Olatunbosun: How Britain encourages tax havens to aid corruption

Posi Olatubosun is an associate professor of accounting at the Richmond University, United Kingdom. Speaking against the backdrop of the recent anti-corruption summit in the UK and subsequent concerns raised over corruption in Nigeria and other developing countries, he told KAMAL TAYO OROPO that Britain is equally guilty for nurturing corruption through various channels of tax havens.

Recently, British Prime Minister David Cameron had cause to qualify the level of corruption in Nigeria. How tidy was his observation?

His observation was based both on perception and the facts at his disposal. I remember that at the G8 Economic Summit in Davos, Switzerland, on January 24, 2013, the British PM made a profound and shocking statement on Nigeria’s finances, where he declared that: ‘I want this G8 to lead a big push for transparency across the developing world.’ His reason being, for example, a few years back, a transparency initiative exposed a huge hole in Nigeria’s finances –– an $800m discrepancy between companies’ payments and government’s receipt for oil. Obviously, the PM’s statement was based on facts at his disposal, as some of those companies were UK based.

Talking of perception, it was all over the international news that former Nigeria’s President fired the Central Bank of Nigeria (CBN) because of whistle blowing on the same discrepancies in revenue during the same period. Apart from these two cases, there were past cases of glaring corruption involving Nigerian officials that the British government was privy to. Some of these include the former Bayelsa State governor Dipreye Alamieyeseigha’s money laundering case before he escaped back to Nigeria, as well as, that of the former Delta State governor, James Ibori’s money laundering and corruption charges resulting in a 13 year jail term.

So, when Mr. Cameron says that Nigeria is fantastically corrupt, he’s actually offering an opinion based on verifiable evidences.

But then, Britain is alleged to have been providing institutional cover for slush funds. What role has the West, particularly Britain, been playing in mitigating corruption in Nigeria?

You’re absolutely correct there. Over the years, whenever a new transparency perception index report is published, anti-corruption activists here in the UK have always asked the same rhetorical question: ‘Whereto do these stolen monies always end up?’ Of course, they are domiciled in Western Financial Institutions, or laundered through the purchase of expensive landed properties, or most importantly, incorporating businesses and lodging monies in tax havens like Cayman Islands, The British Virgin Islands and other UK Crown Dependencies and Overseas Territories.

In British Virgin Islands, which harbour 40 percent of the global tax havens for instance, you can register your business, or buy an existing one, for about a thousand pounds and the registration is completed within three days. Surely all the ‘know your customer’ procedure of identifying you would be carried out in order to be sure of who you are and so on, but subsequently, your identity would be hidden from the public forever by hiring a nominee or a shell company to represent, and effectively be you.

This is akin to registering your car in a stranger’s name. This shell company or nominated individual will in turn, sign a power of attorney, which hands over the control of the company back to you. However, your name would never appear in any corporate documents generated by the business. This registered company will then open series of bank account and no one would ever trace these monies back to you. Many of these tax havens do not recognise foreign court judgments and it is a crime to disclose information about an offshore trust. Largely, this is how the tax havens work.

Various anti-corruption activists in the UK have argued that without these tax havens, many of the massive money laundering activities that continued to drain developing countries like Nigeria would not have been possible.

Speaking specifically on tax havens, the impression is that they are legal. How do they then aid corruption?

Tax havens actually refer to a jurisdiction where foreign individuals are subjected to local taxes at a low, or zero rate. The norm is that foreign businesses are taxed at a higher rate, except there is a reciprocal arrangement with the home country.

Clearly, the main advantage of making a tax haven your international headquarters is the low tax rates that you enjoy. Other advantages are secrecy of ownership and therefore, protection from the public eyes.

Regrettably, that secrecy of ownership is also the main reason why those jurisdictions egg on corrupt practices. Secrecy is an essential ingredient for illicit transfer of capital, tax evasion and proceeds of corruption. Often, large amounts of money pass through a series of shell companies, which rarely trade locally or internationally. This disguises the origins of the proceeds and makes it difficult to trace the parties behind the transactions.

The Enron scandal, which involves the holding of assets by an offshore company called a ‘special purpose vehicle’ wouldn’t have been possible without the use of these tax havens. The Greek debt problems wouldn’t have happened without the tax havens, and the same goes for the financing of terrorist activities. They represent a distortion of normal economic and financial activities and therefore, a source of corruption.

For instance, the Ugland House, in Cayman Islands, is the registered address of over 18,000 Limited companies. The British Virgin Islands, which has a population of 30,618 in 2016, is home to over a million registered companies with no local operation.

That’s why corporate governance activists are saying that the UK has both legal and moral responsibility to ensure that international fight against financial crimes are not hindered by these centres, and that their UK Crown Dependencies and Overseas Territories laws should be streamlined with the UK mainland law on financial transparency.

In 2015, the EU published a blacklist of 30 territories, which are considered to be tax havens, as part of its crackdown on tax avoidance by multinational corporations. Obviously, the list included Cayman Islands and British Virgin Islands. Since then, the British government has been putting pressures on the EU to end its opposition to the operation of tax havens.

So, when you put this side by side with the proposal by the Prime Minister during the 2016 London Anti-corruption summit, that the British government will make the land register more open and transparent as a means of fighting corruption, then you can say that it is akin to ‘leaving the cookie jar open, while chasing after ants.’

What then is the way to go? Don’t you think some of these measures might prove to be infringing on rights, especially those honest businessmen?

The way to go is for the so-called tax havens to adopt transparency in their operations.

The so-called tax havens are small countries with low business activities relative to their population size. Surely, there would be some business activities taking place in those jurisdictions, like tourism, shipping, conventional banking etc. If those jurisdictions also offer lower corporation tax rates so that international businesses could sight their head office there, that’s also perfectly in order. For instance, some big corporations have decided to site their headquarters in Dublin, the Republic of Ireland, where corporation tax rate is 12.5 percent, whilst the bulk of their operations are UK based, in order to escape tax levied at 20 percent. That’s perfectly understandable.

However, the main features of those 30 tax haven jurisdictions that have been blacklisted by the EU is that they operate secrecy codes, they don’t cooperate with Interpol in the investigation of financial crimes, and many of them do not recognise court judgments in foreign jurisdictions.

In furtherance of bilateral relations, what can both Nigeria and Britain do to mitigate continuation of this practice?

I don’t see the practice in UK Crown Dependencies and Overseas Territories, as well as, other jurisdictions operating tax havens changing soon, especially now that the UK is putting pressure on the EU to rescind the blacklist. Some countries see the operation as their area of comparative advantage in international trade. One of the outcomes of the London Commonwealth summit on corruption is that the UK will ensure a higher level of transparency by making land register publicly accessible.

At the end of the conference, the commonwealth countries have also agreed to streamline their criminal justice system so that any judgment obtained pertaining to repatriation of stolen assets can be respected and executed by British courts. This is achievable as all their laws are based on common law received from the UK. This is a vital area where cooperation is urgently needed by the developing countries, including Nigeria. As you know, the Organisation for Economic Co-operation and Development (OECD) member countries are capable of imposing sanctions on the developing countries, but the reverse is impossible.