What’s the summit about?

The Home Office and Treasury action plan for anti-money laundering and counter-terrorist finance was published earlier this month.

In continuing the fight against corruption, the big event on the horizon is the Government’s anti-corruption summit on 12 May. The stated aims of the summit are wide-ranging and far-reaching.

A more detailed agenda for the summit has not been published. Nor has a list of those invited to or participating in the summit been published.

Background and context

The Government has established an Inter-Ministerial Group on Anti-Corruption.

Defining what is (or is not) corruption is by no means straightforward. There is, though, a degree of consensus in the current and ongoing debate about corruption that it encompasses or overlaps with (at the least) some issues which may give rise to opportunities for (or the perception of) corruption:

  • Tax evasion and aggressive tax avoidance
  • Corporate secrecy and the transparency initiative
  • Beneficial ownership in the UK and overseas and
  • Corporate financial crime, such as bribery and money laundering

The Panama papers

The International Consortium of Investigative Journalists has announced that it will release the Panama papers database on 9 May 2016. 

 The Guardian has published a useful summary of the release of the Panama papers and their origins.

So far, much of the commentary in the UK has focused on the evidence in the papers of UK companies’ involvement in tax avoidance and evasion and the (alleged) inadequacy of governments’ efforts to tackle it.Although the full implications of the Panama papers have yet to be seen or felt, it seems likely that they will give the summit more impetus.

Government policy: Prime Minister’s statement to the Commons, 11 April 2016

In a statement to the House on the Panama papers on 11 April, the Prime Minister, David Cameron, said that the Government would continue to lead the international agenda to “crack down on tax evasion and aggressive tax avoidance”.

The Prime Minister focused on three areas for action:

  • Crown dependencies and overseas territories: They will provide UK law enforcement and tax agencies with full access to information on the beneficial ownership of companies.
  • New tax evasion offence: A new criminal offence will be created this year to apply to corporations that fail to prevent their representatives from criminally facilitating tax evasion.
  • Cross-agency taskforce to examine the Panama papers: The Government would provide up to £10 million to establish a new cross-agency taskforce to analyse the Panama papers and take rapid action. That taskforce would include analysts, compliance specialists, and investigators from across HM Revenue and Customs (HMRC), the National Crime Agency, the Serious Fraud Office and the Financial Conduct Authority.

Will the UK’s approach work?

For the most part, the Government’s strategy has been welcomed, but some commentators have expressed doubts about whether it goes far enough or whether it will have the impact desired.

Transparency International has welcomed the UK’s return (for the first time since 2002) to the top 10 of an annual index of countries perceived as the least corrupt, but has criticised some elements of the Government’s actions.

The Guardian has suggested that the latest announced reforms represent some progress, but do not go far enough, as records of beneficial ownership would not be publicly available at all times.  Bloomberg voiced similar concerns.  Christian Aid too criticised the limitations of the proposals.

The proposal to criminalise failure to prevent the criminal facilitation of tax evasion received a cautious welcome. The Out-Law blog suggested that the new offence could change corporate behaviour.

The Chartered Institute of Taxation pointed to some of the potential difficulties in creating and prosecuting such an offence.  Christian Aid, too, suggested that the new law might be difficult to enforce.  Business Matters magazine suggested it might drive UK providers offshore.  It also struck a sceptical note about the value of the multi-agency taskforce.  Accountancy Age quoted the view of the Chartered Institute of Taxation, that the measure was “sensible”.

Potential components of an anti-corruption strategy

Tax evasion and aggressive tax avoidance

There was an Opposition Day debate on tax evasion and avoidance on 13 April 2016. Responding to the debate, the Economic Secretary to the Treasury, Harriet Baldwin, said that no Government had done more to crack down on those who do not pay the tax that they owe.  The motion was defeated by 300 votes to 266.

The Commons Library briefing on the Queen’s Speech 2016 outlines the most recent developments, including the proposal to create a criminal offence of colluding in tax evasion. HMRC published a consultation document on 17 April 2016. The consultation closes on 10 July 2016.

The Guardian has published its own survey of commentators’ views on whether tax avoidance might become more or less difficult if the UK were to leave the EU.

Beneficial ownership

Some campaigners have argued that the UK could decide to compel the overseas territories to disclose information about beneficial ownership.  On the UK Constitutional Law Association blog, Graham Wheeler has commented on the constitutional position of the Territories, in the context of this debate, in particular the issues that arise of self-determination and (qualified) constitutional autonomy.

In April 2014, the Prime Minister wrote to these jurisdictions to encourage them to follow the UK’s example. 

The Cabinet Office and Foreign and Commonwealth Office (FCO) have published a compendium of the arrangements between the UK and Crown Dependencies and British Overseas Territories (specifically Anguilla, Bermuda, Gibraltar, the British Virgin Islands, the Cayman Islands and the Turks And Caicos Islands) for the sharing of information about beneficial ownership.

Corporate financial crime: bribery and money laundering

A commonly held view is that too few people are prosecuted for corporate failings.

The focus of the Bribery Act 2010 was essentially corporate bribery to gain contracts etc. 

Section 7 of the Bribery Act 2010 created the offence of a commercial organisation “failing to prevent” bribery by its employees.  It statutorily requires companies to prove they have carried out “adequate procedures” to prevent it.  This general requirement, which some have argued should be extended to a broader range of offences, was part of a broad Anti-Corruption Plan.

The money laundering regulations are due to get more severe with the passing of the fourth money laundering directive.

A Home Office/Treasury Action Plan published in April 2016 offered a tentative estimate of the possible scale of international money laundering:

There is no definitive measure of the scale of money laundering, but the best available international estimate of amounts laundered globally would be equivalent to some 2.7% of global GDP or US$1.6 trillion in 2009.

A Transparency Initiative (TI) ‘taskforce’ examined the efficacy of the legislation in May 2015.  On the performance and outcome of the regime, TI noted that detection rates were low.  Even in the UK, asset freezing and asset recovery were disproportionately low in comparison to the huge extent of the activity.

HM Treasury launched a consultation on an anti-money laundering supervisory scheme in April 2016, saying that it wanted “to make the UK financial system a hostile environment for illicit finances, while minimising the burden on legitimate businesses and reducing the overall burden of regulation.

At the same time, the Home Office published another consultation, this time on the proposed legislation flowing from the action plan for anti-money laundering and counter-terrorist finance. The consultation paper lists the proposals requiring legislation:

Corporate secrecy and the transparency initiative

Increasing the UK’s international reach and addressing corporate secrecy is one strand of the action plan for anti-money laundering and counter-terrorist finance. It is also one of the aims of the summit.

The 4th money laundering directive (discussed earlier) was agreed on June 2015. Proposing further reforms, the European Commission said that it wanted more transparency.

Enforcement of anti-corruption laws

In her statement to the House on the action plan for anti-money laundering and counter-terrorism finance, the Home Secretary, Theresa May, set out how the Government intended to boost the enforcement of anti-corruption laws.

What’s happening globally?

It is widely recognised that corruption is an issue on a global scale and governments need to work together to tackle it.

The House of Commons International Development Committee is currently preparing its report on tackling corruption overseas.

The global law firm Linklaters has recently published a report, examining the steps taken by governments in 25 countries to combat bribery and corruption, both within and outside their jurisdictions.  The summary of that report notes that laws in the UK and United States might represent the “gold standard”, but the OECD, European Union and other countries need to take, and have been taking, steps too, to create a unified approach.

At a meeting of Commonwealth Heads of Government in November 2015, the Prime Minister urged leaders to do more to tackle corruption.

Other Commons Library briefings on related topics are available on Parliament’s topic pages for financial services and financial institutions, in particular:

Transparency, corruption and bribery (SN 03806 19 December 2013)

Tax avoidance: a General Anti-Abuse Rule (SN06265, 19 April 2016)

Evolution of UK money laundering law (SN02592, 21 April 2016)

Corporate Economic Crime (CBP 07359, 2 November 2015) and

Banking services: reform and issues (CBP 07234, 20 April 2016)

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