Financial Transparency: Overseas Territories

I beg to move,

That this House has considered the impact of financial secrecy in the Overseas Territories on UK communities.

It is a pleasure to serve under your chairmanship, Mr Twigg. Before being elected to this place, I dedicated almost 15 years of my working life to tackling financial crime at two major UK banks. That work took me across the globe to the USA, the United Arab Emirates and often to India, so I like to think I can speak with some authority about financial secrecy overseas and how it impacts us at home.

For a number of people watching this debate, the contents of my speech will make for uncomfortable viewing, so let me be clear from the outset that my objective is not to criticise the overseas territories writ large—far from it. Some have shown a real commitment to transparency, which I commend them for, and others have a zealous determination to work with the Foreign, Commonwealth and Development Office to drive through much-needed reforms, but are hampered by a lack of local expertise. But other overseas territories seem insistent on blocking change at every opportunity, and it is those that I wish to focus on.

Hon. Members might ask, “What connects the sun-kissed beaches of the British Virgin Islands with the rain-soaked streets of Bolton?” What do my constituents care about shell companies, trusts and the veil of financial secrecy that a number of our overseas territories seem quietly content to provide? The purpose of today’s debate is to challenge the notion that what goes on over there has few ramifications for our daily lives over here. Financial secrecy in our overseas territories has real-world consequences for my constituents, businesses and Britain’s standing in the world. Journalists including Nicholas Shaxson and Oliver Bullough have outlined how the UK’s overseas territories have systematically undermined the global economy by creating a shadow banking system—“Moneyland”, to use Oliver Bullough’s parlance.

In a number of our overseas territories, low levels of taxation and substandard levels of transparency have attracted the world’s crooks and kleptocrats like moths to a flame. Money laundering, fraud, bribery, tax evasion: regrettably, many of the scandals we read about are likely to involve a financial structure in the British overseas territories. It is an enduring embarrassment going back many, many years, and it undermines our global reputation.

In 2016, 11.5 million documents detailing financial and attorney-client information relating to 214,488 offshore entities were leaked—the now-infamous Panama papers. More than half the shell companies exposed in that leak from Panamanian offshore law firm Mossack Fonseca were set up in the British Virgin Islands. That leak revealed the sheer scale of the dark economy, which allows the rich and powerful to store their assets offshore, out of sight of the taxman, law enforcement or the press. From the likes of the former Georgian Prime Minister Bidzina Ivanishvili to the more than 30 Mossack Fonseca clients blacklisted by the US Treasury, roughly $2 trillion passed through that firm. In 2017 came the Paradise papers, with another 13.4 million documents from firms, including from Bermuda, the BVI and the Cayman Islands, then the 2020 FinCEN files, followed by the 2021 Pandora papers. Each leak tells a story about unfairness, about how those who can afford to find ways to avoid paying their fair share can do so, and about how the world’s crooks and kleptocrats cleaned and stashed their dirty cash. Each leak exposed the role played by the UK’s own overseas territories in enabling assets to be hidden.

So what is the impact on UK communities? I will focus on three areas where there is a direct, tangible impact on the UK: first, inhibiting growth; secondly, threatening national security; and thirdly, damaging our standing in the world. Sustainable economic growth and good-quality public services require the tax that is owed to be collected, whether it is from a small business in Westhoughton in my constituency or from oligarchs who have decided to make London their home—nobody should be above the law. The Chancellor has already made good progress on closing the £44 billion tax gap by hiring 5,500 new compliance staff, incentivising whistleblowers and committing to a 20% increase in the number of tax fraudsters charged each year.

Those are all noble endeavours, and I applaud them, but financial secrecy continues to erode our tax base, because when money that should be taxed is hidden offshore, it is the honest British taxpayer who ends up footing the bill. It harms His Majesty’s Revenue and Customs’ ability to collect what is owed, it fuels unfairness in our system and it leaves less for our stretched public services. There are too many cases to list, but I will endeavour to go over some, such as brothers Michael and Stephen Hirst, who evaded over £3.2 million in tax by routeing profits through companies they secretly controlled into Gibraltar and the British Virgin Islands.

But it goes deeper than that. Illicit money flowing through opaque companies registered in our overseas territories does not stay offshore; it finds its way into our UK property market. That distorts it, according to the National Crime Agency, and hinders people’s attempts to get on to the housing ladder. Transparency International UK has identified over £11 billion in suspicious wealth invested in British property, more than half of which was routed through shell companies in our overseas territories. Behind those faceless firms are the likes of Bangladeshi businessman Shafiat Sobhan, Pakistani tycoon Malik Riaz Hussain and Azerbaijani banker Jahangir Hajiyev—individuals accused or convicted of grand corruption who saw London as the safest place to stash their gains.

That money even floods our high streets. If we walk down any high street in the UK, we will see a proliferation of vape shops, candy shops, Harry Potter shops and barber shops. Not all of them have unscrupulous owners, but some are used as fronts for money laundering and tax abuse. As London Centric recently reported, these practices are often enabled by opaque corporate structures in offshore jurisdictions.

I congratulate my hon. Friend on securing the debate. Does he agree with the National Crime Agency that if it had open and accurate data on who owned and controlled those businesses, its operations would be much more effective? Those businesses are often linked to overseas territories, so the National Crime Agency cannot find their real owners and crack down on them.

I thank my hon. Friend for his passionate campaigning on this issue. He is absolutely right that we need more transparency to support our law enforcement agencies to tackle this issue, and I will come on to that now.

I pay tribute to the brilliant enforcement work undertaken by the National Crime Agency through its Operation Machinize. Just last week, police visited a number of addresses in my constituency, seizing £17,000-worth of goods in the process. I applaud the work of our enforcement agencies, but as I will explain, these tireless professionals need more support in their work.

Elsewhere, financial murkiness causes friction for British businesses. When I worked in finance, we would often conduct “know your customer” checks and hit a wall, because a trust or a corporate service provider was incorporated in a secrecy jurisdiction. The beneficial owner was always elsewhere. Every time we spoke to law enforcement, journalists or civil society about dirty money, the same names came up: the BVI, the Cayman Islands and Bermuda. It is farcical.

Banks, lawyers and accountants are on the frontline of anti-money laundering checks. Collectively, they spend over £38 billion a year on financial crime prevention—the equivalent of £21,000 every hour. A good-quality public register of beneficial ownership would make their work cheaper, faster and, frankly, more effective, unlocking the growth potential of our world-leading financial services sector.

On national security, since Russia’s barbaric invasion of Ukraine, the UK has quite rightly been at the forefront of the global sanctions regime against Putin. I commend the Minister for his personal leadership in ensuring that it is Putin and his cronies who pay for their unlawful war. The overseas territories have played an important role in enforcing those sanctions, freezing over £7 billion in Russia-linked assets. Indeed, initiatives like the Cayman Islands’ Operation Hektor, which has frozen £6 million of assets, deserve recognition.

As vice-chairman of the all-party parliamentary group, I want to express my appreciation to the chairman, the hon. Member for Bolton West (Phil Brickell), for the brilliant way he has led the debate. He underlined that there must be an all-party approach, which he expressed with great eloquence and factual back-up. He made the point that we all have a constituency interest in this issue. We certainly recognise that in the royal town of Sutton Coldfield. I also thank his predecessor as chair, the hon. Member for Kensington and Bayswater (Joe Powell), who I note the Government have now neutered by putting on the payroll. As a former Government Chief Whip, I know exactly how these things work, and it is a recognition of his great abilities that he has now been put on the non-ministerial payroll.

I want to emphasise why this issue matters. We are talking about dirty money—money stolen from Africa and from Africans, money from the sex trade and money from the drug trade. Although Africa is my principal concern, because I believe that development is being held up by the enormous amount of money that is stolen from that continent, the hon. Member for Bolton West also made an extremely important point about tax. After all, in a few days’ time, the Chancellor will be looking for as much tax revenue as she can get. If she follows the hon. Gentleman’s advice, there is no doubt that billions would flow into the Exchequer, for the reasons that he set out.

For many years, we believed that closed registers were doing what was required. Closed registers enabled law enforcement authorities to dip into the details and, in the case of terrorism, get a response within 24 hours, but the publication of the Paradise and Panama papers showed definitively why we must have open registers of beneficial ownership. Without open registers, we cannot join the dots of who is doing what to whom. That is a very important point. The scales fell from our eyes when the Paradise and Panama papers were published—all praise to the BBC and The Guardian for doing so—as they showed precisely why open registers are absolutely essential. That is at the heart of this debate.

Because of the number of Members who have indicated that they wish to speak in the debate, with the authority of the Chairman of Ways and Means, I am imposing a time limit on Back Benchers’ contributions of two and a half minutes.

It is a pleasure to serve under your chairship, Mr Twigg. I begin by paying tribute to my hon. Friend and constituency neighbour the Member for Bolton West (Phil Brickell) for his work in this House and outside it to combat fraud and corruption. His steadfast resolve is to be commended. I have probably wasted half my time saying that, but it needed saying.

As we have heard, financial secrecy in Britain’s overseas territories and Crown dependencies enables tax abuse, fraud and organised crime, draining billions from public coffers and weakening enforcement, but I shall talk about the impact that it has on our towns locally. In Leigh and Atherton and across our country, our high streets are being hollowed out by rogue traders using these opaque corporate structures. Dodgy vape shops, fake candy stores and unlicensed barbers are increasingly used to launder money, sell illicit goods and evade scrutiny. These businesses often phoenix overnight, reopening under new names to dodge enforcement. They damage the reputation of our town centres and erode public confidence.

That is why, like my hon. Friend the Member for Bolton West, I want to highlight Operation Machinize, a multi-agency crackdown led by Greater Manchester police, co-ordinated by the NCA and supported by trading standards and our local authority teams. Across Greater Manchester, including Leigh, over 100 premises were targeted. The operation led to arrests, closure orders and the seizure of illegal vapes, illicit cigarettes and counterfeit goods. I thank all those involved.

Despite such action, the activity carries on and the authorities’ hands are tied. My office supported a raid in Leigh. It took over year to build the evidence and it was very clear, yet the business was reopened within an hour. That is why I have joined forces with my hon. Friend the Member for Great Grimsby and Cleethorpes (Melanie Onn) to launch a national campaign calling for stronger powers, better co-ordination and real accountability. Our communities deserve better.

It is a real pleasure to serve under your chairship, Mr Twigg. I thank the hon. Member for Bolton West (Phil Brickell) for leading today’s debate with such a detailed, informative speech. We are all impressed by the way he set the scene.

This United Kingdom is made up of four countries that are directly impacted by public finances in how we can distribute allocated money and what we have the capacity to deal with, so this debate is important. There is already a strain on public finance; we all witness it every day. We see our public Departments struggling, especially health and education. Whether it is here or back home, the issues are the same. We must also note that the Chancellor has not yet ruled out tax rises ahead of the Budget. The public are already taking on the burden of the UK’s debt.

We have seen, and the Government are aware of, countless instances of tax evasion and avoidance by people in the United Kingdom, especially in the jurisdiction of the Cayman Islands. That contributes to lost tax revenues across the country. My issue is the loss of tax revenue—money that should be spent in this country on our own people. The UK Treasury loses billions each year to offshore tax avoidance. Northern Ireland relies on the block grant from Westminster through the Barnett consequentials for our devolved Government, so this tax avoidance and evasion means less funding for crucial sectors in Northern Ireland such as health, education and infrastructure. That is frustrating for people. [Interruption.]

Will the hon. Gentleman give way?

Just for a second; thank you.

I thank the hon. Gentleman for joining the last debate we had on this topic in this Chamber seven months ago. Does he agree that the link we are discussing between the overseas territories and the sorts of criminal activity that we all see demonstrates that the British public would be on side with cleaning up this mess?

I thank the hon. Gentleman for giving me the chance to get my cough sorted; I appreciate that very much. I agree with him.

There is obvious unfairness in taxation, especially because citizens face higher scrutiny than wealthy users of offshore arrangements. For example, the average person will at some point in their life be hit with a tax bill—that dreaded letter that comes through saying, “You haven’t paid enough tax.” The same does not go for those who partake in tax avoidance. The Treasury should do more to ensure that such people pay into the system just the same as everybody else.

The UK’s register of overseas entities 2022 revealed that several properties in Northern Ireland were held via entities in secrecy jurisdictions—more evidence of offshore-linked ownership of commercial and residential assets, especially in Belfast. Such investments can inflate property value and cause confusion over true ownership of property. That has a great impact on the ordinary person.

My focus and my responsibility are my constituents and the money that they must lose from their wages each month to increase Government spending. There must be more clarity and better insight. Government must do more to reinstate trust with the public, because there is disillusionment when it comes to finance. The Minister is a good and honest man. I look to him for an acknowledgment that Northern Ireland and the devolved nations suffer as a result of this and that he will endeavour to do more for this country to protect finance and, ultimately, my constituents.

It is a pleasure to serve under your chairship, Mr Twigg. I thank my hon. Friend the Member for Bolton West (Phil Brickell) for securing this timely debate. It is timely for two simple reasons. Just yesterday, the Bureau of Investigative Journalism revealed that HMRC is apparently refusing to publish its official estimate of how much tax is currently being lost due to tax dodging facilitated by tax havens. The Public Accounts Committee, on which I sit, found in July that HMRC simply is not able to track down those individuals who stash their fortunes offshore in tax havens including overseas territories. The Committee has pressed for greater transparency concerning tax that is lost offshore. Without that information we will never be able to properly assess whether HMRC’s efforts are effective, or even adequately resourced. Even more crucially, without that estimate our tax authority cannot effectively pursue those who deliberately avoid or evade paying their fair share of tax. It is very simple: we should be able to assess what tax is owed and then go on to collect it. HMRC must be able to get a firmer grip on the scale of wealth that is currently stashed away offshore, and publish its findings openly. We need to bolster its ability to spot and stop tax dodging offshore by the super wealthy.

That leads me to the second simple reason that this debate is timely. With the Budget fast approaching, in a time when the global economy is uncertain and dysfunctional, collecting the right amount of tax is not just a technical matter; it is about ensuring that everyone pays their fair share for the public services that we all rely upon. Holding even one billionaire to account on their tax obligations can influence the wider public purse. Unfortunately, we know that there are many individuals not paying their fair share, such as the sanctioned oligarch Roman Abramovich, who has used a British tax haven—again, the British Virgin Islands—to avoid paying almost £1 billion in tax owed to HMRC.

This speaks to a wider point about Ukraine. Two years ago Chelsea was sold for £2.35 billion and now a company controlled by Roman Abramovich is demanding a repayment of £1.5 billion. The absolute secrecy and the intricacy of his controlled companies are having a direct effect on humanitarian efforts in Ukraine.