Vital loopholes remain in the UK’s fight against dirty money
Mary Patel
Movement Building and Outreach Manager
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The terrible Russian invasion of Ukraine laid bare the extent of the UK’s exposure to illicit finance, prompting concerted counter efforts by parliamentarians. This week, a welcome second Economic Crime Bill edges closer to being finalised, but substantial loopholes are in danger of being left unaddressed unless amendments – backed by leading anti-corruption and tax justice groups – are accepted.
The UK’s reputation as a global financial center comes with a dark side—its vulnerability to dirty money due to a cheap and fast company registration process, and a long history of offering corporate secrecy services to the world. Researchers estimate that fraud and money laundering cost the UK a staggering £350 billion.
Tackling illicit finance and tax dodging go hand in hand
In addition to ‘tax’, our Fair Tax Mark standards embrace the need for transparency in core areas of anti-money laundering and anti-corruption concern, including disclosure of beneficial ownership (no hiding behind opaque trusts, or nominee arrangements), related party transactions and financial statements, regardless of a business’ size. Anonymously owned companies are one of the key tools used by money launderers and tax evaders to hide illicit gains and taxable assets from law enforcement and tax inspectors.
Vital amendments to Economic Crime and Corporate Transparency Bill
Two crucial amendments to the Bill, due to be debated today (4th September) are also crucial for driving forward tax transparency. They concern the use of ‘nominee’ shareholders, allowing individuals to hide behind proxies, and the Register of Overseas Entities (ROE), which aims to reveal the real owners of offshore firms holding UK property.
Under current legislation individuals owning a UK-registered company can employ a corporate service provider to hold shares on their behalf as a ‘nominee’, concealing their true ownership. Lord Vaux’s amendment would require nominees to disclose their status, and the ultimate beneficiary, and shift responsibility for transparency to the nominee without an undue burden on business.
Presently, legislation also prevents Companies House from disclosing information through the ROE about the true beneficiaries of trusts owning UK property. A second vital amendment by Lord Agnew aims to address this loophole, strengthening efforts to identify illicit actors who own UK property from abroad.
Corporate transparency is good business
Some one hundred parent companies and 250 distinct trading businesses are currently Fair Tax Mark accredited, who between them employ over 250,000 and contribute more than US$1.5bn in corporation tax annually across the globe. Ranging from listed businesses to large private firms, social enterprises and SMEs, Fair Tax Mark holders demonstrate voluntary best practice and show that transparency disclosure is not unnecessarily burdensome.
Making beneficial ownership public is good for fair competition, allowing companies and public procurers to know who they are doing business with.
Over 55 UK Fair Tax Councils endorse this approach, supported by councillors of a variety of political persuasions. Supporting responsible tax conduct and beneficial ownership disclosure has proven to be political common ground, and rightly so.
The UK pioneered the world’s first open-access company ownership register, showcasing leadership in this area. These latest amendments are crucial for cleansing the financial system of dirty money, promoting fair taxation, and creating a responsible business environment in the UK and across the globe.
