Corruption is not a foreign problem

by
20 May 2016

Paul Vallely laments the lack of political will to reform offshore tax havens

THE dust has now settled from David Cameron’s gaffe, in which he was overheard telling the Queen and the Archbishop of Canterbury that Nigeria and Afghanistan were both “fantastically corrupt”, on the eve of the British Government’s anti-corruption summit. The spotlight of public attention soon swivelled elsewhere. But what was left behind in the dark places where corruption flourishes?

Government spin doctors made much of the achievements of the summit. Certainly, there is something to celebrate.

One of the great myths about corruption is that it is something that foreigners do in far-off places. But much of the money from foreign corruption ends up in British banks, facilitated by City accountants, and is used to buy swanky mansions through Mayfair estate agents, who ask no questions about the provenance of the cash, which constantly inflates property prices. Foreign firms own more than 44,000 properties in London alone. Many are thought to have been bought with the proceeds of corruption. London is effectively the money-laundering capital of the world.

The rich world does not just benefit from corruption elsewhere. It is complicit in it. The measures agreed at Mr Cameron’s summit effectively acknowledged that. At its end, a small group of countries, including Britain, France, the Netherlands, and Nigeria agreed to sign up to a new public register, which will require those who buy property to disclose their true identity rather than hide it behind the façade of a shell company. The information will be available to police and tax authorities internationally.

A similar system will be put in place for companies that want to bid for government contracts — which add up to nearly $10 trillion a year worldwide. A further six countries, including Australia, will consider signing up to the deals. But others, including the United States, refused. So did UK overseas territories such as the Cayman Islands or the British Virgin Islands, which have, for decades, harboured funds exported by wealthy individuals using shell companies.

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The Panama Papers (News, 8 April) have revealed how much abuse takes place when ownership information is hidden. And yet, despite the important steps taken at the summit, it is clear that real political will for change is lacking.

The UK could impose change on overseas territories, as it did by government decree in 2000, when Caribbean territories were refusing to decriminalise homosexuality. International lawyers have said that the offshore havens could be forced to disclose the true identities of the owners of the trust funds, using an Order in Council of no more than two sides of A4, which could be drawn up overnight.

Before the summit, 350 top economists declared that there was no justifiable economic part to play for tax havens. They are not productive in the global economy. Their chief purpose is merely to allow very rich people to dodge their tax obligations to the societies in which they live. Mr Cameron knows this; it was recently revealed that his family had benefited from such an arrangement.

The Government is to be applauded for the small steps it has taken on this issue. But there is an elephant in the room: the rich and their political allies do not really want significant change at all.

 

Paul Vallely is Visiting Professor in Public Ethics at the University of Chester.

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