownership information sharing. The commitments undertaken in this agreement on Anguilla’s side include inter alia updating legislation as well as establishing a central register or similarly effective system for holding such information. UK competent authorities will be able to request information and will have it within 24 hours or, in urgent cases, 1 hour. On tax information exchange, it has signed 17 TIEAs. Having survived financial turmoil with its banking crisis, Anguilla is now in the process of meeting the undertakings of this agreement, not least by recently obtaining a financing agreement to create the central register.1000 However, with SAMLA, Anguilla is in a precarious position as to establishing its register. It committed to implementing a central register in good faith when the UK was advocating the need for central registers.1001 Successively, the UK has fundamentally changed its position, leaving Anguilla with uncertainty as to implementing the agreed central register or a public one. Either way, while Anguilla is behind in this initiative, partly due to the aforementioned factors, their position should not be viewed as exclusively lacking will. Anguilla needs technical and financial support to ensure effective implementation. Interestingly, in the FAC Inquiry, in which SAMLA was a key issue mentioned in evidence, neither Anguilla’s Chief Minister in oral evidence, or Anguilla Finance1002 in written evidence, made any reference to it. This is surprising, although it may relate to the fact Anguilla has not yet implemented the central register. On the other hand, it may also be that 997 Mutual Legal Assistance (Tax Matters) Act 2010. 998 CFATF (2015) supra 966, [12]. 999 Anguilla Government, Ministry of Finance (6 June 2014) ‘Enhancing the Transparency of Anguillian Company Ownership and Increasing Trust in Anguillian Business: A Public Consultation’. 1000 Insight provided by Ms. Marissa Harding-Hodge, Compliance Manager, Ministry of Finance, Anguilla. 1001 Government of Anguilla supra 999, [9]. 1002 Anguilla Finance is a non-governmental body which markets and promotes the development of Anguilla’s financial services industry. 177 Anguilla does not see a public register to be a threat – sentiments echoed by its UK Representative: “It is commendable that Britain wants to lead the world in transparency and good governance… [and] I’m grateful we’ve got until 2020 to put [the public register] into place”.1003 Given the examples identified in this chapter as to Anguillian-companies being used to receive suspect wealth, there may be increasing impetus for Anguilla to radically alter its regime. Another issue identified as a risk-area is that of bearer shares. The Global Forum on Transparency and Exchange of Information for Tax Purposes commented: “Anguilla did not have sufficiently clear legal and practical mechanisms to provide information related to bearer shares”.1004 Under the International Business Companies (Amendment) Bill 2018, Anguilla is legislating to abolish the ability for IBCs to issue bearer shares.1005 Under the IBC Act 2014, bearer shares were permitted in Anguilla, so the 2018 Bill represents increasing commitment to implement international standards and practices in the fight against suspect wealth. The legislation has not yet received assent, yet the effect of it demonstrates that certain traditional anonymity vehicles are becoming increasingly prohibited in selected territories. This is important given the gradual eradication of bearer shares and bonds in various countries, and the accepted risks they pose for abuse.1006 Moreover, Anguilla has recently made amendments to its companies and incorporation legislation1007 to introduce economic substance requirements for domestic entities, as per EU standards. Given Anguilla was placed on the EU Code of Conduct’s greylist, it has implemented this to avoid the EUs blacklisting attempt against low-tax jurisdictions. 6.4.4. Anti-Bribery Regime Anguilla has not, to date, been subject to anywhere near the level of attention, or intervention, as a result of corruption compared to TCI. As alluded to in chapter 2, a modern assessment of bribery needs to acknowledge corruption’s many faces. Indeed, in other small islands, some have perceived rule breaking as inherently distinct from corruption.1008 In terms of Anguilla’s legislative and regulatory response to corruption – it is the least developed of the 1003 BBC Radio 4, (2 May 2018) remarks of Anguilla’s UK Representative, Ms. Blondell Cluff. 1004 Anguilla Government, (September 2016), Public Consultation Paper ‘Enhancing Transparency of Anguillian Companies – Abolition of Bearer Share Warrants’, [2]. 1005 S27A, IBC (Amendment) Bill 2018. 1006 For example, the USA eradicated the issuance of bearer bonds. In 2018, many European jurisdictions enacted legislation to prohibit them, including Bulgaria and Romania. 1007 See: Limited Partnership (Economic Substance) Regulations 2019; International Business Companies Act; and Companies Act. [check these]. 1008 The Royal Gazette (1 December 2016) supra 196. 178 three OTs. Various anti-corruption tools have been recommended for Anguilla, including Integrity Pacts and an anti-corruption body such as a Complaint Board to oversee matters of corruption, conflicts of interest, misuse of office and public ethics.1009 The creation of an Anti- Corruption Commission has also been advocated by the Constitutional & Electoral Reform Commission – given that these exists in many other Caribbean jurisdictions and are visible to the wider public.1010 Whether corruption is a problem in Anguilla, versus whether it is acknowledged as a problem, are two different things. Mitchell (2017) has advocated for an increase in watch-dog institutions to be built into a reformed Constitution.1011 He also supports introducing a Code of Ethics for Persons in Public Life,1012 which exists in other jurisdictions, like TCI. UNCAC has not yet been extended to Anguilla, although a ranking of 87 (100-Good/0-Bad) by the World Governance Indicator Control of Corruption has been achieved. There has been longstanding interest in Anguilla to set up an Integrity Commission.1013 As Mitchell (2014) stated, “the system of government that we have inherited seems almost designed to encourage us to give up our natural integrity once we achieve political power”.1014 There are functioning Integrity Commissions in various Commonwealth Caribbean jurisdictions, like TCI and Trinidad and Tobago. Larger jurisdictions like Canada also have Integrity Commissions.1015 While one has not been established in Anguilla, in 2015 the Public Accounts Committee (‘PAC’) of the House of Assembly was created,1016 chaired by the Opposition Leader. Its remit is “to prevent waste or misappropriation of public funds and to ensure transparent accounting and reporting of government expenditure”.1017 Working alongside the Auditor General and supported by the Chief Auditor, it has been self-styled as the surest mechanism to allow the legislature to question and investigate public spending. In its foreword, the Chairperson stated PACs objectives include securing “buy-in” by the civil service and changing “the relationship between Ministers and Civil servants in terms of responsibility for ensuring proper accountability”.1018 The focus on civil servants 1009 The Anguillian (20 June 2014), ‘Don Mitchell Advises Ronald Webster on Independence for Anguilla’. 1010 Anguilla Constitutional & Electoral Reform Commission, Report 2006, [71]. 1011 Mitchell, D. (2017) Presentation at the ‘Time Kendall Public Lecture’, Antigua and Barbuda Bar Association, 21 September 2017. 1012 TCI Financial Integrity Commission (2012) Code of Conduct for Persons in Public Life in TCI. 1013 See: section 97 Draft New Constitution for Anguilla (November 2016); and, Anguilla Constitutional and Electoral Reform Committee (31 March 2017) Proposals for Constitutional and Electoral Reform, Report, [19]. 1014 Anguilla Public Accounts Committee (2016) ‘Work Programme December 2015-May 2016’. 1015 The Integrity Commission Act 2017 (Canada). 1016 PAC was established at the Fourth Meeting of the First Session of the Eleventh Anguilla House of Assembly, 22 September 2015, under s66A Legislative Assembly (Procedure) Rules 1976. 1017 Ibid. 1018 Anguilla PAC (2016) supra 1014. 179 demonstrates the need to instil accountability into public services which exceeds Assembly terms. In 2011, for the first time, Anguilla published the Chief Auditor’s Report on public finances, which identified serious deficiencies across all departments.1019 While the theoretical benefits of PAC are welcome to address accountability, PAC has notoriously not functioned effectively since its inception. Some have criticised the partisan difference which can interfere with PACs generally,1020 as they have the capacity of being used as a tool for political targeting. By contrast, proposals for an Anguilla Integrity Commission included having independent Board members. One of the major concerns identified by this research is that Anguilla still lacks modern anti-corruption legislation taking account of the complexity and extent of modern bribery. A lack of such legislation can stall or lead to the collapse of corruption investigations.1021 While bribery involving large multinational corporations is a focus of such laws, so too are the new offences of receiving and offering bribes, as well as bribing foreign officials. With regards to the latter, benefits include creating a level playing field for both domestic and international business. It is not simply about bribing officials in different countries to do business therein, but could include giving prima facie hospitality to foreign officials visiting Anguilla. It is aimed at preventing bribery in commercial transactions, which impacts domestic and foreign investment in Anguilla – particularly important given the projected growth in real-estate development. Anguilla is behind its fellow OTs in demonstrating commitment to tackling corruption at home and abroad through legislative reform. The benefits of legislation modelled on the UK’s Act 2010 also would ensure standards are set across those OTs with financial sectors. Understanding that in close-knit communities corruption might not be frowned upon as much as it is in larger jurisdictions, is an important starting point to refashioning the criminal law’s response to certain behaviours. There are certain relevant laws, such as the House of Assembly (Powers and Privileges) Act 2000 which deals with acceptance of bribes by members in relation to Assembly function. Anyone found guilty is liable to a fine of $38,400 and/or imprisonment of 3 years.1022 However, nothing on its statute book is as all- encompassing as the UK’s Bribery Act, or Bermuda’s and TCIs. Mitchell (2016) observed, 1019 Ibid. 1020 Woodley, B., Sahgal, V., Stapenhurst, F., and Pelizzo, R. (2005) ‘Scrutinizing Public Expenditures: Assessing the Performance of Public Accounts Committees’, World Bank Policy Research Working Paper 3613, [15]. 1021 SFO investigation into the al-Yamamah arms-deal involving the government of Saudi Arabia and BAE Systems collapsed due to the inadequacy of the UK’s bribery laws, according to Lord Goldsmith (then Attorney General). 1022 Section 12, House of Assembly (Powers and Privileges) Act 2000. 180 “in the UK, parliamentarians have gone to jail for fiddling their expenses, and, in the US, congressmen have been indicted for accepting bribes … you will search [Anguilla] largely in vain for any punishment meted out to a politician known to have left office hugely enriched by his public service”.1023 Mitchell has written extensively on the need for various checks and balances to achieve integrity, such as the establishment of an Interests or Integrity Commissioner and adequate penalties for breaches of disclosure.1024 When reputational attacks are prevalent towards jurisdictions like Anguilla, bringing legislation up-to-date is important for viability, and particularly in attracting legitimate custom. If Anguilla relies on old bribery legislation, it will be guided by old case-law precedents in contrast to those emanating from decisions in the higher UK courts. This problem will only increase as time goes on and Anguilla could be seen as a jurisdiction failing to toughen-up on bribery. When such important legislation is lacking, the awareness-raising function and necessary training which should accompany such laws is not undertaken, then it provides context as to how international suspect wealth might be easily transited into Anguilla’s financial centre. While Anguilla has not experienced globally-publicised corruption scandals, the lessons from TCIs’ are valuable in order to strengthen institutions. In Anguilla, if a planning decision for a development comes before the Planning Board, and that Board rules that the plans are environmentally unsuitable, then the law provides that the Executive Council hears the appeal. In other words, the cabinet of primarily elected politicians. The 1986 and 2008/9 Commissions of Inquiry in TCI demonstrate how easy it was for international developers to befriend elected politicians. If Anguilla is still behind in incorporating modern bribery law, watch-dog institutions and integrity initiatives, then the system invariably remains susceptible to abuse. It will therefore be of critical importance for the upcoming NRA to carry out work on actioning such risks. 6.5. Remaining Legal Considerations Anguilla still lacks certain important and progressive legislation in the context of tackling the impact of domestic and international financial crime. There does, however, appear to be infrastructure in place to achieve relevant legislative apparatus and progressive reform particularly in the area of anti-corruption. Supporting this is the recent Bill before 1023 Mitchell, D. (2016) ‘What are the Most Important Issues for Constitutional Reform Today?’ in The Anguillian (12 December 2016). 1024 Ibid. 181 Parliament abolishing bearer shares, economic substance legislation, and the legal commitment to implementing a central register of beneficial ownership. Anguilla is also home to the Regional Law Revision Centre which services revision of laws in Anguilla, Montserrat and TCI, chaired by the Attorney General and co-directed by the territories’ respective Attorneys General. The Centre also has a wider training role across the region.1025 Examples of recent legislative developments in Anguilla include the Justice Protection Act 2016 that introduced witness protection particularly for vulnerable persons.1026 Additionally, the Criminal Justice Reform Bill 2018 criminalises serious matters, such as child pornography, and decriminalises possession of small amounts of recreational-use cannabis. Under the Anguilla Police (Amendment) Act 2016, recent procedural advancements include the ability to take non-intimate samples from suspects in criminal proceedings.1027 Further, the introduction of the Legal Professions Act 2016 statutorily regulates the legal profession for the first time. While it is appreciated that some of the above fall outside the parameters of this work, it adds some context to relevant legislative commitments already made such as the Tax Information Exchange (International Cooperation) Act 2016. However, Anguilla’s basic criminal and civil laws are still undergoing, and in further need, of reform. This is important in the area of anti-corruption, and strengthening transparency and AML controls because of cases showing that Anguilla entities have facilitated misconduct overseas, like the Global Witness 2009 report and the foreign case law examples. As a development strategy, Anguilla is also targeting foreign investment into the jurisdiction through a scheme known as Anguilla Residency by Investment (‘ARBI’). ARBI will allow investors to by-pass the usual residency requirements via real-estate investment of at least $750,000, or through investment into Anguilla’s Capital Development Fund of at least $150,000.1028 Without speculating about this policy’s economic utility, the Government refers to the need to conduct significant DD on prospective investors. Given the benefits ARBI will provide, particularly of a fiscal nature,1029 the motivations for it could be tainted and therefore development of Anguilla’s oversight bodies is imperative to ensure this system is not used for ML or tax evasion. 1025 The Centre has held many training programmes, including a Consolidation of Laws training programme, March 2017. 1026 Section 23, Justice Protection Act 2016; and Criminal Justice Reform Bill 2018. For background, see The Anguillian (2 July 2018), ‘Major Conference in Anguilla on Criminal Justice Bill’. 1027 Section 5, Anguilla Police (Amendment) Act 2016. 1028 Anguilla Government, Anguilla Residency by Investment, Information Session, 23 August 2018, presentation by Shantelle Richardson. 1029 Ibid. 182 6.6. Development Concerns There are fundamental development concerns and priorities which add context to Anguilla’s achievements, but also challenges, with implementing international standards to tackle suspect wealth. Many issues like capacity affect most small island jurisdictions. In the context of those which have less sophisticated OFCs, attracting workers might be difficult. In Anguilla’s case, its compliance structures and industry is still developing.1030 Bermuda or Cayman have developed significant business environments upon which its long-term development strategy is based. Establishing a compliance framework and recruiting people when the industry is not as visible in Anguilla presents challenges. Anguilla’s development and reputation as a luxury tourist destination does not reconcile with its development concerns. Combined with relatively high-GDP, low crime rates, ‘tax haven’ reputation, the spotlight on Anguilla’s development is unsurprisingly dim. In 2013, Anguilla was in severe financial trouble as its two indigenous banks were placed under the control of the domestic banking regulator, the ECCB.1031 Article 5(b) Eastern Caribbean Central Bank Agreement Act 1983,1032 provides for this in circumstances where the interests of the financial institution’s depositors or creditors are threatened, or if the institution is unlikely to meet its obligations, or if the financial system of a member territory is in danger of disruption. The ECCB took the view that for Anguilla’s indigenous banks, all three conditions were present. In 2013, the banks were deemed insolvent1033 and placed under receivership. There was a sizeable shortfall at both banks and, in the event of a run, collapse would ensue. In 2015, Anguilla’s Government stated “the current balance sheet deficiency at [both banks] is primarily due to the quantum of non-performing loans and increasing provisions being made against such loans as a result of falling property prices in Anguilla. This problem was in part contributed to by the overreliance on the valuation of the security being advanced as collateral … as opposed to analysing cash-flow and the ability of the applicant to repay the loans…”.1034 In 2016, the Bank Resolution Obligations Act was passed to protect 1030 For example, while Anguilla’s Compliance Association was established in 2016 to promote the compliance industry and engage in awareness-raising, it is noticeable that there have been no publications on its newsletter webpage since 2016. However, there have been some reported seminars and workshops: see, The Anguillian (15 April 2019) ‘UWI Open Campus Anguilla Launches Second Compliance Workshop on Compliance and Tax Transparency Standards for Financial Services Organisations’; and The Anguillian (20 February 2017) ‘UWI Open Campus Anguilla Presents Workshop on Compliance Management’. 1031 The ECCB has regulatory function for domestic banking of its 8 member territories: Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St Lucia, St Vincent and the Grenadines, St Kits and Nevis. 1032 Article 5B, as amended. 1033 Caribbean Development Bank (16 May 2016) Loan & Project Summary: Anguilla Bank Resolution – Bridge Bank Capitalisation Loan, [ii]. 1034 The Anguillian (9 November 2015) ‘Government publishes key findings on NBA & CCB’. 183 depositors’ savings. Although, it was met with controversy with the Opposition Leader criticising the outcome of “the forfeiture of bank employees’ pensions and the consequent default of those employees’ property loans, and the institutional theft of offshore depositors’ moneys”.1035 Another development concern is Anguilla’s dependency on neighbouring islands. It has no deep ports for large cruise liners and its airport is incapable of hosting larger international air traffic. It relies almost exclusively on Saint Martin and Sint Maarten. Its direct borders are with France and Holland who provide essential services including fuel, international access, excursion tourism, basic medical procedures, mail services and imports.1036 Given this relationship of reliance, it is interesting to note the Netherlands inclusion of Anguilla on its blacklist. Healthcare in Anguilla is another development issue and medical services depend upon collaboration with neighbours.1037 Compared to other permanently populated OTs, Anguilla is said to have one of the least developed public medical facilities under a British flag.1038 As well as some of the more obvious implications, if Anguilla wishes to develop its financial services industry, which necessitates foreign recruitment and making it easier to obtain work permits, then progress may be hindered by its healthcare infrastructure. Anguilla relies on wells and rainwater harvesting, as well desalination fuel from its neighbours to make water drinkable.1039 According to UNICEF, while in 2015 98% of Anguilla’s population had basic access to water,1040 Anguilla has been dependent upon bottled water and rationing at times of drought. Two-thirds of Anguilla is below sea-level and the territory lies in a tropic cyclone path in which many have caused devastating effects.1041 Overreliance on tourism and lack of economic diversification means that in cases of natural disaster, the tourism season can be effectively written-off. This represents a serious problem which increasingly weighs to incentivise diversification for Anguilla’s sustainable development – at the least diversifying its business offerings further. In a statement at Anguilla’s Financial Services Industry Day 2016, then Governor Christina Scott observed that Anguilla’s sustainability should not continue to depend on tourism.1042 1035 The Anguillian (8 May 2017) ‘Message to the People of Anguilla from Pam Webster, Elected Member District One and Leader of the Opposition’. 1036 Anguilla Government London Office (2017) supra 15. 1037 Ibid, [19]. 1038 Ibid. 1039 Pan American Health Organisation (2012) Health in the Americas 2012 Ed: Country Volume, Anguilla, [3]. 1040 World Health Organisation/United Nations International Children’s Emergency Fund (2017) Progress on Drinking Water, Sanitation and Hygiene: 2017 Update and SDG baseline. 1041 See Anguilla Government (2013) ‘Comprehensive Disaster Management Policy 2013’. 1042 Anguilla Financial Services Industry Day (2016) supra 979. 184 6.7. Summary Anguilla has been implicated in several high-profile instances of international economic crime – not least due to its various corporate vehicles that have been shown to have facilitated international criminality or the transiting and disposal of suspect wealth. The Global Witness investigations demonstrate the severity of allegations against Anguillian companies. While implications in the Panama papers do not necessarily show wrongdoing, it does demonstrate that a law firm proven to have facilitated international criminality utilised Anguilla as a jurisdiction of choice for incorporation and corporate services. However, this research also demonstrated that Anguilla has shown willingness and commitment in several key areas. These include legislative reform dealing with bearer shares, enacting economic substance laws, committing to greater information exchange and centrally holding beneficial ownership information to help prevent its financial centre receiving suspect wealth. Moreover, its AML/CFT frameworks have been reviewed relatively positively since the first FATF MER. The chapter also demonstrated significant deficiencies in Anguilla’s response to suspect wealth, such as modern anti-bribery laws, or lack of action on beneficial ownership commitments. What’s more concerning is the fact that Anguilla still contends with significant development and capacity concerns which have hindered progress. Many concerns are unique to Anguilla, distinguishing it from other similar OTs and giving credence to the conclusion that one size does not fit all. It also suggests that standards, for instance on beneficial ownership, may be unviable at present given that capacity issues have stalled the implementation of the central register and certain legislation. Without fundamental domestic institutional and legislative reform, enhancing its financial sector as a means of economic diversification carries the obvious risks of abuse if checks and balances are omitted from this development strategy. Whereas other OTs may be able to demonstrate viable alternatives, such as central registers over public ones, Anguilla’s lack of implementation in certain areas following commitments make this less arguable and perhaps justifies intervention more generally. As such, Anguilla’s strategy in better protecting itself from receiving suspect wealth needs to prioritise institutional development and legislative reform. Further, it needs to prioritise increasing regulatory oversight in public life through integrity initiatives to raise standards, as well as in the private sectors, such as in through enhanced oversight in the professions or real-estate market. This is addressed in detail in chapter 8. 185 CHAPTER 7 PRIVACY, CONFIDENTIALITY AND INCREASING TRANSPARENCY 7.1. Introduction This dissertation has thus far examined the concerns about the impact suspect wealth has on development. Particularly, it has focused on three OTs and considered their willingness and ability to implement international standards and reform domestic laws to tackle suspect wealth, and the extent to which these are viable reconciled with domestic priorities. This has involved a thorough analysis of their legal, regulatory and compliance frameworks. However, while their operation as OFCs ensures these jurisdictions’ sustainable development, this thesis has also acknowledged international criminality and misconduct that has been committed using entities, and other services, based in the jurisdictions. To this effect, negative inferences and threats to reputation have manifested and have profound impact. There has been a tightening of international financial regulation, including reformed criminal laws dealing with bribery, civil laws to target unexplained wealth and to establish economic substance in OFCs. In this chapter, I shall consider an important issue underpinning this move toward transparency, manifested through public beneficial ownership register laws. This is the role of privacy and confidentiality, and whether these legal protections are gradually diminishing in favour of increased transparency. I shall outline the general right to privacy and whether this extends to financial affairs. In the context of this, I shall discuss the utility of confidentiality and whether the offshore confidentiality norm in OFCs stands reconcilable with recent legislation compelling public beneficial registers in these jurisdictions. This adds additional context to their alternative frameworks already in place. 7.2. Privacy: a right? It is first necessary to consider privacy as a broad right. It is enshrined in numerous sources of domestic and international law, such as the ECHR,1043 Universal Declaration on Human Rights,1044 and domestic laws such as the UK Human Rights Act 1998 and US Privacy Act 1974.1045 There are many theoretical explanations for its importance. Emerson 1043 Article 8, ECHR. 1044 Article 12, Universal Declaration on Human Rights. 1045 For a larger list, see Klitou, D. (2014) Privacy-Invading Technologies and Privacy by Design: Safeguarding Privacy, Liberty and Security in the 21st Century, New York, Springer, [13-25]. 186 (1970) conjects privacy to be based on individualism1046 – withdrawing from the collective in certain circumstances representing individual sovereignty.1047 Privacy protects the individual from community encroachment, whether defined as another person, group or state. The Universal Declaration’s formulation links privacy to honour, self-respect and reputation. The value of privacy is at the centre of realising personal dignity, protecting individuals engaging in decision-making and living autonomously.1048 It comprises the right to private and family life, respect for communications and correspondence, protection against unreasonable seizures and searches, protection against attack to honour and reputation. Many theoretical views of privacy suggest it is narrow and individualist,1049 and some argue without privacy, people would less likely express individuality.1050 Taylor (2002) argues that privacy enables individuals to formulate close social or familial relationships.1051 Privacy has been labelled a general right,1052 “curious kind of right”,1053 and cluster of derivative rights.1054 Holtzman (2006) suggests privacy is an enabling right which sets the foundation for other basic entitlements.1055 As such, privacy has been deemed to provide the means for greater liberty.1056 In his essay On Liberty, J.S. Mill (1859) emphasised that the “struggle between Liberty and Authority is the most conspicuous feature in the portions of history with which we are earliest familiar, particularly in that of Greece, Rome, and England”.1057 Liberty is closely related to privacy and authority is closely related to security. It is the necessity of security which renders privacy a qualified, rather than absolute, right. Security in this context is likened to transparency as being the means for limiting privacy. Aristotle’s early thinking on this posited that there is an important, discernible distinction between public and private life. In modern times, this can be applied to the context of the state’s authority. Mill’s harm principle outlines that “the sole end for which mankind are warranted … in interfering with the liberty of action of any of their number, is self-protection”.1058 Another utilitarian thinker, Bentham (1789) formulated that the law can invade privacy but it must be justified 1046 Emerson, T.I. (1970) The System of Freedom of Expression, New York: Random House, [549]. 1047 Solove, D.J. (2008) ‘“I’ve Got Nothing to Hide” and Other Misunderstandings of Privacy’, San Diego Law Review, 44: 745:772. 1048 Klitou (2014) supra 1045, [18]. 1049 For example, Sevignani, S. (2016) Privacy and Capitalism in the Age of Social Media, Abingdon: Routledge. 1050 Klitou (2014) supra 1045, [19]. 1051 Taylor, N. (2002) ‘State surveillance and the right to privacy’, Surveillance Society 1(1): 66-85, [82]. 1052 Ibid, [3]. 1053 Marmor, A. (2015) ‘What is the Right to Privacy?’, Philosophy & Public Affairs, 43(1): 3-26, [3]. 1054 Thomson, J.J. (1975) ‘The Right to Privacy’, Philosophy & Public Affairs, 4(4): 295-314, [307]. 1055 Holtzman, D. (2006) Privacy lost: how technology is endangering your privacy, Jossey-Bass: San Francisco, [53]. 1056 Klitlou (2014) supra 1045, [20]. 1057 Mill, J.S. (1859/2002) On Liberty, [6]. 1058 Ibid, [8]. 187 on the grounds of necessary utility.1059 In this work’s context, necessary utility might be a law designed to prevent ML or reasonable searches in criminal investigations. It might extend to, and justify, creation of public registers of beneficial ownership based on the accepted harm ML through anonymous shell companies causes. As Negley (1966) argues, our ideas about the justification of the law have changed vastly in the past hundred years,1060 which is perhaps even more pertinent in modern times with technology increasing security threats. The implication here is that law’s intervention has had to adapt and intensify due to political change and technological developments. However, scholars like Posner (1978) have advocated that while conceding the necessity of a balancing act and that the state’s interest might sometimes exceed that of the individual’s, the presumption ought to be in favour of the individual’s freedom.1061 Others, including Rousseau (1762), have stated that the government’s interference in individual rights ought to be necessarily minimal for society’s well-being. Privacy includes many things,1062 and when considering this there needs to be a balancing exercise. This is prevalent in case law.1063 For example, in US v Jones [2012] a drug trafficker’s conviction was quashed because law enforcement monitoring his vehicle for 28 days via GPS violated his constitutional right to privacy.1064 As Warren & Brandeis (1890) observed, “that the individual shall have full protection in person and in property is a principle as old as the common law”.1065 Given the common law’s eternal youth, there is sometimes the need for the recognition of new rights or the need to adapt to society’s needs. This is no better demonstrated by recent legislation in many jurisdictions recognising same-sex marriage, while in some 72 other countries same-sex relationships remain criminalised.1066 Privacy has been argued to have become an internationally-accepted human right following World War II.1067 1059 Bentham, J. (1789/1988) An Introduction to the Principles of Morals and Legislation, Amherst, NY: Prometheus. 1060 Negley, G. (1966) ‘Philosophical Views on the Value of Privacy’, Law and Contemporary Problems, 31(2): 319-352, [321]. 1061 Posner, R. (1978) ‘The Right of Privacy’, Georgia Law Review, 12(3): 392-422, [397]. 1062 Gavison, R. (1980) ‘Privacy and the Limits of Law’, Yale Law Journal, 89(3): 421-471, [421] for an overview of privacy interests. 1063 For example, Mosley v News Group Newspapers Ltd (No 3) [2008] EWHC 1777 (QB); [2008] EMLR 20 which concerned the invasion of privacy versus public-interest disclosure. See also, Silken v Beaverbrook Newspapers Ltd [1958] 1 WLR 743 which concerned freedom of speech whereby Lord Diplock emphasised that freedom of speech, like other freedoms, must be balanced against other fundamental freedoms, [745]. 1064 US v Jones [2012] 565 U.S. 400. 1065 Warren, S.D., and Brandeis, L.D. (1890) ‘The Right to Privacy’, Harvard Law Review, 4(5): 193-220, [193]. 1066 International Lesbian, Gay, Bisexual, Trans and Asexual Association Annual Report 2017, [15]. 1067 Diggelmann, O., and Clais, M.N. (2014) ‘How the Right to Privacy Became a Human Right’, Human Rights Law Review, 14(3): 441-458, [441]. See also, Drafting Committee on an International Bill of Human Rights, 11 June 1947. 188 While a balance is inevitable in the context of qualified rights, there are scholars like Moore (1998) who have argued that freedom of expression should not be viewed as more important than privacy.1068 Many argue that technological advancement poses the greatest threat to privacy.1069 Contrastingly, it might be the case there is a growing acceptance by individuals to dispense of privacy in favour of the convenience technology provides. There have been interesting studies, such as Acquisti et al (2013), about the varying value people and businesses place on privacy.1070 Some have argued that privacy is an expression of triviality.1071 This point lends itself to those made about technological advancement and the values of convenience. Sevignani (2016), in his exposé about privacy in the age of social media, is critical of various notions of privacy as “possessive individualistic ideologies”.1072 While Sevignani falls short of attacking individualism, he prioritises the role of social circumstances (giving the example of social media services regularly changing privacy policies) and suggests that an alternative response to the struggle against surveillance is needed, rather than just default insistence placed upon the notional value of privacy.1073 7.3. Confidentiality and Privacy in the Context of Financial Affairs While there is no internationally-accepted right to financial privacy per se, financial information and confidentiality in such matters are well-understood to have legal protection. This sits both within the general right to privacy, as well as in the context of confidentiality duties and obligations which arise constitutionally and at common law. Having discussed the general right to privacy, it is necessary to evaluate the legal rationales for its place in financial affairs – doctrinally and through examining case law which demonstrates courts have often approached this question in favour of privacy over disclosure. Confidentiality as a material component to the provision of certain offshore services means it has evolved into a norm in OFCs. Then, of course, there is bank secrecy – legislation and culture which prohibits banking information disclosure. There are nuances within these strands of privacy formulations. There 1068 Moore, A.D. (1998) ‘Intangible Property: Privacy, Power, and Information Control’, American Philosophical Quarterly, 35(4): 365-378. 1069 Maple, C. (2017) ‘Security and privacy in the internet of things’, Journal of Cyber Policy, 2(2): 155-184. 1070 Acquisti, A., John, L.K., and Loewenstein, G. (2013) ‘What is Privacy Worth?’, The Journal of Legal Studies, 42(2): 249-274. 1071 Negley (1966) supra 1060, when discussing Hegel’s distinction between moralität and sittlichkeit (i.e. an individual’s private judgment versus obligation in terms of duties as defined by corporate or institutional order), [321]. 1072 Sevignani (2016) supra 1049, [148-189]. 1073 Ibid, [191]. 189 are also other well-known arguments appearing to strengthen privacy’s extension to financial affairs. For example, financial asylum – where wealthy individuals domiciled in unstable or oppressive societies hide their wealth abroad. Given their wealth makes them vulnerable to targeting (by criminal gangs, oppressive governments or corrupt institutions) this seems a sensible reason to seek to transfer wealth to secure, or secretive, environments. However, Shaxson (2010) has argued that this sustains a lack of political development, because only those countries’ wealthiest have access to offshore services. 7.3.1. Confidentiality Confidentiality is a fundamental aspect of life and it is vigorously protected by law. Through non-disclosure or confidentiality agreements, the law provides a deterrent function to prevent breaches of material information. These are often boiler-plate provisions in commercial contracts with important underlying rationales, such as protecting trade secrets, intellectual property, or price-sensitive information. Indeed, the main bases of 1980s UK insider dealing legislation were to preserve the financial market’s level playing field, and prevent insiders making private gains by abusing information unauthorised for public disclosure.1074 Typically, the role of confidentiality in financial affairs acts to safeguard information which facilitates commerce, competitiveness, expansion or privacy. For example, premature publicity of merger negotiations might devalue share prices, harm investors and destabilise the market. Protecting commercial secrets from competitors has been recognised in case law, such as in Securities and Exchequer Commissioners of the USA v Guaranty Trusts Ltd [1985].1075 Of course, confidentiality agreements are not direct remedies per se as its deterrent function cannot guarantee the information’s protection. It primarily aims to deter, as an award of damages for disclosure may not provide adequate restitution. 7.3.2. Legal Privilege In the legal setting, confidentiality is seen via the doctrine of legal privilege,1076 which protects the confidentiality of communications between lawyer and client, under strict rules, 1074 For background, see Rider, (1993) supra 252. 1075 Securities and Exchequer Commissioners of the USA v Guaranty Trusts Ltd [1985] SC 423 (Bahamas). 1076 See Three Rivers District Council and Others v The Governor and Company of the Bank of England [2004] UKHL 48. 190 for the purpose of legal advice.1077 Typically, only the client can waive privilege. The rationale of keeping legal advice confidential is that only the client should be able to authorise who is in possession of information relating to his affairs.1078 The implication from the Panama and Paradise papers was that law firms were knowingly or otherwise facilitating wrongdoing. There is a legitimate line of inquiry which the perpetrators of the data-breaches successfully opened. That is, the extent to which lawyers might hide behind legal privilege to facilitate clients’ wrongdoing – whether via advice or services they provide.1079 Similarly to the way individuals can hide behind the corporate veil of limited liability, the concept of privilege only waivable by the client, represents a problem arguably at the heart of the Papers’ revelations. The reality, however, is that while this may represent a problem, there is an equally concerning problem with handling information believed to be stolen or legally privileged. It is interesting to note the challenges lawyers and enforcement officials have had with handling the law firms’ leaked or stolen information. Lawyers, including public prosecutors, are bound by strict laws and ethical guidelines which prohibit handling information they know, or have reason to believe, are legally privileged. The issue with the Panama and Paradise papers is that while journalists may escape liability on the basis that the information is now widely disseminated or in the public domain, the information is arguably untargeted and prefaced on the ICIJs acknowledgment that the data-base does not allege wrongdoing or criminality.1080 As such, lawyers investigating and considering charges in relation to the information (by which they must compile enough evidence for a realistic prospect of conviction) have to operate with extreme caution not to stifle efforts on critical procedural grounds. For instance, the Swiss Government recently rejected an invitation to view the Panama papers in Germany, with its Attorney General’s office stating that it was restricted by regulations on receiving and using evidence.1081 Notwithstanding these concerns, regulating the professions was outlined in previous chapters as a necessary response to AML-risks. However, there have been some challenges to these attempts in certain jurisdictions, where lawyers have considered that some increased obligations potentially subverts legal privilege and fundamental rights.1082 In Jamaica Bar 1077 See Prudential PLC and Prudential (Gibraltar) Limited v Special Commissioner of Income Tax and Philip Pandolfo (HM Inspector of Taxes) [2009] EWHC 2494 (Admin). 1078 Examples of abuse could include information being sold to third parties (e.g. competitors or the media) for secret profits. 1079 Goldsmith, J. (27 February 2017) ‘Getting our affairs in order’, Law Society Gazette, p10. 1080 ICIJ Offshore Databases Website. 1081 SwissInfo (27 January 2019) ‘Switzerland rejects German Panama Papers offer’. 1082 Jamaica Bar Association v The Attorney General and The General Law Council [2017] JMFC Full 02. 191 Association v The Attorney General and The General Law Council [2017], the Bar objected to new AML requirements under POCA legislation, which they argued were unconstitutional,1083 including subjecting law firms to searches and seizures.1084 They argued that the right to legal representation and the implied right to confidentiality thereof would be undermined. 7.3.3. Confidentiality Norm in OFCs There are legitimate reasons why one might seek confidentiality and privacy. In the context of OFCs, privacy as part of the broader provision of offshore services has equated to profitable business and financial independence. Given that its provision has become the lynchpin in many islands’ developmental strategies, it is unsurprising that confidentiality is so vigorously guarded. As Antoine (2014) acknowledges, “the entire structure of offshore finance is designed to be confidential”,1085 and “the notion of a fiduciary relationship must be even stronger within offshore financial circles where legitimate clients invest on the understanding of priority given to confidentiality”.1086 As such, it is important to understand why there is a legitimate expectation of privacy in financial matters both from users and facilitators; why it is valued in the offshore context; and, whether it remains justified. At the offset, confidentiality has been seen in many civilised societies to be more than a legal requirement. For example, countries which place great value on individual liberties have tended to place greater emphasis on confidentiality, rather than something simply confined to professional relationships. An example being Switzerland which, as well as respecting confidentiality through the Swiss Civil Code, has traditionally placed significant importance on the values of personal liberty and independence, as Aubert (1984) remarks.1087 Indeed, a rigorous campaign to largely eradicate bank secrecy in Switzerland through a referendum in 1984 was significantly defeated with 73% voting against it.1088 The result implied the value of privacy held by the Swiss in this regard. It is important to distinguish the notion of privacy as a desirable feature of financial affairs, from its abuses.1089 In the context of its abuses, it is clear that any attempt to undermine 1083 Contrary to ss13(3)(a)(j) and 16, Charter of Fundamental Rights and Freedoms (2011) (Jamaica). 1084 The Gleaner (11 June 2017) ‘Words Aplenty When Lawyers Clash – Jamaica Bar Association vs Attorney General and GLC’. 1085 Antoine, R-M. (2014) Confidentiality in Offshore Financial Law, Oxford: OUP, [26]. 1086 Ibid, [38]. 1087 Aubert, M. (1984) ‘The Limits of Swiss Banking Secrecy under Domestic and International Law’, International Tax and Business Lawyer, 2(2): 273-297, [273-4]. 1088 Ibid, [297]. Particulars of the campaign are outlined at [296]. 1089 Ibid. 192 confidentiality should have law enforcement as its objective, particularly, fighting crime. Through exchange mechanisms implemented in offshore jurisdictions to provide information to onshore ones, additional to the well-established MLA doctrine, it is clear that there is an acceptance to curtail privacy rights in the case of wrongdoing. It is, however, the criticism of countries’ unwillingness to go further in light of adverse revelations, which calls into question whether striving to safeguard confidentiality more generally is acceptable or not. Therefore, it is worth examining the confidentiality norm in OFCs. Trusts are a good example whereby courts in various offshore jurisdictions have emphasised confidentiality’s importance. In the Bermudian case of Guardian Ltd v Bermuda Trust Co [2009],1090 the court considered the issue of disclosure of a trust’s identity and beneficiaries with regard to the interpretation of a trust deed clause excluding spouses. It also concerned publishing Chambers rulings,1091 as there was a public interest in publishing the judgment but only if it did not reveal confidential information. Prioritising non-disclosure, the court considered Bermuda’s status as an offshore jurisdiction and the development of its trusts law. Kawaley J stated: “Having regard to Bermuda’s status as an offshore trust domicile, this Court is bound not just to be sympathetic to the privacy needs of those who establish trusts here, but also to the need to promote the development of Bermuda trust law”.1092 Other examples of courts finding in favour of confidentiality include the Cayman case of Re H [1996] whereby a US subpoena requiring disclosure of information about assets of a Cayman trust as evidence in foreign proceedings was irreconcilable with the confidentiality obligations thereunder.1093 Likewise, in the Belize case of Securities and Exchange Commission v Banner Fund International [1996],1094 confidentiality obligations relating to trusts in Belize law were interpreted strictly in response to a request by US enforcement bodies. In the Jersey case of Macdoel Investments Ltd et al v The Federal Republic of Brazil [2007],1095 when considering legal safeguards, the court paid particular attention to the fact that Jersey had developed as a major financial centre. In the context of confidential banking relationships, a similar view was taken by the Bahamas Supreme Court in Pindling v Douglas [1994].1096 Strachan J emphasised the statutory nature of banking confidentiality, and with this the necessary public 1090 Guardian Ltd v Bermuda Trust Co Ltd [2009] SC (Bda), 54 (Civ). 1091 Cases conducted “in Chambers” means they are not conducted in open court. Trust cases are typically sealed at an interlocutory stage. 1092 Supra 1090, Kawaley, J, [25]. 1093 Re H [1996] CILR 237, Smellie, J, [4-25]. 1094 Securities and Exchange Commission v Banner Fund International [1996] 54 WIR 123 (SC) (Belize). 1095 Macdoel Investments Ltd v Federal Republic of Brazil [2007] JLR 201 (Jersey). 1096 Pindling v Douglas [1994] 318, Sup Ct. (Bahamas). 193 importance of preserving confidentiality considering the Bahamas as an important financial centre with public confidence therein needing to be safeguarded.1097 For the jurisdictions in question, it is an inescapable fact that confidentiality attracts clients and thereby carries a more practical policy justification.1098 Antoine (2014) makes the comparison that there are many types of onshore laws designed to stimulate economic growth, citing laws on compulsory arbitration or relating to non-unionism in labour law. Indeed, laws providing fiscal incentives for businesses to locate rurally aim to stimulating growth in those areas. There is an imperative link between law and economic development which is important in examining the justifications of a particular legal provision. The OTs financial centres were not set up for nefarious purposes and confidentiality in financial matters was created due to the realisation in larger countries that providing such services promoted sound commercial relations.1099 Therefore, when new standards which undermine confidentiality for the purpose of fighting crime, based on the presupposition that such features of an OFC can facilitate abuse, it could be viewed as misguided to revert to a narrow conclusion that the common law should no longer afford individuals such protections. There is also a public interest argument in confidentiality, despite the common perception that this best serves the converse argument. Traditionally, courts have not taken the public interest justification for undermining privacy lightly. In the English case of R v Inhabitants of the Country of Bedfordshire [1855], Campbell LJ stated that “‘interested’ here does not mean that which is interesting from gratifying curiosity or a love of information or amusement, but that in which a class of the community have a pecuniary interest, by which their rights or liabilities are affected”.1100 This principle was also espoused by Griffiths LJ in Lion Laboratories Ltd v Evans [1985] who reinforced the necessity of distinguishing that which is in the public interest and that which is interesting to know.1101 This case law principle demonstrates that public interest should not be taken broadly. This common law principle is particularly relevant, when data-breaches increasingly result in sensational headlines. For example, while the Panama papers exposed UK Prime Minister David Cameron as having benefited from his father’s offshore investments, the fact that he paid UK income tax on the proceeds is far less ‘interesting’ than the implication that he had investments offshore. Set against the increasing backdrop of negative reputational harm caused by expository data-breaches, many offshore jurisdictions are eager to obviate the connotations 1097 Ibid, [1996] 1 WLR 243, 250. 1098 Antoine (2014) supra 1085, [38]. 1099 Ibid. 1100 R v Inhabitants of the Country of Bedfordshire [1855] 24 LJBQ 81, per Campbell J at [84]. 1101 Lion Laboratories Ltd v Evans [1985] QB 526, per Griffiths LJ at [553]. 194 implicit and explicit in such attacks. As was recently seen in Malta with Standard and Poor’s assessment of heightened reputational and operational risks in its banking sector,1102 de- risking presents significant challenges to both institutions and markets. Legitimate investors and institutions can be put off conducting business in jurisdictions which have been negatively reviewed – whether in terms of ML allegations against domestic institutions, or if controls are lacking more broadly. It has also been argued that maintaining the confidentiality norm in offshore financial matters is a matter of public policy. Antoine (2014) suggests: “just as onshore states have the right to protect their economic interests by attacking offshore law and policy, all things being equal, offshore states have a similar right to safeguard their economic and political interests by upholding them”.1103 This is important in the context of offshore jurisdictions which rely on services and the ability to respect confidentiality, notwithstanding the exchange mechanisms already in place. As well as economic considerations, there is a deeper constitutional basis for offshore jurisdictions striving to maintain confidentiality which pertains to their devolved systems of governance on certain matters such as economic policy, tax legislation, financial regulation and company law. The UK’s recent legislative ultimatum strikes at the heart of this constitutional argument. While the UK government has considered this to be an extreme circumstance warranting justification, if the aforementioned matters have been devolved in good faith by the UK Parliament in legislatively recognising the territories’ Constitutions, any attempt to appropriate autonomy in these matters appears constitutionally flawed. It is also worth noting that many aspects of confidentiality in financial matters are equally protected onshore, as offshore. This undermines certain criticisms which portray OFCs as being more associated with confidentiality. The public beneficial ownership register is a good example, whereby jurisdictions world-wide are still not reconciled on the extent to which information should be provided to domestic authorities, foreign law enforcement, or civil society – freely or for a fee. For example, the UK is the only major onshore country that makes such information publicly and freely available. It could be argued that given most onshore countries do not yet condemn their own policy of not making beneficial ownership information public, why should offshore countries bow to criticism of their similar policy. It certainly raises legitimacy questions over the pressures exerted on OFCs. 1102 Malta Today (2 August 2018) ‘Update: Maltese banking resilient and profitable, MFSA reacts to S&P risk warning’. 1103 Antoine (2014) supra 1085, [44]. 195 7.3.4. Bank Secrecy Bank secrecy is something which is often associated with OFCs and usually refers to domestic law prohibiting banks from disclosing information about their clients or accounts. It goes further than the express or implied confidentiality duty in such professional dealings. In 2009, the G20 claimed “[T]he era of banking secrecy is over”.1104 Consequently, in 2013, the G8 stated “tax authorities across the world should automatically share information to fight the scourge of tax evasion”.1105 The OECD has continued to pressure countries to enhance tax evasion controls since the 2008 financial crisis. Tax evasion is now accepted to be facilitated by OFCs and, in particular, bank secrecy.1106 The Panama and Paradise papers saw the phrase ‘secrecy jurisdiction’ regularly mentioned in the context of OTs.1107 However, many popular OFCs do not have bank secrecy legislation, which directly challenges this aspect of the tax haven perception. The most renowned jurisdiction in the last century for bank secrecy was Switzerland where, prior to the Swiss Money Laundering Act 1997, secrecy laws and practices were stringent.1108 As Sharman (2017) notes, Switzerland was the “most secretive and secure host of illicit money”,1109 yet also has become perhaps the most active asset recovery practitioner in respect of looted funds. International AML strategy has largely diminished bank secrecy, particularly with information exchange requirements. There is also increasing compliance with FATF R.37 that countries should not refuse to execute a MLA request on the grounds of bank secrecy.1110 This standard exemplifies the growing global intolerance to such laws. According to Nakajima (2017), the increasing AML initiatives have led to financial institutions implementing measures to facilitate disclosure. However, Nakajima suggests there is a conflict placed upon banks who have to comply with international commitments, yet also owe a confidentiality duty to customers.1111 There is sentiment that in previous decades, the responsibilities contained in FATF on bank secrecy would have been seen as corporate social responsibility and thus perceived as voluntary.1112 Placing institutions in a position of conflicting demands results in exposing banks to increasing legal, regulatory and reputational risks and other 1104 G20 (2 April 2009) ‘London Summit – Leaders Statement’, [15]. 1105 G8 (18 June 2013) ‘G8 Lough Erne Declaration’. 1106 OECD (26 October 2011) ‘The Era of Bank Secrecy is Over: The G20/OECD Process is Delivering Results’. 1107 The Guardian (5 November 2017) ‘What are the Paradise Papers and what do they tell us?’ calls Bermuda and the Cayman Islands ‘secrecy jurisdictions’. 1108 Stressens, G. (2000) Money Laundering, Cambridge: CUP, [101-102]. 1109 Sharman (2017) supra 32, [86]. 1110 FATF Recommendations, R.37. See also, Section D, R.9; and R.21(a). 1111 Nakajima (2017) supra 43, [115]. 1112 Ibid, [125]. 196 unintended consequences. For example, civil actions brought by clients whose confidentiality might have been breached. Of course, eradicating bank secrecy does not mean jurisdictions cannot facilitate secrecy in other ways – for example through anonymous shell companies. Bank secrecy has, however, typically been subject to exemptions under the common law which have been upheld by various courts. For example, in the English case of Tournier v National Provincial Bank [1924], an implied contractual duty of confidentiality was found on the part of the bank not to disclose client information to third parties. The ‘Tournier principle’ prevents disclosure except in select circumstances including by compulsion of law; public interest or with the express or implied consent of the client.1113 This principle has been applied in subsequent cases, such as the US case of Peterson v Idaho First National Bank [1961] where a bank had disclosed to its client’s employer that its client’s cheques were not being fulfilled. The bank was held liable for breach of an implied duty of confidentiality between it and the client. 7.3.5. Confidentiality in Financial Matters & Its Limits While constitutional rights to privacy do not automatically extend to financial privacy, an increasing level of disclosure obligations necessitates an approach by individuals mindful of their privacy to seek to rely on constitutional provisions insofar as possible. Disclosure of private financial information is legally permitted in clearly defined circumstances, as the Tournier principle demonstrates. While privacy and confidentiality are legally recognised by the courts to be legitimate safeguards, there is another side to it. Offshore services do provide various layers of protection which can either be impossible to permeate, or make it particularly difficult to obtain information. For example, one of the primary uses for offshore trusts is to protect assets whereby the trustee acts as a fiduciary in holding assets on behalf of the beneficiary. Further, one could create a secret bank account or list a company name as beneficial owner, of which the ultimate owner is untraceable given that jurisdiction does not centrally require such information. Or, one could create a private bank subject to far less regulation and reporting requirements to offer an additional privacy layer. It could be said that layering within complex trusts or foundations, for example, inhibits transparency1114 – and that beneficial ownership of companies information is only one issue which may simply disperse activity to other less regulated vehicles. 1113 Tournier v National Provincial Bank [1924] 1 KB 461 CA, at 473. 1114 See, for background, Griffin, J. (2017) ‘The need for the abolition of secret rusts’, Trusts & Trustees, 23(4): 373-382. 197 7.3.6. Transparency and The ‘Nothing to Hide’ conjecture Amidst the fast-changing, yet unsettled landscape of international transparency standards, a common argument presented by transparency campaigners is that if you have nothing to hide, then you should have no problem with having your financial business transparent for media and public scrutiny, known as the ‘nothing to hide’ argument. The implication of this view is that providing such information through established mechanisms to law enforcement is not enough. This view was expressed by many in UK parliamentarians, including a former Secretary of State for International Development during a debate on SAMLA: “…the territories may well allow access to law and order agencies, within an hour in the case of terrorism, through closed registers, but that does not allow civil society – charities, NGOs and the media – to expose them to the sort of scrutiny that the Paradise and Panama papers did”.1115 The suggestion that individuals (not elected nor accountable to the public) engaged in legitimate business should be subject to scrutiny by anyone other than the state, and only circumstances relating to the prevention of crime or preservation of national security, is concerning yet represents the fast-moving legislative changes. Similarly, in a recent Parliamentary debate on ML, the Economic Secretary to the Treasury and City Minister said: “people with nothing to hide have nothing to fear” with increased transparency requirements.1116 Likewise, Global Witness recently argued that there are “many secret companies registered in UK tax havens, many of which are not vehicles for crime or corruption and have nothing to fear from greater transparency”.1117 This overly simplistic view is ideologically flawed as it presupposes the benefits of transparency and insists on a complete disregard for well-established legal protections of privacy and confidentiality. While it is indisputable that transparency will likely deter crime – a sensible balance needs to be struck. If Gordon & Morriss’s formulation is to be preferred,1118 then ‘efficient enterprise’ theory would prioritise legitimate financial flows rather than isolated criminality. The ‘nothing to hide’ argument is more commonly seen in the literature on national security1119 or crime prevention. Its most famous opponent was arguably Benjamin Franklin,1120 who contended that “those who would give up essential Liberty, to purchase a 1115 HC Deb (1 May 2018) Vol. 640, Col. 203, Andrew Mitchell MP. 1116 HC Deb (21 March 2017) Vol. 623, Col. 790, Simon Kirby MP. 1117 Global Witness (20 Feb 2018) ‘The Time Has Come to Address the Issue of the UK Overseas Territories’. 1118 Gordon & Morriss (2014) supra 29. 1119 See Marsh J. (2003) Rights vs Public Safety after 9/11, Lanham MD: Rowman & Littlefield. 1120 Franklin was one of the Founding Fathers of the United States. 198 little temporary Safety, deserve neither Liberty nor Safety”.1121 This formulation appears to find privacy and liberty more sacrosanct than security. One prominent scholar on this issue is Solove (2013) who contends that the ‘nothing to hide’ argument is flawed in many ways, not least due to the fact that protecting privacy is not necessarily fatal to preserving security.1122 Solove studied retorts to the ‘nothing to hide’ argument, including: “Do you have curtains?”; “Can I see your credit card bills for last year?”; “I don’t have anything to hide, but I don’t have anything I feel like showing you either”; and, “It’s not about having anything to hide, it’s about things not being anyone else’s business”.1123 Solove’s position is that privacy is pluralistic and the ‘nothing to hide’ view represents a narrow conception of privacy. He suggests that data collection programmes and enhanced surveillance have changed the privacy landscape and that the balancing of privacy against security often “shortchanges the privacy interest while inflating the security interests”.1124 There are conceptual similarities between privacy in Solove’s context and privacy in the context of the modern transparency campaign. When the impact of offshore privacy is averred to involve trafficking, corruption, TF, dirty money and the world’s elite,1125 it is unsurprising that the campaign for more transparency is increasing – from supranational structures and domestic legislatures alike. 7.4. International Standards for Increasing Transparency: beneficial ownership information and exchange As chapter 2 demonstrated, an international response is both necessary and desirable in many aspects of fighting economic crime. International standards imply a sense of singularity through standardisation. FATFs Recommendations are a good example of a prominent internationally-accepted approach. Yet, there are two competing problems with the state of the international response on certain standards. The first is the one-size-fits all approach attributed to the relevant OTs (considered through chapters 4-6). The second is 1121 US House of Representatives (1756) ‘Votes and Proceedings in the House of Representatives, 1755- 1756’, Remarks of Benjamin Franklin, 11 November 1755, para 6, [19-21]. 1122 Solove, D.J. (2013) Nothing to Hide: The False Tradeoff between Privacy and Security, New Haven: Yale University Press. 1123 Solove, D.J. (2008) supra 1047, [750]. 1124 Ibid, [771-772]. 1125 For example: The Times (25 April 2018) ‘Tax havens prepare to expose corrupt tycoons and oligarchs’; Politics Home (25 April 2018) ‘MPs set to expose ‘dirty money’ in fresh crackdown on overseas tax havens’; The Guardian (27 March 2018) ‘Tax havens are a stain on Britain – the cleanup starts now’; RT (26 April 2018) ‘UK plans to expose ‘filthy money’ allegedly sheltered by Russians in British offshores’; Cayman Compass (3 May 2018) ‘International press has little sympathy for ‘dirty money’ ‘tax havens’’; The Guardian (5 November 2017) ‘Paradise Papers leak reveals secrets of world elite’s hidden wealth’. 199 that there are different rules being conceived and imposed by certain constituent members of the international group. Specifically, the UK seeking to impose public registers on the OTs despite the FATF Recommendations not explicitly advocating this, nor it being yet accepted as an international standard. If standards are to achieve success and carry legitimacy, it is unhelpful if some members of the international community set their own standards that contrast with the broader regime. Another example are the recent blacklisting attempts at both EU and individual state levels. In 2018, the OTs initially avoided the EU’s blacklist, yet included on its greylist taking account of recent commitments and development circumstances. However, in close succession, the Netherlands created their own harmful tax jurisdiction blacklist and added the relevant OTs to it. Exchanging information between competent authorities in respect of tax and beneficial ownership is fast becoming normative policy. However, there are those which think this is not enough in the context of OTs, which has culminated in a campaign to impose more transparency.1126 Ascertaining the ownership of companies is widely acknowledged to be an effective tool in preventing serious economic crime. Traditionally, however, most companies never had to provide beneficial ownership information to government bodies in the countries of incorporation, only some information confirming the company’s existence.1127 Much is the same internationally today. At present, there is no clearly-defined international standard vis- à-vis collecting beneficial ownership information of entities. Based on FATF R.24, it is more accurate to say that holding information centrally, rather than publicly, is the direction of development. Buttressing this point, many jurisdictions have only recently implemented central registers. For example, the Serbian government created legislation for a central register in June 2018 and Portugal implemented its central register in August 2017.1128 Sharman (2016) noted that even as recently as 2016, the US presented a significant problem due to it having “neither licenced CSPs nor registries of beneficial ownership information (and has opted out of the worldwide CRS on tax information exchange as well)”.1129 Indeed, the UK’s register has only been operational for 3 years.1130 1126 See Clause 6, Sanctions and AML Bill, and section 51 SAMLA (UK). 1127 Sharman (2016) supra 52, [4]. 1128 Law 89/2017 (Portugal). 1129 Sharman (2016) supra 52, [11]. 1130 Open Ownership & Global Witness (2017) ‘Learning the lessons from the UK’s public beneficial ownership register’. 200 7.4.1. Section 51, SAMLA As has been mentioned, the UK government announced that the OTs have until the end of 2020 to commit to operating public registers, or face having them imposed. Given transparency activism in the UK and a precarious minority government, it is unsurprising that this transparency amendment was again tabled in Parliament. However, the incongruity of it is demonstrated by the lack of thorough consultation with the OTs. It was justified as an extreme matter, relating to foreign policy and national security, relying on ML concerns. The move appears motivated as much by tax avoidance as ML. It is considered as the UK leading the way to a new international standard. However, it is arguably premature and idiosyncratic, given that the UK has not yet addressed deficiencies in its own register, nor the inherent loopholes in domestic tax legislation and policy, such as incorporating as a limited company to pay less income tax or corporately own assets. Imposing policy which is not the international norm via unilateral legislative ultimatum is constitutionally inapposite. It undermines the 2012 White Paper policy on partnership with the OTs and the giving of support to those which have committed to transparency.1131 In doing so, it has omitted regard to the successes, but also the concerns and capacities, of the territories. Principles of good governance are hallmarks of the UK’s reputation and the OTs’ legislatures are avidly trying to follow these principles. Yet, when decision-making powers are removed, despite their stages of implementation of various international standards, disenfranchisement and resistance is inevitable. The impact of public registers will affect each territory differently – which lends support to the view that a one-size- fits-all approach is inappropriate. It is conceded that once the register system is in place, making it public ought not to require significant resources beyond initial implementation and consequent maintenance. However, it is viewed by some of the territory leaders as a renegade in relations and a regressive move akin to colonialism.1132 It therefore represents a deeper issue, rather than just the impracticability of implementation. Bermuda’s Premier said the proposal showed a “wanton disregard” for Bermuda’s unique constitutional position and an “egregious breach of well-established constitutional conventions”. He emphasised there would be no public register until Bermuda’s Assembly votes to implement it. He stated “the government rejects this regressive colonial mindset that some in London hold, that a Parliament 3000 miles away can impose anything on Bermuda that does not fall under the 1131 FCO (2012) supra 297, per Lord Sassoon at [57]. 1132 The Times (5 May 2018) ‘Keep your colonial nose out, islands warn’, remarks of BVI Premier, Hon. Orlando Smith. 201 areas of Defence, Internal Security, the Judiciary, and External Affairs”.1133 TCIs Premier called the announcement “destructive, constitutionally regressive, offensive and disappointing [and will] cause additional burden and hardship”.1134 In Anguilla, the Opposition Leader noted the inconsistency in approach to the treatment of the OTs and CDs, as well as the disastrous impact it will have on the financial industry and the financial wellbeing of the territory’s people.1135 In BVI, over 1000 people protested,1136 and its government announced its intention to legally challenge the UK Parliament’s authority to impose a public register on constitutional grounds.1137 Similarly, Cayman’s Finance Minister criticised the UK’s ignorance of “Cayman’s high level of ongoing cooperation [with] over 100 tax authorities globally, including HMRC”.1138 One concern is that Section 51 ignores the wider implications of budget issues in the OTs, for example, significant recovery following the hurricanes. Having to prioritise a public register, raising awareness, educating company officers on these changes and enabling professionals to provide accurate timely advice, seems misplaced when recovery efforts are still ongoing in some territories. Particularly when, given the research in chapters 4-6, Bermuda and TCI might argue their system in place is already viable and was implemented in good faith and in adherence to international standards. The process of implementing sophisticated, international standards is time and resource-intensive, and requires a shift in attitude. There has to be periods of consultation with citizens, public and private sectors in order to be informed about likely effectiveness and constraints. These societies are not monoliths, as was evidenced by their various commitments to transparency and compliance identified in chapters 4-6. Their governments have to operate in a way tantamount to any other democratically-elected government. Implementing standards effectively relies on those regulated to comply, and government must ensure people understand the need to. The UK should be supporting this in furtherance of its responsibility to ensure the territories’ good governance. The FACs 2018 inquiry was recently published and, among many submissions made, the Minister responsible for the OTs stated that they would have until 2023 to produce operational registers, on the basis of earlier assurances by Prime Minister Cameron that 2023 would be the target date for ensuring worldwide obligations on beneficial ownership.1139 1133 Bermuda Government (4 May 2018) supra 521, [3-4]. 1134 TCI Government, statement from Premier Sharlene Cartwright-Robinson, 4 May 2018. 1135 The Island Sun (21 June 2018) ‘Anguilla’s Opposition Leader Praises BVI’. 1136 The BVI Beacon (25 May 2018) ‘1000-plus protest UK public register decision’. 1137 Withers Worldwide (4 June 2018) ‘Withers appointed by BVI Government to advise on public register challenge’. 1138 Cayman Compass (1 May 2018) ‘Full statement from Cayman Islands government’. 1139 UK FAC (18 December 2018), Oral Evidence ‘The Future of the UK Overseas Territories’, HC 1464, Lord Ahmad, Q232. 202 At EU level, the 5th AML Directive has been adopted by the European Council. This rapidly updates the recently implemented 4th Directive, which introduced the requirement for central registers. The 5th AML Directive (2018) goes further by requiring the information to be accessible to “any member of the general public”.1140 In addition, there will be the requirement to hold information on beneficial ownership of trusts. The Directive requires access to be implemented by 10 January 2020.1141 Given that the UK and Sweden are the only EU states which presently have public registers (albeit Sweden’s is accessible for a fee),1142 it seems highly ambitious that this will be achieved by all states within this timeframe. This is particularly so in the case of poorer EU states, or those which only recently implemented, or are yet to have, functioning central registers. Furthermore, there are those who have suggested irreconcilability between the trend towards data protection seen at EU level with the General Data Protection Regulation (‘GDPR’), and increasing public registers and other subversions of confidentiality in financial matters.1143 Noseda (2018) suggests that while registers might be an effective tool, the question of privacy makes their necessity rather more questionable. While GDPR aims to “give citizens back control of their personal data and create a high, uniform level of data protection across the EU fit for the digital era”,1144 it is clear that in other areas privacy is not considered to carry the same degree of importance. The concept of informational privacy is well- established,1145 encompassing the trend towards increased ownership-emphasis, privacy and regulation of personal data. Antoine (2014) suggests there is similarity between the individual’s desire to protect sensitive financial information located in a financial institution, and protecting personal information located in a government or public data banks. 7.4.2. International Positions on Beneficial Ownership Registers TI (2018) conducted an international study on G20 Beneficial Ownership Principles. Despite the UK’s desire to make public registers a global standard thereby justifying its imposition on OTs, its findings demonstrate that public registers are not yet the international 1140 European Commission Fifth Anti-Money Laundering Directive (2018) (EU) 2018/843 amending Directive (EU) 2015/849. 1141 Ibid, para 53, [52]. 1142 Swedish Companies Registration Office (Bolagsverket). 1143 Noseda, F. (9 June 2018) ‘Public registers in the age of GDPR’, Mischon de Reya LLP, Legal Comment. Additional insight: Schofield, M., and Masuria, M. (13 March 2017) ‘GDPR & MLR: can they really work together?’, RFS Financial Crime Workshop. 1144 European Parliament (14 June 2016) ‘Data protection reform – Parliament approves new rules fit for the digital era’, Press Release. 1145 Westin, A.F. (1970) ‘Privacy and Freedom’, Washington and Lee Law Review, 25(1): 166-170. 203 standard and imply it is a long way off. Specific findings support the argument that the UK’s approach to imposing public registers on the OTs is disproportionate. These include that Canada, US and China scored “zero points on requiring companies to collect and maintain accurate and up-to-date beneficial ownership information”,1146 and that only 6 G20 countries have central registers. The modern public register campaigns rely on powerful, legitimate expectations such as the rights of people to live in corrupt-free societies, or that high-tax jurisdictions have difficulty in managing deficits and implement austerity policies. Moreover, large OECD countries are concerned about large multinationals’ tax avoidance using loopholes to save billions in tax.1147 Public registers are not as relevant for multinational companies because information with regards to ownership, majority shareholdings, and directorships are generally publicly accessible under company reports. If a large multinational wants to avoid tax, this is less to do with transparency and more to do with making use of legitimate legislative loopholes, which reshapes the debate towards reforming domestic tax law – something the EU Anti-Tax Avoidance Package sought to address by the end of 2018.1148 In June 2018 it was reported that MOSSFON could not identify the owners of up to three quarters of companies it administered.1149 This finding adds weight to the arguments in favour of public registers. Dame Margaret Hodge stated “This is simply further proof … why we absolutely must have public registers”,1150 which adds credence to the ‘nothing to hide’ conjecture. However, while concerning, it is not the same issue at hand as unilaterally imposing legislation on behalf of the territories nor may it provide enough legal or moral justification for surrendering fundamental rights. TI’s findings in relation to G20 countries’ and whether they operate central or public registers, is a telling picture of the present international landscape. Specifically, while the UK has taken the lead, the question of proportionality is raised with regard to the UK’s threat. TI found that only 6/20 G20 countries have central registers of beneficial ownership: Brazil, France, Germany, Italy, the UK and guest Spain. Surprisingly, despite the resources of larger nations, no G20 countries require authorities to verify the register’s information – thereby relying on sanctions as a deterrent for non-compliance and, otherwise, the honesty of representations. The report found that in 9 G20 countries, including Australia, Canada and 1146 TI (2018) supra 572, [3]. 1147 The Independent (4 September 2017) ‘Tax avoidance cost UK economy $13 billion in five years, says Labour’. 1148 European Commission (2016) ‘Fair taxation: Commission presents new measures against corporate tax avoidance’, Press Release. 1149 BBC News (20 June 2018) supra 938. 1150 Ibid, remarks of Dame Margaret Hodge. 204 the US, financial institutions can still proceed with transactions even if they cannot identify the beneficial owner. Astonishingly, despite tightening international regulations, TI found that 8 G20 countries, including Argentina, Australia, Germany and South Africa, have not conducted an AML risk assessment in the past 6 years. In stark contrast to those larger developed jurisdictions, previous chapters showed that Bermuda and TCI both have central registers, and both published national AML risk assessments in 2017, while Anguilla has committed to implementing a central register and is undertaking a NRA. The decision of the UK to make a public register emanated from placing corporate transparency on the international agenda during the Lough Erne G8 Summit (2013). However, the FATF Recommendations are silent as to public registers. This would be a radical move for many countries, particularly those narrower economies reliant on financial services or desirous of maintaining the confidentiality norm in financial affairs upon which their economies have been significantly built. The UK government has embarked upon a speculative risk-based approach with its OTs in mind, that public registers will become the norm. Arguably, this is wilful blindness to the economic realities of the territories, as well as the confidentiality norm present in their business offerings. Jurisdictions like TCI have already remodelled their company and beneficial ownership laws to include more stringent reporting requirements, strict timeframes on updates and increased commitments to exchange information with other governments. Uprooting this system and replacing it with a public one, without rigorously testing the existing model in considering the number and manner of formal requests made, disregards efforts taken already and requires them to go above and beyond existing frameworks. 7.4.3. The UK’s PSC1151 register The UK’s register, established in June 2016, was designed to complement the existing public register of companies. It applies to some 4.1m UK-registered companies. 96% of UK companies are micro-businesses employing between 0-9 persons, and over 99% of total businesses are small or medium sized employing between 0-249 persons.1152 These are the majority of companies listed on the register. The UK government recently acknowledged that the “vast majority of UK companies contribute positively to the UK economy, abide by the 1151 A PSC owns more than 25% of the entity’s shares, holds more than 25% of the voting rights, has power to move directors and exercises significant control. 1152 Rhodes, C. (28 December 2017) HC Library Briefing Paper No. 06152, ‘Business Statistics’, [4]. 205 law and make a valuable contribution to society. But there are exceptions”.1153 Thus, it is prioritising controls on all companies, to eradicate the exceptions – something resembling a ‘control first’1154 regulatory philosophy. As mentioned, the UK register is not independently verified1155 and only annually updated when companies file confirmation statements. Thus, the media, public, NGOs or charities may be unable to scrutinise ownership information accurately. The extent to which the public would wish to scrutinise or be able to understand the technical information and its implications, is also unclear. Open Ownership & Global Witness, in their joint comprehensive assessment of the UK’s register, make the point that certain privacy safeguards exist. These include publishing only a contact address for the company and only the month and year of beneficial owners’ dates of birth.1156 This argument omits reference to the fact that the majority of companies on the register are micro-companies and, while it is difficult to argue with certainty, it is likely that a significant portion of these relate to self-employed individuals, whose company address might be their home. During the implementation period, 10% of companies failed to provide the required information. Perhaps the most significant double standard of this regime, which delegitimises the transparency argument in this context and supports fundamental privacy rights, is the protection provisions. The UK government acknowledged that there is “some information which is useful to law enforcement agencies … but would pose an unacceptable level of risk to individuals in terms of the potential for identity theft and fraud were it made publicly available”. They aver that some individuals may be “placed at serious risk of harm if they are publicly known to be associated with a certain company”.1157 In consequence, on application, such information which would otherwise be publicly available could be removed. Global Witness stated there are 30 beneficial owners who have successfully applied to keep their information private. Wealth invariably carries risk of being targeted, even in the most civilised societies (including blackmail, extortion, kidnap, ransom or defamation). This approach is illogical from a standpoint of fundamental rights. The UK government has lead with 1153 UK Government, Department for Business Innovation and Skills (30 June 2016), Press Release: ‘People with Significant control Companies House register goes live’. 1154 Gordon & Morriss (2014) supra 29. 1155 Global Legal Research Centre, Law Library of Congress, ‘Disclosure of Beneficial Ownership in Selected Countries’, July 2017, [34]. 1156 Open Ownership & Global Witness (2017) supra 1130, [5]. 1157 Department for Business Innovation and Skills (2014) ‘The Register of People with Significant Control (PSC Register): Understanding the new requirements, recording control on the PSC register and protecting people at serious risk of harm’, [6]. Also, The Companies (Disclosure of Address) (Amendment) Regulations 2018, Reg. 5-7. 206 transparency as the default position, but allows individuals to apply for privacy if there are exceptional circumstances rendering the risk of harm to them or their family. For those people, their right to privacy and confidentiality has been respected by the UK government. This also bears no regard to the fact that people’s circumstances change, as it does not take account of individuals already on the register who later become involved in some circumstances to which their public information may retrospectively put them at risk. An inherent, yet hardly acknowledged, risk is that the protection provisions will facilitate a two-tier system, predicated on respect for needs rather than rights. There is naturally limited information about those cases which have protected status, but the rationale behind them is that of harm. It disregards that there are a whole manner of reasons individuals may wish to keep information private which, for them, may be serious – yet not amount to ‘exceptional’ to warrant protection. The subjectivity implicit in this framework is concerning. In other words, the UK government acknowledges that privacy is valuable only in some instances and only afforded to some individuals. There have been instances of false representations on the register, a criminal offence under s1112 Companies Act 2006. One alleged money launderer is reported to have filed his director’s name as “Il Ladro di Galline” (“The Chicken Thief”) and occupation as “truffatore” (“fraudster”).1158 One individual was recently prosecuted for deliberately falsifying information about his companies, naming its directors and shareholders as the UK’s former Business Secretary, Minister responsible for Companies House, and Conservative Party Deputy Chairman.1159 He was fined £12,000 in an unprecedented prosecution for providing false information on the register. However, this case is far deeper than a single prosecution. The defendant averred that he was acting as a whistle-blower exposing a loophole. This has caused criticism at way that Companies House praised the prosecution,1160 rather than addressing the concern that this occurred on more than one occasion. Rather than detection by the registrar, his actions only came to light when he contacted those politicians in the hope of facilitating a discussion about the register’s deficiencies.1161 It certainly exposes the UK as a soft-target for incorporation abuse. 1158 Evening Standard (17 July 2017) ‘Occupation: Fraudster. Address: Street of 40 Thieves’ – how Italians mocked UK company rules’. 1159 Companies House (23 March 2018) ‘UK’s ‘first ever’ successful prosecution for false company information’, Press Release. 1160 The Independent (16 April 2018) ‘Companies House lambasted for trumpeting conviction of fraud whistle-blower Kevin Brewer’. 1161 City AM, 5 April 2018, ‘The government’s pride over the Companies House saga completely misses the point’. 207 7.5. Remaining Paradoxes It is unseemly that s51 applies to OTs, yet not CDs. Bermuda’s regulatory model and OFC framework has been traditionally viewed as more aligned with Jersey than its Caribbean counterparts like BVI. While the UK government cannot pass Orders in Council on CDs, the policy demonstrates inconsistency of approach when CDs have also been targeted in the same way as OTs. If motivators of this policy include the Panama papers, which there is evidence suggesting so,1162 then it must be noted that the Isle of Man was mentioned in the Panama papers, yet Bermuda and TCI were not. It is contradictory that historic blacklisting efforts have come from large international organisations like the OECD, whose salaries are tax exempt in most member states. Famously, the OECD has not been in the business of blacklisting its own members – such as the UK, Switzerland or Luxembourg. Rather, it has been the less powerful nations such as those this thesis concerns, who were traditionally subject to this discriminate approach. Also, little is said of the tax failings of source jurisdictions. International bureaucracies and high-tax nations have been in the business of encouraging others to raise their taxes and making it increasingly prohibitive for small, low-tax jurisdictions to operate in their traditional form. If such nations and organisations want to enhance compliance in their own jurisdictions, a priority ought to be reforming their own taxation systems rather than interfering in the fiscal sovereignty of smaller nations and disenfranchising their elected legislatures. TI called Section 51 a “major victory in the fight against cross-border corruption”.1163 By implication, use of companies in places like Bermuda facilitates cross-border corruption. This assessment falls short on several bases, including that Bermuda is not a prevalent incorporation jurisdiction and that its regulatory and compliance frameworks are such that if the aim is concealment, its central register and bilateral exchange mechanisms would make this more difficult. The argument that public registers will prevent corruption or ML is too simplistic because under the principle of dispersal of criminal activity, illicit funds may move to other less-regulated jurisdictions. The crux of this argument was recently raised by Geoffrey Cox MP1164 in the 1162 In the Sanctions and AML Bill debate in the HC in which Clause 6 was introduced and accepted by MPs, the Panama papers were mentioned on 16 occasions, and the Paradise papers were mentioned on 10 occasions: see, HC Deb (1 May 2018) Vol. 640, Cols. 117-276. Typical arguments included that by Andrew Mitchell MP who stated that non-public registers do “not allow civil society – charities, NGOs and the media – to expose them to the sort of scrutiny that the Paradise and Panama papers did”, Col. 203. 1163 TI UK (9 May 2018) ‘Taking a step back: why do we care so much about public registers of beneficial ownership?’. 1164 Incidentally, Mr Cox has since been made UK Attorney General. He has considerable experience of the OTs as a barrister, including representing former Cayman Premier, McKeeva Bush, in a corruption trial. 208 UK Parliament, who characterised public registers for the OTs as a “one hit wonder” and “all it will mean is that the money goes to where it is darkest”.1165 Essentially, it may further facilitate the race to the bottom. Finally, the ICIJs offshore data-bases are, effectively, examples of free, public registers – notwithstanding their many inaccuracies.1166 Perhaps the most fundamental concern is the disclaimer users have to agree to before accessing it: Figure 3: Panama Papers Searchable Database Disclaimer Source: ICIJ The ICIJ clearly acknowledges legitimate uses of offshore companies and trusts. More crucially, they do not imply wrongdoing or criminality. Thus, its publication expresses disregard for the privacy of those legitimate people exposed. For this, there is no redress. It questions the legitimacy of the arguments behind operating public registers, if the motivation is to scrutinise accountable persons or detect economic crime. 7.6. Implications for Future Political and Governance Concerns As Marge Piercy (1982) aptly observed, “there are clearly times when [one] must make a stink to survive”.1167 While the question of beneficial ownership and transparency is important, the manner in which it is manifesting necessitates consideration not only about the 1165 HC Deb (1 May 2018) Vol 640, Col. 203. 1166 For example, in ICIJs Paradise papers data-base, one Bermudian-registered company’s status is listed as “closed in 2029”; the status’s of many companies listed in the Paradise papers is left blank, whereas the data is complete for the Panama papers; in the Panama papers 19 companies are listed as being “struck off” in the year “1001”. 1167 Piercy, M., ‘The Best Defence is Offensive’, in M. Piercy (1982) Circles on the Water: Selected Poems of Marge Piercy, New York: Knopf. 209 role of fundamental rights, as this chapter has sought to achieve, but also about future political and financial stability in OTs. As Sir Alan Duncan MP rightly acknowledged when announcing section 51: “legislating for them without their consent effectively disenfranchises their elected representatives”.1168 On this, Geoffrey Cox MP warned in relation to Cayman that they: “were given a constitution in which the responsibility for the governance of their financial and economic affairs was solemnly conveyed to them by this Parliament? … the section that conveys on them the power to make their own orders in these affairs will have to be removed”.1169 It has much deeper development implications than just affecting the financial industry. Disenfranchising the territories’ elected representatives, particularly through interference in a field so important to their economies, is perhaps misjudged. It is their autonomous systems of governance, constitutional convention, together with the UK- OT partnership, which distances the relationship from its former colonial past. If elected officials become disenfranchised, then it is likely that the independence and self-determination debate will reignite in some territories – much like it did in TCI during direct-rule. Importantly, it also has the capacity to lower standards in public life and diminish progress made with regards to promoting integrity. If these achievements are side-lined, then it has the capacity to add to the disenfranchisement of local officials. While the sovereign can theoretically intervene – doing so without consultation acts as a direct threat to their devolved, self-governing autonomy. Similar problems have been experienced in the devolved legislatures of Wales, Scotland and Northern Ireland. It is also worth remarking briefly on the principle of comity. Comity is the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having regard both to international duty and convenience, and to the rights of its own citizens or other persons who are under the protection of its laws.1170 Antoine (2014) avers that this is an extension of the principle of territorial sovereignty, and that the underlying concept is to recognise that states have sovereign interests that need reconciling.1171 The common issue in this context is when onshore jurisdictions call upon offshore ones to provide certain information, the provision of which risks infringing confidentiality laws. Antoine (2014) calls this a “jurisdictional deadlock”, particularly when confidentiality is the linchpin of all offshore activity, not just banking confidentiality”.1172 The problem is exacerbated through an increase in disclosure requirements in onshore states, as well as frequent use of 1168 HC Deb (1 May 2018) Vol. 640, Col. 181, Sir Alan Duncan MP. 1169 Ibid, Col. 183, Geoffrey Cox QC MP. 1170 Hilton v Guyot [1894] 159 US 113, 163-4. 1171 Antoine (2014) supra 1085, [307]. 1172 Ibid, [26] and [308]. 210 subpoenas1173 – notwithstanding the presence of an increasing number of bilateral agreements such as TIEAs which ought to redress the dilemma. While the principle of comity rests more between states, it is illustrative of the importance of reconciling competing interests between metropolitan, sovereign powers and their dependencies. It might be the case that the OTs have ceded to information exchange and sharing as an acceptable abrogation of confidentiality rights only in those circumstances clearly necessitated via bilateral arrangements. Further erosion beyond this, however, risks irreparable surrender of fundamental protections. Compared to the position in some commonwealth Caribbean states where such information is still not adequately collated or exchanged, the present position in most of the OTs can certainly be viewed as modern vis-à- vis international cooperation. However, in the eyes of critics, it appears nothing short of public registers will suffice. In the 2012 White Paper, the then Commercial Secretary to the Treasury, Lord Sassoon’s comments are apt: “[OTs] have developed as important financial centres … I welcome the significant progress Territories have made in complying with international standards on tax transparency and dealing with the threat of TF and ML. HM Treasury will continue to represent the interests of those Territories which meet these standards in international fora and will strongly support their right to compete freely in international markets”.1174 Section 51 and its policy, does not account for the acknowledged successes with regards to the above and does not reconcile with the principle of being freely competitive in international markets. 7.7. Summary Having acknowledged that criminality has been facilitated by the OTs and their entities or services, the debate of privacy in light of certain AML standards requiring greater transparency is an important one. While acknowledging privacy has its pitfalls, this chapter has shown there to be legal bases for its justification. I considered the extent to which there is a right to privacy in financial matters, drawing upon constitutional principles and common law precedent emerging from offshore courts. It acknowledged the offshore confidentiality norm in financial matters, adding circumstantial weight and value of privacy in certain jurisdictions. It outlined the various legal and policy arguments as to why this should be 1173 Antoine notes that these are used in many US cases, such as Courtney Linde et al v Arab Bank PLC [2013] 706 F 3d, at 111, [309]. 1174 FCO (2012) supra 297, [57]. 211 respected, including legislative devolution, or the reality that this norm is a central feature to much economic activity upon which these jurisdictions rely. The third aim was to examine selected transparency initiatives, namely the imposition of public beneficial ownership registers which seek to abrogate privacy in the context of legal entities in OTs (at least in the context of government and law enforcement holding beneficial information). It was shown that public registers are not yet the international standard and that there are legitimate reasons as to why this move is perhaps constitutionally ill-judged. Conventionally the UK would only intervene in OTs’ economic affairs on establishing exceptional reasons. While ML and TF can undermine national security, it is submitted that there is lacking evidence suggesting that exceptional circumstances have developed warranting intervention in the form of SAMLA – particularly when some OTs could argue their central register frameworks are viable, or their AML/CFT regimes have been positively reviewed by FATF. Moreover, the incorporation sectors in the OTs differ. This chapter also showed that the UK’s public register is non-verifiable and arguably theoretically and practically flawed. Finally, in discussing some remaining paradoxes, this chapter re-emphasised the importance of financial privacy and confidentiality, as least as far as the OTs are concerned. A cautionary approach should be taken in issuing deadlines as it has the capability to regress relations rather than advance a common goal of fighting economic crime. More resources will invariably be spent in adversarial rather than collaborative forums, given expected legal challenges. In such circumstances, this chapter has sought to demonstrate that through the already-established implementation of reporting requirements and exchange agreements which meet international AML standards, a system is already in place for the purpose of criminal investigation and enforcement, particularly assisted with the MLA regime. In the international financial architecture, privacy plays a role other than a cynical one – yet it has been shown that these jurisdictions’ OFCs have facilitated criminality. There is consensus that transparency enables greater accountability and is a necessary tool in fighting crime. However, this chapter has averred that a balance is integral particularly in the context of the OTs and beneficial ownership – something often eschewed in the discourse. 212 CHAPTER 8 CONCLUDING REMARKS A persistent issue in development studies and international relations is whether it is reasonable to expect small states to be able to shoulder the same kinds of responsibilities as larger, better-resourced jurisdictions. It is in this context that I have examined the ability and willingness of the three OT jurisdictions with regard to the various standards that have been set in regard to the handling of suspect wealth. I shall now briefly summarise the main arguments raised in this work. It would be presumptive to advance concrete conclusions given the field is rapidly developing – for example, the UK government has not yet published its response to the FAC Inquiry, and there will be a swathe of 4th Round MERs published by FATF in the coming few years which will provide yet further evidence of the jurisdictions’ most recent steps taken with regards to the effectiveness of implementing international standards. However, in the course of my deliberations, I have come to certain provisional conclusions in relation to answering the research questions set out in chapter 1.1175 8.1. Summary of Arguments and Conclusions The dissertation opened with a discussion about the concerns of suspect wealth (including various predicate and facilitative misconducts) and its impact on development. It proceeded on the basis that these are harmful to the development, stability and sustainability of jurisdictions. It considered the profound concerns manifesting at international levels, upon which international standards have been devised. Protection against handling suspect wealth has been proclaimed at international and supranational levels, such as through UNCAC and UN Sustainable Goal 16. Specifically, suspect wealth impacts the source jurisdiction (i.e. where the predicate criminality occurred or from where the wealth originated), as well as the jurisdiction its transits into or through. Identified examples include multinationals’ offshore tax avoidance vehicles which, while legal, have contributed to increasing tax gaps in other jurisdictions. The debate about the morality of this was touched upon, and of the importance of maintaining a distinction between that which is legal and that which is illegal. Revelations about tax evasion and avoidance from the Panama and Paradise papers caused political reverberations worldwide including resignations of Heads of Government and ongoing trials 1175 Chapter 1, section 1.2. 213 against former politicians. Other examples include kleptocracies identified as engaging in capital flight to fund lavish lifestyles while their people live in poverty. In some OTs like Anguilla, shell companies have been reported to have been used to siphon public funds from developing countries. Important examples of suspect wealth impacting the development of the OTs themselves include that domestic corruption facilitated constitutional crises in TCI, whereby it consequently lost its sovereignty on two occasions as a result. In terms of their OFCs, the maintenance of indirect tax systems, lack of further transparency, or the nature of their offshore business, has led to international blacklisting and greylisting sanctions. Reputational harm caused by failing to implement standards, or from revelations or cases implicating their financial centres as facilitating suspect wealth, threatens their development given their narrow economic reliance on financial services, and the fact that this often leads to increased pressure to comply with more standards. Moreover, de-risking is increasingly prevalent in international finance, and any implication or evidence that these jurisdictions are not complying with efforts to prevent suspect wealth entering their OFCs can lead to financial instability. Development is a broad concept, and it is assumed by many that reputation impacts positively or negatively on development in the same way as it does between individuals transacting business. The importance of reputation in the commercial context is more recently being seen as an asset that directors of companies, for example, have not only a moral but arguably legal responsibility to protect. In the context of a complex actor like a jurisdiction, there are going to be many factors operating, and reputation is therefore primarily going to be an issue of perception. Indeed, those who established TI debated for considerable time as to whether more than a perceptions index was required. After much deliberation, it was decided that whatever the facts, the damage caused by perceptions of corruption existed whether based upon fact or otherwise.1176 The point was also made that there is ambivalence with regards to certain types of behaviour, which translates to problems when considering how best to respond. It was argued that some thinking on tax justice, culminating in sustained anti-tax haven rhetoric, means that certain territories are unfairly stigmatised. The OTs were introduced in chapter 3 with a discussion about their development as OFCs, and important nuances including their differences with CDs. The work then considered the three selected jurisdictions, Bermuda, TCI and Anguilla, in chapters 4-6. I conducted primary and secondary research and analysed their legal, regulatory, compliance and cooperation frameworks which focused largely on examining their regimes for 1176 I am grateful for this insight to Professor Barry Rider who worked closely with Mr Jeremy Pope and others, in the establishment of TI. 214 AML/CFT, anti-bribery, integrity, compliance, tax, company law, mutual assistance, beneficial ownership and information exchange and other offshore services. Insofar as international standards are generally regarded as a form of soft- international law, it would be shocking to conclude that there was a reluctance, let alone, antipathy to their implementation in any jurisdiction wishing to secure its place in the international community. In the context of the three OTs I have examined, the willingness to accept and adhere to these standards varies, but I have not encountered any serious argument or evidence that these jurisdictions are unwilling to meet international expectations. From my analysis, there is also ability across the three jurisdictions, but their abilities also vary. I shall now deal with each jurisdiction in turn. Bermuda has a developed a sophisticated business environment which has translated into a capacity to comply with standards to tackle suspect wealth. Given its significant reinsurance industry, Bermuda has developed a robust regulatory framework for its financial sector. As one of the world’s wealthiest jurisdictions, Bermuda and its institutions are highly developed. There is a significant body of professionals regulating its business environment, evidenced by the substantial increase in Bermuda’s compliance industry in recent years. Its statutory bodies actively engage with relevant stakeholders across industries to intensify this visibility. Bermuda’s ability in complying with, and adherence to, international standards is well-evidenced. It was found that it has modernised key legislation, such as bribery laws to a level which exceeds the scope of the UK’s Act (widely viewed as the ‘gold standard’). Its positive record on compliance with AML/CFT measures is evidenced by positive ratings from organisations like CFATF and the OECD. This has been helped by several internal risk assessments – moreso than the other OTs. In terms of company laws and transparency, Bermuda has collected beneficial ownership information for decades and has recently enhanced its companies register requirements, which appears viable in its context. It has complemented its central register with international-accepted exchange mechanisms like the CRS and MLA Treaties, and has exceeded 40 TIEAs – a significant number relative to larger OECD countries. More recently, it has enacted economic substance legislation, which addresses common criticisms of offshore structures having their physical presence elsewhere. It is early to determine the successes of certain legislation, like anti-bribery, as much depends on enforcement. However, a specific task-force within its police department focusing on economic crime and the facilitation of international investigations, adds to this picture of will and ability. However, in other aspects, such as Bermuda’s maintenance of its indirect tax model, or unwillingness to implement a public ownership register until it is a global standard is 215 creating tension and prima facie casts doubt on Bermuda’s broader commitments to tackling suspect wealth. Given Bermuda’s OFC was significantly implicated in the Paradise papers, and from criminal and civil cases internationally, as well as reports of multinationals appearing to use Bermuda for tax avoidance, it is likely pressure against Bermuda will continue, particularly from transparency campaigners. This was most recently evidenced by Bermuda’s inclusion on the EU’s blacklist, and independently on the Netherlands blacklist. With regards to TCI, the question of ability and willingness to comply with standards on suspect wealth has been considered in light of a history of development-hindering challenges. These pertain to its role in narcotics trafficking, public sector corruption, and two direct rule periods. Its history is different to that of Bermuda’s and its own experiences call for a different approach when considering compliance with sophisticated internationally-set standards. Based on research into TCIs present legal and regulatory frameworks, the evidence shows willingness and ability in complying with many standards such as new anti-bribery laws. In terms of transparency, it has implemented a central register and engaged in many bilateral exchange agreements. It has also reformed company laws imposing more stringent reporting requirements on companies and CSPs. TCI has demonstrated willingness to adopt a risk- based approach to AML/CFT and been positively reviewed by CFATF, being largely compliant with Core and Key Recommendations. It has successfully completed a NRA in preparation for the 4th Round MER. In that, however, there were aspects of TCIs regime which were shown as needing attention, such as the levels of SARs, and requirement for greater controls in the real-estate and construction sectors. Further willingness is evidenced by TCI establishing an integrity commission, to place emphasis on higher standards and educate children about integrity. In terms of viability of standards in TCIs context, culture takes longer to change than simply reforming legislation. TCIs response can be credited as indicating both will and ability to comply with standards set internationally, which is reassuring given its history. However, while not featuring in the Panama papers and only sparingly in the Paradise papers, the research did show that TCI-entities have been implicated in foreign criminal cases giving rise to the presumption that its financial centre has facilitated international criminality. The research also demonstrated concerning aspects of TCIs application of the rule of law. For instance, while the ongoing trial demonstrates proactivity to hold former ministers to account, the excessively-long case has lasted 4 years and a legal infrastructure had to be built to hear it. In terms of civil recovery, recovering crown land has yielded some results, but not without controversy over costs. In terms of meeting the standards set out in SAMLA on beneficial ownership, TCI has objected for reasons detailed in chapter 5. However, while one 216 reason relates to the predicted adverse effect it will have on its financial industry, it should be noted that TCI is not a major incorporation jurisdiction and that concern about it appears to be based more on principle and tension arising from UK intervention. Compulsory legislation without representation risks disenfranchising elected representatives. This is concerning with knowledge of TCIs history. It is therefore concluded that while TCI is fast changing its capacity to respond to, and implement, international standards, certain ones do not account for progress made in good faith. This risks disrupting progress and questions the viability of the standard – particularly when it will require necessary by-in by all stakeholders. It could be challenging given the manner in which it was compulsorily imposed. The research into Anguilla found less in terms of action in recent times, despite having been implicated in some foreign cases of facilitating international criminality, as well as being heavily mentioned in the Panama papers. One example were the allegations concerning Anguilla and the transiting of oil revenues into Anguillian-services controlled by Congo’s ruling family. However, Anguilla has demonstrated will to implement standards and has made several commitments to this effect, such as signing an exchange of notes agreement with the UK and signing a relatively high number of TIEAs. It committed to implementing a central register of beneficial ownership and exchange mechanisms, and its UK Representative has effectively accepted the fact that Anguilla will implement a public one. To adopt a risk-based approach to regulation, like its fellow OTs, Anguilla announced a NRA into AML/CFT risks. However, while all these commitments represent willingness to implement standards as an international partner, implementation has been lacking in many of the above. This was explained by Anguilla’s preoccupation with development hindering circumstances identified in this research, such as post-hurricane recovery efforts. The same is true with the NRA, which was announced shortly prior to the hurricanes yet whose progress has been hindered. However, in terms of implementation of AML/CFT standards to date, Anguilla’s compliance regime has been reviewed positively by CFATF. Its development concerns, such as the recent collapse of its banking sector, narrow reliance on financial services and tourism, healthcare deficiencies, connectivity and dependence on neighbours, are important factors when considering its progress, and establishing willingness and ability. This work also identified other challenges such as strengthening good governance, issues with the PAC’s effectiveness, and the constitutional relationship with the UK. Concerningly, Anguilla does not have modern bribery legislation – and its constitution is in need of reform. As such, it is concluded that while Anguilla has achieved significant AML compliance in terms of FATF standards, a broader comprehensive framework to tackle all relevant aspects of suspect wealth needs developing. Given Anguilla was the most implicated jurisdiction in the Panama papers that 217 this thesis considers, it is concerning that several key gaps still exist. Given that Anguilla is home to a regional law revision centre, reforming its anti-corruption legislation and empowering watch-dog institutions to strengthen standards in public life and in its OFC ought to be a priority. Prima facie, it could be argued that, to date, Anguilla’s compliance with certain transparency standards appears no more than window-dressing. Although, when taken with developmental priorities, the conclusion might equally be reached that such standards are seen as unviable to implement, particularly so at times of crisis. It will be interesting to monitor Anguilla’s position, particularly with regards to the NRA progress in anticipation of CFATFs 4th Round MER, as well as steps taken to assess the viability of a public register which it appears willing to implement. In many ways, the modern international regime, particularly relating to risk-based AML/CFT, is characterised by its universalism and uniformity. Broadly speaking, they are best practices and the influence of soft-law has been shown in this work to be a significant underpinning of countries’ anti-economic crime regimes. UNCAC, FATF, UN Sustainable Goal 16, OECD Bribery Convention, and EU AML Directives all strive to achieve standardisation. However, there are many standards which are not yet clearly defined, susceptible to changing definition, or simply left deliberately vague to allow for interpretation. For example, it is not clear whether the international standard on beneficial ownership registers is best characterised as central, public, public for a fee, or non-existent. The UK is averring that public registers will become a global standard, whereas OFCs have legitimate concerns about abrogating confidentiality norms if it will impact on their economic activities. FATF clearly suggests that countries should work towards enabling governments to have timely access to relevant information – but it is silent on the issue of public registers. Moreover, there is the issue of pressure being inconsistently applied, given only 6 G20 countries have central registers. Moreover, the EU blacklist originally omitted jurisdictions like Bermuda, TCI and Anguilla – the latter 2 due to hurricane recovery efforts hindering progress. Within a year, the Netherlands government blacklisted them. Bermuda was also later added to the EU blacklist, but is in the process of being re-evaluated for removal. The concept of blacklisting is not simply sensational, but constitutes a sanction capable of damaging the reputation of jurisdictions that rely significantly on financial services. Despite blacklisting others, the Netherlands has been implicated in large-scale tax avoidance by multinationals using the ‘Dutch sandwich’ structure to shift profits to OTs for fiscal efficiency. While such structures are fast being eradicated, it is also worth observing that the Dutch have significant interests in the Caribbean region, including their own OFCs like Aruba and Sint Maarten – the latter upon which Anguilla’s development greatly relies. 218 In answer to the question on how these jurisdictions can better protect their financial centres accepting suspect wealth, the dissertation provides recommendations below, which include strengthening oversight in certain sectors, enhancing core values, and re-evaluating effectiveness of existing systems. However, detailed consideration of the jurisdictions’ legal and regulatory responses also demonstrates that some of these territories may not actually be able to better protect themselves in the context of certain issues and measures. For example, this work’s analysis into bribery laws in Bermuda and TCI demonstrates an up-to-date and modern approach, specific betterment of which appears inapplicable in absence of data showing effectiveness. Of course, strengthening integrity in public life or regulated professions to raise standards will complement these laws, work of which is underway in TCI for example. Moreover, on beneficial ownership, those jurisdictions that have recently implemented central registers and bilateral information exchange agreements may argue that their system is viable and up-to-date. The call for improvement beyond this is only being made by certain members of the international community. This work has shown that jurisdictions with economies which rely on financial services may risk too much in meeting standards which may jeopardise their business, particularly when these standards are not yet applied by all, particularly some larger economies, with whom their OFCs might compete. Further, these jurisdictions have to make political decisions in the allocation of resources, which may be difficult to justify internationally. For example, there is a tendency in such jurisdictions to place more emphasis on domestic challenges, such as street crime if they are particularly dependent on tourism activities. Implementing continuously-changing or new standards requires a balancing exercise, which may question the viability of certain standards taken against domestic realities. For example, if the OTs have to implement economic substance legislation or face imminent blacklisting by the EU, this may be a more pressing priority. By contrast, the UK’s stance on public registers is, while non-optional, perhaps less pressing given that many territories already have viable alternatives in place, such as central registers and bilateral exchange mechanisms. Such may give rise to the argument that they are already compliant with beneficial ownership transparency standards. I have also sought to establish whether a one-size-fits-all approach is appropriate in the context of OTs and suspect wealth standards. While such may work in certain aspects, it should be eschewed as the default position in the context of OTs. This research has shown them to be fundamentally contrasting jurisdictions at different stages of development. Additionally, their OFCs differ somewhat in their nature and offerings. For example, Bermuda and TCI entities were not mentioned in the Panama papers, whereas BVI and Anguilla ones were heavily mentioned. This might make a prima facie case that intervening in 219 the company laws of all OTs omits regard to the fact that problems may be more pertinent in some territories than others. While the FAC Inquiry sought to improve understanding about the territories, viewing them as a collective in terms of financial services ignores their nuances – which this work has sought to highlight. Care should be given in requiring small jurisdictions to comply to the same or higher degree as larger countries, for the given reasons about development concerns such as capacity, resources, priorities and their individually differing records of compliance with standards in place. Having acknowledged the OTs’ perceivably harmful role by reference to reports and case-law implicating their financial centres as receiving suspect wealth, it was then necessary to consider an underlying cause, namely privacy and confidentiality. Chapter 7 engaged in a normative debate about privacy versus transparency, considering statutory and common law approaches to protecting confidentiality. The right to privacy, and whether it extends to financial matters, were also considered as was the offshore confidentiality norm giving rise to greater protections of privacy in OFCs. This adds context to the territories willingness and ability to meet international suspect wealth standards. If a jurisdiction’s economic sustainability relies on financial services, within which confidentiality plays an integral role, this might affect its willingness to adopt standards that increase transparency yet potentially undermine protections their markets have hitherto rigorously upheld. The examination of their compliance records in chapters 4-6 suggest that there has been a significant erosion in recent times of this approach, in terms of related standards like economic substance requirements, abolition of bearer shares, and enhanced reporting requirements on beneficial ownership. Negative connotations of privacy were also examined, which showed ways in which legitimate safeguards can be relied upon for tainted purposes, such as making use of confidentiality to circumvent onshore laws. This chapter also demonstrated that certain justifications for enhanced transparency, like the nothing to hide argument, are often predicated on misconception. This has clearly been relied upon in the development of policy and law. The chapter also acknowledged confidentiality’s legitimate uses, particularly in the commercial context and suggested these rights should not be disposable simply on the basis of accepting the benefits of transparency. I have argued that the central register position, accompanied by internationally- accepted exchange mechanisms, strike a sensible balance between preserving legitimate privacy interests and the undertakings of law enforcement to tackle suspect wealth. Chapter 7 also considered the UK’s register as an example and, despite this not being the international standard, evidence was considered demonstrating that existing public registers contain deficiencies, such as being non-verifiable. This relies on honesty and accuracy of 220 representations, and is concerning given its purpose is to disrupt criminals who are typically dishonest. It could be argued that information submitted by such people would be inaccurate whether the register is private or public. There is wilful blindness to the reality that criminals will look to either distort or corrupt transparency, thereby questioning its deterrent function. The chapter concluded that unilaterally imposing them on the OTs raises theoretical questions, constitutional objections and practical concerns warranting re-evaluation. In terms of the broader policy debate about privacy versus transparency, the discussion advanced important reasons rooted in case-law, statutory provisions and convention as to why privacy safeguards are important. 8.2. Issues for Further Consideration and Recommendations It is hoped this dissertation will serve not only as a tool for further research and better assist the development of small jurisdictions, but also as a signpost for research into other relevant issues. My discussion has identified the complexity in the inter-relationship of factors relevant to small state compliance with internationally-set standards. As such, the following themes would benefit from further research and owing to the constraints of this work, could not be dealt with: i. First, this thesis made the point that scholarly research on OTs, collectively or individually, is scarce. In furtherance of this work, it would be valuable to conduct research into the developmental progress of other relevant territories like BVI, Cayman, Gibraltar and Montserrat. This research could follow the analysis framework undertaken in this work of their legal, regulatory and compliance frameworks to consider the research questions as to will and ability to comply with international standards, as well as successes and challenges to date with implementation. Other territories like Pitcairn Islands would also benefit from research into their development, yet given size and lack of financial centre, such falls outside the context of this work. ii. There are many reasons why more research on individual territories should be undertaken. The FAC just published its report following a 6 month inquiry into the UK-OTs relationship. The scope of this inquiry demonstrated a clear need for increased knowledge on them. As I have mentioned in this thesis, there are many aspects of the report’s findings which are helpful in this regard given the 221 amount of evidence submitted. However, there are also meaningful aspects, such as SAMLA and suspect wealth, which were not extensively discussed in the Report. Additionally, given the UK’s impending EU withdrawal, both the UK and OTs’ governments anticipate impact upon the relationship, as well as that of the OTs and EU. iii. Third, the UK has announced legislation which will invariably impact the territories’ economies to differing degrees. For example, the compulsion of public registers will likely affect BVI more than TCI. BVI intends to legally challenge this. It is therefore important for research to be undertaken to further understand the other territories’ circumstances. Recent developments like SAMLA, and the 5th EU AML Directive both radically update standards on beneficial ownership transparency (i.e. further than FATF R.24). iv. Fourth, given the digital age, information (particularly electronic) is increasingly susceptible to theft or leaks. It is therefore important, through research, to understand how all the OTs operate, to add context to the hitherto almost exclusively negative responses about OTs following data-breaches in Panama and Bermuda. v. Remedial action deployed in the aftermath of the 2017 hurricanes was widely criticised. It is arguable that the relative impact of natural disasters on each OTs’ circumstances needs greater understanding – something research into individual territories might provide. This is particularly important, when this work has found that certain domestic priorities sometimes hinder their ability to comply with international suspect wealth standards. Despite hurricane destruction and three territories being in dire circumstances, the UK government announced transparency legislation to affect all OTs. vi. Thematically, further research could be conducted on indirect taxation in the context of individual OTs. Specifically, whether the development concerns and priorities of some territories call for re-evaluating their tax policies. As was mentioned, for example, economists in Bermuda have pointed to social concerns which, they aver, calls for tax policy re-thinking. Similarly, some economists in the UK implied that the OTs ought to re-evaluate their tax regimes as somehow conditional on receiving UK help during natural disasters. 222 vii. Research involving criminological issues, such as the extent to which public registers serve a deterrent function to money launderers, tax evaders and corrupt officials, would also be a valued contribution. viii. Research into the viability of independence for certain territories could be undertaken, set against the benefits of UK partnership. Despite their inalienable right to self-determination, mounting pressure from the UK and threats of unilateral legislation means the independence debate has been recently reprised. I will now offer some recommendations. The first of which pertains to the UK’s recent unilateral legislation compelling public registers in OTs. Recently, the UK Minister for the OTs clarified that should territories not have public registers by 2020, the UK will then issue an Order in Council requiring operation of the registers by 2023.1177 This action threatens the sovereignty, rule of law, and sustainable development of the territories. There has not been a similar circumstance representing such a clear renegade in relations, perhaps since the UK government’s 2009 suspension of TCIs Constitution. It demonstrates an omitting sense of understanding and appreciation of developments taken by the territories to date and disregards cultural, economic and social nuances. By imposing an ultimatum, the UK has prioritised anti-tax haven thinking, fuelled by the Panama and Paradise papers. If the government follows through with this legislation, it will arguably destabilise significant elements of a single industry in many OTs. With the uncertainty of Brexit imminent,1178 this approach could appear illogical. Given that aspects of the UK-OTs relationship has seen tension in the past, such a move reflects paternalism which smacks of colonialism. It regenerates the negative interventionist patina of a bygone era and falsely legitimises the one- size-fits-all approach to the territories. Consequently, I would commend that: ix. All UK OTs should at first instance ensure they have implemented central beneficial ownership registers as a proportionate response to domestic threats and international standards. In the case of the majority who have, they should review the effectiveness and continue to engage in bilateral exchange programmes. x. The UK government should commission and publish complete statistical analyses of the effectiveness of the UK’s public register. The UK needs to critically and 1177 UK FAC (18 December 2018) supra 1139, Lord Ahmad Q232. 1178 Comments relating to ‘Brexit’ are obviously time-specific. 223 comprehensively analyse the effectiveness of its own model before imposing it on others. xi. Bermuda and TCI should conduct up-to-date impact assessments of their central registers. Measures could include the nature, frequency and quantity of requests from foreign competent authorities, turnaround time, red-flags, requirements (including updating reporting timelines), and enforcement actions for either false statements or in respect of serious crimes detected. xii. Each territory should conduct an assessment of the projected economic impact of public registers. This should not be interpreted as conceding to the UK government’s threat, rather informing decisions and policy-making, and as evidence in their case. a. TCI should make the case to the UK government about the impracticalities and illogicality of replacing the central system in such short time-frame, without due consideration of the likely effectiveness of their present or future system. Also, given no TCI-registered companies were mentioned in the Panama papers, and only a few in the Paradise papers, there is merit to considering the effectiveness of the existing system at first instance; b. Anguilla should also consider whether it is worth first implementing the central register in line with their commitments, if it will be soon replaced with a public register. xiii. The reports at points ii-iv should be conducted in a timely fashion. Given the recent publication of the FAC Report, such information would now be useful reference in line with the Committee’s support of public registers. xiv. The territories should consider the merits of a legal challenge to the UK legislature’s authority to unilaterally impose Orders in Council on a matter concerning domestic company law and the holding and sharing of information. This should be considered now, rather than in 2020, so that the merits can inform political and international relations strategy between the territories and UK government in the period 2019-2020, and beyond to the ultimate 2023 deadline. 224 xv. In light of the above, the UK should consider evidence-based and more effective ways of communicating to the OTs the necessity for implementing public registers and what benefits to their economies this might provide. In this dissertation, the need for re-evaluating the OTs’ aid status has been demonstrated, not least with the evidence drawn upon regarding their development concerns. Given the OTs have not been DfID-aided, this thesis intended to recommend that the policy needs re- thinking based on needs, rather than income, beyond simply hurricane relief and loan guarantees. Recently, as was noted, the UK government announced securing a change to the OECD-rules, resulting in OTs being aided in future, with particular reference to natural disaster risk. Building on this, it is clear that the territories lack, and would benefit from, increased technical assistance which ceased along with financial aid provisions. This, I argue, has contributed to an evident lack of understanding about the territories’ nuances exhibited by UK officials and others. As such: xvi. Greater technical assistance should form part of the UK’s partnership with its OTs. Particularly for TCI and Anguilla, which are fast-developing their financial regulatory infrastructure and enhancing their AML, anti-bribery and proceeds of crime legislation. Specific form would depend on resource allocation. Experts should be posted to the region, as was formerly the case. Personnel should include experts in legislative drafting and constitutional law reform (not least given Anguilla’s need for an updated constitution). xvii. The Minister of State for the Commonwealth and the UN has, prima facie, a significant portfolio which calls for rethinking as to whether or not there should be a Minister with sole OT responsibility. The present Minister is also responsible for FCO business in the House of Lords, the Commonwealth (institution) and UN peacekeeping. xviii. Notwithstanding efforts concurrently underway by organisations like DfID, the National Economic Crime Centre and the Stabilisation Unit, a specific OT task- force should be established and funded by the UK government. Its purpose would be to provide research briefings and essential knowledge to government departments, officials and organisations on the individual and collective needs, nuances, successes and challenges facing OTs, particularly vis-à-vis suspect wealth and economic crime control. This could comprise officials, practitioners, 225 academics and experts across the disciplines of law, business, development, tax, economics, political and international relations, compliance and financial regulation. The underlying rationale is for the UK government to better understand its own territories. In terms of promoting a jurisdiction’s values, standards and achievements, there needs to be a renewed focus on presenting one’s record positively, rather than defending it retrospectively. The only time jurisdictions like Bermuda appear to defend their record in the media is when they are forced to. Therefore: xix. Bermuda officials need to work to promote their compliance and successes more visibly on the international stage. Simply defending a record necessitated by criticism does not correctly contextualise progress made. The work of the ‘Just Good Business’ AML campaign should intensify, particularly in the context of the compliance industry, which Bermuda is expanding. xx. Bermuda’s ‘Just Good Business’ model should be viewed as a transferable and welcomed initiative in TCI and Anguilla. Despite many of their institutions not being as developed, and therefore not mobilised to exactly replicate it, multi- stakeholder engagement and awareness-raising about the importance of integrity and the scourges of AML/CFT are essential to strengthen institutions and their ever-developing responses. As mentioned, Bermuda has benefited from thousands of competent professionals strengthening its business sector. As a result of this development strategy, it has been far easier to recruit expatriates and also incentivise Bermudians to engage in these sectors. As such, there is less of a problem in Bermuda of islanders leaving to work in larger onshore financial centres. Similar is true in Cayman. This has been less achievable in TCI and Anguilla – where there is a far greater emphasis on tourism than financial services, relative to Bermuda. Bermuda has been able to create a significant compliance and regulatory industry from its large professional labour force. With this in mind: xxi. It needs to be evaluated whether jurisdictions like Anguilla can realistically implement, or be expected to implement, sophisticated international standards which presuppose a very significant degree of compliance and financial/personnel 226 resources. Many of their development priorities might be more visibly important for their populations. The forthcoming NRA might provide a useful platform for this. TCIs Integrity Commission is a necessary tool in a society that has faced constitutional crises resulting from corruption. TCI has been proactive with its integrity programme in schools, demonstrating the role of educating its youth and future leaders. It is well-acknowledged that education plays a pivotal role in the development of financial centres, an example being the role education played in preventing corruption during Hong Kong’s development. Therefore: xxii. Educating about corruption and integrity through a similar initiative to TCIs integrity in schools programme should be considered by Anguilla as a means of contributing to their long-term development and prosperity through strengthening core values, and to prevent abuses of standards in future generations. xxiii. Anguilla could establish an Integrity Commission to complement its PAC, as per the proposal in the 2016 Draft Constitution. While it is appreciated that TCIs experience has perhaps necessitated a specific Integrity Commission, Anguilla’s financial offerings and projected economic growth through real-estate should precipitate the benefits of establishing a statutory body promoting integrity. This is particularly important when considering cases in which Anguilla has been implicated as receiving foreign suspect wealth. It is appreciated that Anguilla’s financial position may hinder this. However, implementing integrity into schools or through extra-curricular activities, might require less resources yet have positive impact. Volunteers or community leaders could assist. As alluded to, the real-estate and property development markets present ongoing AML risks in the territories, as acknowledged in NRAs considered in this dissertation. TCIs 2008/9 Commission of Inquiry found a concerning nexus between abuses in the property market and domestic ministerial corruption. Indeed, TCIs NRA acknowledged this market to be a significant ML risk, with disproportionately few SARs filed. Anguilla is currently undertaking an NRA and has indicated that real-estate will be a focus. As such: 227 xxiv. For Anguilla, it is essential to target the property market in the NRA. It will be incumbent on the FSC and associated stakeholders to raise awareness, engage in trainings and examine how best to enhance controls and regulate this sector. This should also continue in TCI following its NRA. Both jurisdictions project growth in this market, which makes the impetus for increasing controls imperative. Regulators should focus on engagement, as well as creating more stringent requirements for licensed practitioners, enhancing the licensing process, increasing reporting and DD obligations, and ensuring the deterrent function of the law and regulation is communicated throughout the sector as to the threats of sanctions for non-compliance – such as via ‘industry days’. This sector is less familiar with AML and bribery controls, so engagement is necessary. Legislators and regulators will be able to heighten controls in a way which balances their necessity with the prosperity of the sector upon which the jurisdiction relies. For now, engagement is a good start judging by measures taken by Bermuda and TCI to raise awareness about the role of compliance. The ethos is to engender investment in, and respect for, the necessity of compliance. xxv. This dissertation noted that belongership is but one way that islands can protect aspects of their economies. However, as some of the cases involving TCI demonstrate, belongership empowerment status can also be subject to abuse. As international financial regulation becomes tighter, residency by investment (i.e. ARBI) could be an unaddressed loophole to facilitate suspect wealth, especially given the developing real-estate market in Anguilla. It should therefore put legislative oversight measures in place to protect from this type of abuse. The OTs play an important role in the international economy – financial services and tourism being two good examples. Moreover, their rich histories and cultural contributions enhance their appeal. With an uncertain political climate in the UK, I wish to close on the following recommendations: xxvi. Brexit presents opportunities and challenges. It is essential for the UK government to proceed through the future relationship negotiations with its OTs, and the 250,000 British citizens therein, in mind. It must aim to enhance and support their development moving forward, given the important role the EU has played in certain territories’ development. For example, Anguilla’s reliance on its French 228 and Dutch neighbours and access to EU funding has been critical for its development. xxvii. The UK needs to enhance its relationship individually and collectively with the territories during this uncertain political time. Threats, ultimatums and unilaterally legislating on their behalf based on little evidence or consultation is haphazard in approach. It undermines their legislatures and risks disenfranchising their democratically elected representatives. While some territories, like Anguilla, have shown more support to it than others, the principle of legislation without representation risks creating constitutional tension in the territories. xxviii. Given the ambivalence of certain types of behaviour identified in chapter 2, the UK government should ensure it appropriately distinguishes between different types of economic misconduct when proposing solutions to perceived problems in OTs. For example, tackling corruption and tax avoidance was a justification for s51 SAMLA, whereas both these activities require inherently different approaches. It is appreciated that many of the above recommendations are dependent upon resources, as are my conclusions provisional due to rapidly developing circumstances, particularly with NRAs, (C)FATF MERs, and beneficial ownership developments. It is likely we shall hear more from the Paradise papers and that criticism of tax havens will sustain. It is likely we shall see more leaks and stigma directed at the OTs, which will invariably translate to increased pressure on them. This dissertation has shown that a change in perception about certain territories is needed. Their values and circumstances cannot continue to be indiscriminately categorised in a one-size-fits-all manner. Regrettably, this is visible in both perception and response to them. While the UK government is seeking to impose change in the territories, it is simultaneously incumbent on the territories to consider the way the world views them. However, this dissertation has shown that international criminality has found safe haven in some OTs. That said, some have also shown significant ability and willingness to comply with internationally-advocated standards, reform legislation and engage proactively with AML initiatives. While many aspects are positive, there are still those lacking – particularly in Anguilla’s case. Protecting themselves from risks emanating from suspect wealth abroad is paramount, as well as robustly acknowledging domestic risks and enhancing controls within the jurisdiction – particularly in terms of those charged with upholding the 229 highest of standards, and guarding the rule of law. In circumstances of compliance achievements, it is only correct that the territories are supported in international fora, as was assured by the UK Government in 2012. Through this discussion, it is hoped that greater understanding of these important jurisdictions is contributed. It is also hoped that legislators and policymakers, as well as commentators and pressure-groups, consider that externally- dictated controls are not always consistent with development priorities, or even viable in terms of implementation. As such, a holistic view of their frameworks and responses to suspect wealth, including those standards they have successfully implemented, as well as those which are yet to be, is needed. It is hoped a more meaningful discussion to these important issues is facilitated by this dissertation. 230 APPENDICES Appendix I - The FATF Recommendations Refers to corresponding 2003 Recommendation Source: http://www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/FATF_Recommendations.pdf Number Old Number* Recommendations A) AML/CFT POLICIES AND COORDINATION 1 Assessing risks & applying a risk-based approach 2 R.31 National cooperation and coordination B) MONEY LAUNDERING AND CONFISCATION 3 R.1 & R.2 Money Laundering offence 4 R.3 Confiscation and provisional measures C) TERRORIST FINANCING AND FINANCING OF PROLIFERATION 5 SRII Terrorist Financing offence 6 SRIII Targeted financial sanctions related to terrorism and terrorist financing 7 Targeted financial sanctions related to proliferation 8 SRVIII Non-profit organisations D) PREVENTIVE MEASURES 9 R.4 Financial Institution secrecy laws 10 R.5 Customer due diligence 11 R.10 Record keeping 12 R.6 Politically exposed persons 13 R.7 Correspondent banking 14 SRVI Money or value transfer services 15 R.8 New technologies 16 SRVII Wire transfers 17 R.9 Reliance on third parties 18 R.15 & R.22 Internal controls and foreign branches and subsidiaries 19 R.21 Higher-risk countries 20 R.13 & SRIV Reporting of suspicious transactions 21 R.14 Tipping-off and confidentiality 22 R.12 DNFBPs: Customer due diligence 23 R.16 DNFBPs: Other measures E) TRANSPARENCY AND BENEFICIAL OWNERSHIP OF LEGAL PERSONS AND ARRANGEMENTS 24 R.33 Transparency and beneficial ownership of legal persons 25 R.34 Transparency and beneficial ownership of legal arrangements F) POWERS AND RESPONSIBILITIES OF COMPETENT AUTHORITIES AND OTHER INSTITUTIONAL MEASURES 26 R.23 Regulation and supervision of financial institutions 27 R.29 Powers of supervisors 28 R.24 Regulation and supervision of DNFBPs 29 R.26 Financial intelligence units 30 R.27 Responsibilities of law enforcement and investigative authorities 31 R.28 Powers and law enforcement and investigative authorities 32 SRIX Cash couriers 33 R.32 Statistics 34 R.25 Guidance and feedback 35 R.17 Sanctions G) INTERNATIONAL COOPERATION 36 R.35 & SRI International instruments 37 R.36 & SRV Mutual legal assistance 38 R.38 Mutual legal assistance: freezing and confiscation 39 R.39 Extradition 40 R.40 Other forms of international cooperation 231 Appendix II - Sources for Macroeconomic and Financial Indicators for Selected OTs from Table 1. Source Accessed Link Population 2016, The Economist Intelligence Unit 23.06.2018 at 14:00 https://www.eiu.com/home.aspx GDP (Nominal, million USD) 2016, The Economist Intelligence Unit 23.06.2018 at 14:00 https://www.eiu.com/home.aspx GDP per capita (USD) 2016, The Economist Intelligence Unit 23.06.2018 at 14:00 https://www.eiu.com/home.aspx Tourism: Hotels & Restaurants (% of GDP, current market price) Bermuda Bermuda: Hotels and Restaurants 2016, Government of Bermuda Department of Statistics, GDP 2016 Highlights, October 2017, Table 6 p.9 01.07.2018 at 12:00 https://www.gov.bm/sites/default/files/GDP-2016-annual- publication.pdf Tourism: Hotels & Restaurants (% of GDP, current market price) TCI TCI: Hotels & Restaurants 2016, Turks and Caicos Statistics, National Accounts 01.07.2018 at 12:00 https://www.sppdtci.com/copy-of-national-accounts Tourism: Hotels & Restaurants (% of GDP, current market price) Anguilla Anguilla: Hotels & Restaurants 2016, Eastern Caribbean Central Bank, Real Sector Statistics, GDP (Annual), Table 3, Updated 2018 07.07.2018 at 21:00 https://www.eccb-centralbank.org/p/gdp-annual Financial Services (% of GDP, current market price) Bermuda Bermuda: Financial Intermediation and International Business Activity, 2016, Government of Bermuda Department of Statistics, GDP 2016 Highlights, October 2017, Table 6 p.9 01.07.2018 at 12:00 https://www.gov.bm/sites/default/files/GDP-2016-annual- publication.pdf Financial Services (% of GDP, current market price) TCI TCI: Financial Intermediation 2016, Turks and Caicos Statistics, National Accounts 01.07.2018 at 12:00 https://www.sppdtci.com/copy-of-national-accounts Financial Services (% of GDP, current market price) Anguilla Anguilla: Financial Intermediation 2016, Eastern Caribbean Central Bank, Real Sector Statistics, GDP (Annual), Table 3, Updated 2018 07.07.2018 at 21:00 https://www.eccb-centralbank.org/p/gdp-annual Imports (% of GDP) 2016, The Economist Intelligence Unit 23.06.2018 at 14:00 https://www.eiu.com/home.aspx 232 Budget revenue (% of GDP) 2016, The Economist Intelligence Unit 23.06.2018 at 14:00 https://www.eiu.com/home.aspx Human Development Index Not included in index 23.06.2018 at 15:00 http://hdr.undp.org/sites/default/files/2016_human_devel opment_report.pdf Corruption Perceptions Index Not included in index 23.06.2018 at 15:00 https://www.transparency.org/news/feature/corruption_p erceptions_index_2017#table Financial Secrecy Index Ranking 2018 (out of 112) TJN, FSI 2018 23.06.2018 at 16:00 https://www.financialsecrecyindex.com/introduction/fsi- 2018-results Financial Secrecy Score 2018 (0=transparent) TJN, FSI 2018 23.06.2018 at 16:00 https://www.financialsecrecyindex.com/introduction/fsi- 2018-results World Governance Indicators - Control of Corruption (100=good) 2016, Worldwide Governance Indicators, World Bank, Bermuda and Anguilla 24.06.2018 at 18:00 http://info.worldbank.org/governance/wgi/index.aspx#ho me Date of implementation of TIEA with UK OECD, TIEAs 01.07.2018 at 12:00 http://www.oecd.org/australia/taxinformationexchangeagr eementstieas.htm Number of TIEAs Exchange of Tax Information Portal, OECD, July 2018 02.07.2018 at 16:00 http://www.eoi-tax.org/#default Registers of Beneficial Ownership Bermuda Bermuda: Bermuda Monetary Authority, Consultation Paper on Proposed Revisions to Beneficial Ownership Disclosures, May 2017 23.06.2018 at 15:00 http://www.bma.bm/document-centre/consultation- papers/TRUST%20II/Consultation%20Paper%20on%20 Proposed%20Revisions%20to%20Beneficial%20Ownership %20Disclosures.pdf Registers of Beneficial Ownership TCI TCI: Section 156, Companies Ordinance 2017 (TCI) 01.07.2018 at 17:00 http://tcifsc.tc/phocadownload/legislation/companies/co mpanies%20ordinance%202017.pdf Registers of Beneficial Ownership Anguilla Anguilla: Ministry of Finance, Economic Development, Investment, Commerce and Tourism, Government of Anguilla, Press Release: Initiative for the sharing of Beneficial Ownership Information, April 2016 01.07.2018 at 17:00 https://www.fsc.org.ai/documents/Publications/Industry% 20Updates/Beneficial%20Ownership%20Press%20Release. pdf Listed on OECD Blacklist in 2000 Sharman, J.C. (2006) Havens in a Storm, Cornell University Press, p.15-16 - - 233 Listed on EU Non- Cooperative Tax Havens List Annex I 2019 (Blacklist) Official Journal of the European Union, Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes, 26 March 2019 01.05.2019 at 10:00 https://eur-lex.europa.eu/legal- content/EN/TXT/PDF/?uri=CELEX:52019XG0326(01) &from=en Listed on EU Non- Cooperative Tax Havens List Annex II 2019 (Greylist) Official Journal of the European Union, Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes, 26 March 2019 01.05.2019 at 10:00 https://eur-lex.europa.eu/legal- content/EN/TXT/PDF/?uri=CELEX:52019XG0326(01) &from=en Named country of primary concern by the US State Department US Department of State, Countries Table 2016 23.06.2018 at 11.00 https://www.state.gov/j/inl/rls/nrcrpt/2016/vol2/253369. htm Named on FATF list of high-risk countries FATF, High risk and other monitored countries 23.06.2018 at 11.00 http://www.fatf-gafi.org/countries/#high-risk Has the UNCAC been extended? Know Your Country Reports, January 2017, Bermuda, TCI and Anguilla 01.07.2018 at 17:00 http://knowyourcountry.info/ Sanctions (UN / US / EU) Know Your Country Reports, January 2017, Bermuda, TCI and Anguilla 01.07.2018 at 17:00 http://knowyourcountry.info/ Number of SARs Bermuda Bermuda: FIA, Statistics January - December 2017 01.07.2018 at 13:00 https://www.fia.bm/images/pdfs/sars17.pdf Number of SARs TCI TCI: FIA, Financial Intelligence Agency Annual report 2016/17, p.7 01.07.2018 at 13:00 https://www.fia.tc/wp- content/uploads/2018/04/2016_17-FIA-Annual- FINAL.pdf Number of SARs Anguilla Anguilla: 2014 figures, CFATF Eighth Follow Up Report, November 26 2015, p.18 01.07.2018 at 13:00 https://www.cfatf-gafic.org/index.php/documents/follow- up-reports-2/anguilla/6264-anguilla-8th-follow-up-report-1 Number of SARs in Real Estate Bermuda Bermuda: FIA, Statistics January - December 2017 01.07.2018 at 13:00 https://www.fia.bm/images/pdfs/sars17.pdf Number of SARs in Real Estate TCI TCI: FIA, Financial Intelligence Agency Annual report 2016/17, p.7 01.07.2018 at 13:00 https://www.fia.tc/wp- content/uploads/2018/04/2016_17-FIA-Annual- FINAL.pdf 234 Mentioned in the Panama Papers ICIJ, Offshore Leaks Database, Download Panama Papers Zip File 01.05.2019 at 10:00 https://offshoreleaks.icij.org/pages/database Number of Local- Registered Entities Mentioned in the Panama Papers ICIJ, Offshore Leaks Database, Download Panama Papers Zip File 01.05.2019 at 10:00 https://offshoreleaks.icij.org/pages/database Mentioned in the Paradise Papers ICIJ, Offshore Leaks Database, Download Paradise Papers Zip File 01.05.2019 at 10:00 https://offshoreleaks.icij.org/pages/database Number of Local- Registered Entities Mentioned in the Paradise Papers ICIJ, Offshore Leaks Database, Download Paradise Papers Zip File 01.05.2019 at 10:00 https://offshoreleaks.icij.org/pages/database 235 Appendix III Below is a list of individuals with whom I conducted informal interviews, referenced first in chapter 1. While interviews did not formulate part of my methodology, insofar as I did not use these discussions for the purpose of gathering data or obtaining evidence from which to base my conclusions, these informal interviews and discussions were useful in educating me about developments in this field and ensuring my contributions were up-to-date given the fast-changing landscape affecting the jurisdictions concerned. These informal interviews were conducted on a non-attributable basis and the content of our discussions remains confidential. These discussions (including in-person, telephone and written correspondence) informed my primary and secondary research and contributed to a deeper understanding of issues discussed in this thesis. Professor Barry Rider OBE – Professorial Fellow, Centre of Development Studies, University of Cambridge and Former Head, Economic Crime Initiative, Commonwealth Secretariat, Founder, Cambridge International Symposium on Economic Crime, former Special Counsel to the IMF and Advisor to ICPO-Interpol. Several Discussions conducted at Jesus College and the Centre of Development Studies, Cambridge, and the Inner Temple. Mr Saul Froomkin QC OBE – Attorney General, Bermuda (1981-1991), Former Director of Criminal Law, Canada, Co-Director, Cambridge International Symposium on Economic Crime, former Ministerial Chair of the Commonwealth Initiative Against Economic Crime. 26/06/17, Beesmont Law LLP Offices, Hamilton, Bermuda. Mr Trevor Moniz JP MP – Shadow Attorney General and Minister for Legal Affairs, Bermuda, and Attorney General, Bermuda (2014-2017). 27/06/17, Attorney General’s Chambers, Hamilton, Bermuda. Hon. David Burt JP MP – Premier and Finance Minister, Bermuda, and Opposition Leader, Bermuda (2016-2017). 27/06/17, Opposition Leader’s Office, Hamilton, Bermuda. Hon. Bob Richards JP MP – Deputy Premier and Finance Minister, Bermuda (2014-2017). 27/06/17, Ministry of Finance, Hamilton, Bermuda. Mr Larry Mussenden – Director of Public Prosecutions, Bermuda. 26/06/17, DPP’s Office, Hamilton, Bermuda. Mr Nicholas Pedro – Detective Chief Inspector, Head of Organised and Economic Crime, Bermuda Police Department. 23/07/17, Bermuda Police Department, Hamilton, Bermuda. Ms Rosemary Jones – Head of Communications, Bermuda Business Development Agency. 11/06/18, Telephone Conversation, Queens’ College, Cambridge. Mr Richard Ambrosio – Barrister and former consultant to the Attorney General, Bermuda. 27/06/17, Attorney General’s Chambers, Hamilton Bermuda. 236 Mr William Cooper – Associate, Conyers, Dill & Pearman, Bermuda. 02/07/17, Hamilton, Bermuda. Mrs Sheelagh Cooper – Criminologist and Chair, Coalition for the Protection of Children, Bermuda. 01/07/17, Hamilton, Bermuda. Mr Rory Field – Director of Public Prosecutions, Bermuda (2007-2016), and Special Advisor, UN Crime Prevention Office, Vienna. 34th and 36th International Symposium on Economic Crime, Jesus College, Cambridge. H.E. Dr John Freeman CMG – Her Majesty’s Governor, TCI, and former Ambassador to Argentina. 19/03/2018, Cambridge. Hon. Rhondalee Braithwaite-Knowles OBE – Attorney General, TCI. 28/06/18, Telephone Conversation, Queens’ College, Cambridge. Mr Richard Tauwhare – Her Majesty’s Governor, TCI (2005-2008). 25/01/2018, Inner Temple, London. Hon. Akierra Missick MP – Deputy Premier and Minister for Education, Youth, Sports and Culture, TCI (2012-2016), Member of Parliament and Attorney. 05/06/2018 Telephone Conversation, Queens’ College, Cambridge, and 30/11/2018, London. Ms Angela Brooks – Deputy Director of Public Prosecutions, TCI, 34th International Symposium on Economic Crime, Jesus College Cambridge, and 10-17 – 05/18 email correspondence. Ms Denise Samuels-Dingwall – Public Prosecutor, TCI. 11/07/2018, email correspondence. Mr Niguel Streete – Managing Director, Financial Services Commission, TCI. 27/02/2018 email correspondence. Mr Paul Coleman – Director, AML Supervision, Financial Services Commission, TCI. 20/03/2018 telephone conversation, Queens’ College, Cambridge. Mr Tom Withyman – Former Senior Crown Council, TCI. 07/12/2017, London. Ms Christina Scott – Her Majesty’s Governor, Anguilla (2013-2017), 15/05/2018, London. Hon. John McKendrick QC – Attorney General, Anguilla (2016-2018), 35th and 36th International Symposium on Economic Crime, Jesus College, Cambridge. Hon. Pam Webster – Leader of the Opposition, Anguilla. 23/06 and 27/06/2018, Telephone Conversations. Mr Rupert Jones – Attorney General and Director of Public Prosecutions, Anguilla (2014-2016), 15/05/2018, Inner Temple, London. Mrs Helen Hatton – Chairman, Financial Services Commission, Anguilla (2010-2018), Managing Director, BDO Sator Regulatory Consulting, former Deputy Director General, Jersey Financial Services Commission and Advisor to the FCO. 06/02/2018, BDO-Sator Offices, Jersey and at the 34th and 35th International Symposium on Economic Crime, Jesus College, Cambridge. 237 Ms Marisa Harding-Hodge – Compliance Manager, Ministry of Finance, Anguilla. 31/05/2018, Telephone Conversation, Queens’ College, Cambridge. Mr Don Mitchell CBE QC – Former Court of Appeal Judge, Eastern Caribbean Supreme Court. 07/07/2017, Email Correspondence. Mr Gary Youinou – Senior Regulatory Consultant, BDO-Sator, Jersey. 06/02/2018, BDO-Sator Offices, Jersey. Mr Howard Sharp QC – Advocate, and Solicitor General, Jersey (2010-2015). 06/02/2018, Jersey, and at the 35th and 36th International Symposium on Economic Crime, Jesus College, Cambridge. Professor Philip Rutledge – Attorney and former Chief Counsel, Pennsylvania Securities Commission, and former Secretary, Enforcement Committee, North America Securities Administrators Association, USA. 01/06/2017, Jesus College, Cambridge. Mr Robin Sykes – Chief Technical Director, Financial Investigations Division, Jamaica. 34th International Symposium on Economic Crime, Jesus College, Cambridge. Dr Shazeeda Ali –Dean, Faculty of Law, University of the West Indies, Jamaica. 35th International Symposium on Economic Crime, Jesus College, Cambridge. Hon. Justice David Hayton – Judge, Caribbean Court of Justice, Trinidad and Tobago, and former Judge of the High Court of the Bahamas. 17/11/2016, Email Correspondence, Queens’ College, Cambridge. Hon. Judith Jones-Morgan – Former Attorney General, St Vincent and the Grenadines. 35th and 36th International Symposium on Economic Crime, Jesus College, Cambridge. Professor Rose Marie Belle Antoine – Dean of the Law School, University of the West Indies, Trinidad and Tobago. 36th International Symposium on Economic Crime, Jesus College, Cambridge. Dr Frank Madsen – Affiliated Lecturer, University of Cambridge and former Director of Criminal Intelligence, General Secretariat ICPO-Interpol. Several discussions at Queens’ College, Cambridge and Jesus College, Cambridge. Dr Henry Balani – Global Head of Strategic Affairs, Accuity, Chicago. 35th and 36th International Symposium on Economic Crime, Jesus College, Cambridge. 238 BIBLIOGRAPHY Books, Articles, Reports, Government and Non-Governmental Documents Addison, T. V. (2008) ‘Shooting Blanks: The War on Tax Havens’, Indiana Journal of Global Legal Studies, 16(2): 17-20. Acquisti, A., John, L. K., and Loewenstein, G. 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