Martin Kenney: UK rejects open public register of beneficial owners
Friday, January 26, 2018 at 8:08AM
Martin Kenney in BVI, International Consortium of Investigative Journalists, Panama, Paradise Papers, beneficial owners

I have decided to don my tin hat and stick my head above the parapets again. Why? Because for once common sense has prevailed and the anti-1% brigade have lost their argument for an open Public Register of Ultimate Beneficial Owners (UBOs) in the British Virgin Islands (BVI) and her sister islands in the Caribbean.

The UK’s House of Lords has voted against the imposition of a public UBO register, a position I and others (in the rather quieter majority) have expounded upon ever since the fallout arising out of the Panama Papers and Paradise Papers.

The noisy minority who have attacked all aspects of the offshore world without understanding it will no doubt be annoyed. But such a defeat was possible once those in the know and who were not entirely politically driven had their say.

The majority vote of 211 to 201 was a comparatively slim one, and many will have cast their vote in line with their party loyalties. Thankfully, the collectivist notion that any company or individual with wealth is evil, and anybody with the audacity to own and operate an offshore company is the Devil himself, was effectively defeated.

Following on from the devastation caused by two category 5 hurricanes, the BVI and other offshore service providers forming part of the UK territories were holding their collective breaths. The threat of a public UBO register was real, and it would have been ruinous to the islands’ economic recovery.

The UK has implemented significant changes since the perceived scandals linked to the Panama and Paradise Papers. To be fair, the offshore world had already commenced the process of pulling itself into line with the international AML guidelines long before the papers and before the UK got actively involved.

The misnomer persists that these offshore companies are secret. They are not. Yes, they are private. In some eyes this element of privacy also equates to their being corrupt. If you throw sufficient mud at a subject, eventually some will stick. The problem that the Caribbean islands had was that the Panama and Paradise Papers brought the topic to the attention of the masses; the ordinary man or woman in the street, who until then had little understanding of the offshore world beyond how the Cayman Islands were depicted in the 1993 Tom Cruise and Gene Hackman film, The Firm.

The Panama Papers outed significant wrongdoing and criminality. The furore was instant, with several public figures throwing themselves onto their respective swords in shame. The Paradise Papers were different. They did the International Consortium of Investigative Journalists (ICIJ) a disservice in the manner they were delivered to the public. If the Panama Papers were serious, broadsheet news, then the Paradise Papers were red top (tabloid) titillation.

The BBC led the way with a TV documentary that insinuated much but proved little. All it did was play into the hands of the those on the left, by drawing the public’s attention to the lawfulness of tax avoidance. You see, for all my support for the offshore services, I acknowledge the moral argument that people and companies should pay tax commensurate to their earnings. But as a lawyer, I have to operate in a world of the rule of law; if it is legal then it is legal, period.

If the voters want that position to change, then the onshore world needs to change its tax laws. But dragging the personal finances of individuals who have done nothing wrong but work out their tax-dues (in keeping with the law) across the TV screen, served no real purpose and was a genuine invasion of privacy for those targeted.

One of the points I have repeatedly sought to make is the fact that those demanding an open UBO register do not appear to understand the mentality of the crook. In an ideal world, when faced with the demands of a public register, Al Capone would voluntarily declare himself a UBO and provide all the relevant identification documents to satisfy the KYC demands.

This may come as a surprise to those demanding an open register; but crooks don’t tell the truth.

The notion that a public UBO register is the panacea to the problem of corruption is flawed. Such a register is only as good as the information provided. If a crook wants an offshore vehicle, then they will have a man-of-straw front the company. The UK itself operates an open public database of companies and their directors. But my UK-based fraud investigator (a retired Fraud Squad detective) will confirm that criminals simply do not tell the truth. On several occasions he has been faced with corporate records that, although public and apparently complete, are to all intents and purposes fictitious. So why would Caribbean offshore UBO registers be any different if they were public?

The BVI and her sister islands make almost all their offshore service income from honest and sincere people, and from companies who have a genuine need for a tax-neutral, legally stable entity. The sad thing is that a small minority will always lie their way into acquiring an offshore company, by hook or by crook. As an investigative lawyer, I and others in my field have warned that a public register here will see the crooks head off elsewhere to buy their offshore vehicle. Somewhere less imposing; somewhere where the KYC is almost non-existent; and somewhere that lends itself to operating a corrupt offshore entity… somewhere like the U.S. states of Nevada and Delaware for example.

If all British Overseas Territories did adopt open public registers of UBO information, it would make the task of investigating international fraud that much harder. We would effectively displace the problem to jurisdictions less likely to cooperate with our ongoing investigations.

The timing of the "No" vote could not be more significant. The UK is negotiating Brexit with the EU. The EU was planning (we are led to believe) with using its new "blacklist" of rogue states offering tax avoidance services as leverage in the negotiations with the UK. Their threat was to be a simple one: comply with our demands or we will include places like the BVI on our list. The UK has nipped this in the bud. By voting "No" to public registers, it has told the EU to do its worst.

The UK Foreign Office Minister, Lord Ahmad, said the BVI and other overseas territories have regulated and managed their financial services well. The UK’s decision is a significant blow to the collectivists who demanded change. It is a matter of fact, however, that although the British Overseas Territories have won this battle, the war will continue apace as the anti-1% brigade are unlikely to give up.

_____

Martin Kenney, pictured above, is Managing Partner of Martin Kenney & Co., Solicitors, a specialist investigative and asset recovery practice based in the BVI and focused on multi-jurisdictional fraud and grand corruption cases www.martinkenney.com |@MKSolicitors. He was selected as one of the Top 40 Thought Leaders of the Legal Profession in 2017 by Who's Who Legal International and as the number one offshore lawyer for asset recovery.

Article originally appeared on The FCPA Blog (https://www.fcpablog.com/).
See website for complete article licensing information.