Policy paper

Overseas Territories: progress made on improving transparency and addressing illicit finance flows - explanatory note

Published 14 December 2020

Overview

1) Following the commitments from all of the inhabited Overseas Territories (OTs) to adopt publicly accessible registers of company beneficial ownership, this paper accompanies a draft Order in Council published under the Sanctions and Anti-Money Laundering Act 2018 (SAMLA). It sets out the main provisions in the Order and the UK Government’s expectations of the OTs’ registers; the progress the Territories have made in addressing illicit finance flows and improving transparency in their jurisdictions; and our collective next steps.

2) All of the OTs with financial centres already share confidential information on company beneficial ownership and tax information with UK law enforcement bodies in real time, and have now all agreed to introduce publicly accessible registers of company beneficial ownership, with the British Virgin Islands (BVI) committing to the policy recently. This represents a major change, led by the OTs. Earlier this year Transparency International welcomed the co-operation that the UK receives from the OTs and their “commitment to end corporate secrecy in their jurisdictions ” ^{[footnote 1]}.

3) The UK Government expects the Territories’ registers to be in place by the end of 2023.

Introduction

4) The UK’s relationship with its Territories is a modern one based on partnership and shared values. The UK is proud of its special bond with its 14 Overseas Territories, and we work together as a force for good on the world stage. All of the OTs have their own constitutions, and the inhabited Territories each have their own democratically elected governments and legislatures.

5) The SAMLA contains provisions, put forward by a group of backbench MPs, regarding the introduction of publicly accessible registers of company beneficial ownership in all of the OTs. Since the passing of the Act, the Foreign Commonwealth and Development Office (FCDO) has been working with the governments of inhabited Territories, and all have now committed to introduce registers in their jurisdiction, with the BVI being the most recent to commit.

6) This, along with the commitments from the Crown Dependencies to make beneficial ownership available publicly, means that some of the most significant financial centres in the world are committed to this important measure that will improve transparency. The UK welcomes the commitments made to this policy. It is a major shift and demonstrates that the OTs will continue to play a leading role in global efforts to increase transparency and tackle illicit financial flows.

7) In line with the SAMLA, the UK has prepared a draft Order in Council setting out its minimum expectations as to how the OTs should adopt publicly accessible registers.

Progress made by the Overseas Territories

8) The OTs have demonstrated that they are responsible jurisdictions, with a proven good neighbour policy for cooperation with the UK in matters relating to taxation, fighting financial crime and countering terrorist finance. The OTs with financial centres are committed to meeting international standards on illicit finance and anti-money laundering, including those set by the OECD and Financial Action Task Force (FATF), and regional standards set by the EU.

Combating illicit finance flows

The Exchange of Notes Arrangements

9) The OTs with financial centres ^{[footnote 2]} (as well as the Crown Dependencies) participate in the Exchange of Notes arrangements: bilateral arrangements under which they share beneficial ownership information on legal persons with UK law enforcement agencies within 24 hours of a request (or one hour in urgent cases).

10) Last year’s Statutory Review found that these arrangements are working well and are providing UK law enforcement with rapid access to valuable information used to support ongoing criminal investigations. During the first 18 months of operation, 296 requests were made under the arrangements; this equates on average to nearly four requests per week ^{[footnote 3]}.

11) The National Crime Agency particularly values the cooperation from the Overseas Territories through these arrangements, and information provided by the British Virgin Islands (BVI) through these arrangements supported the implementation of the UK’s first Unexplained Wealth Order.

The United Nations Convention Against Corruption (UNCAC) / OECD Convention on Anti-Bribery

12) The UK has also been supporting the OTs to help them to accede to these international multilateral treaties and conventions.

13) UNCAC is the only legally binding international anti-corruption multilateral instrument. It covers five main areas: preventive measures; criminalisation and law enforcement; international cooperation; asset recovery; and technical assistance and information exchange. The BVI and Bermuda are signatories to the Convention, and the Cayman Islands are advanced in their preparations to join. Montserrat and the Turks and Caicos Islands (TCI) are also working to accede to the instrument.

14) The OECD Anti-Bribery Convention is an anti-corruption convention aimed at reducing political corruption and corporate crime in developing countries, by encouraging sanctions against bribery in international business transactions carried out by companies based in member countries. The Convention has been extended to Cayman (2010) and the BVI (2013). The UKG is now working to extend the Convention to Bermuda, TCI, Anguilla, Montserrat and Gibraltar.

Financial Action Task Force (FATF)

15) The FATF is an inter-governmental body and the international standard-setting body for measures to combat money laundering, terrorist financing and proliferation financing. Members of the FATF, and FATF Style Regional Bodies, are assessed against these standards in a peer review process. Where members are found to be deficient in their implementation of the FATF standards they must implement actions to avoid grey or blacklisting. The UK was assessed in 2018 and was found to have one of the strongest set of controls in the world.

16) Bermuda, the Cayman Islands and the TCI have all recently undergone their assessments of implementation of the FATF Standards. In 2020 Bermuda achieved some of the highest ratings awarded in the world and were found to be largely implementing the related requirements to a significant level. The Cayman Islands was assessed in 2019; the TCI in 2020. Both are now taking forward the required actions to address strategic deficiencies identified in their reviews. The BVI is expected to complete its review in 2023 and Anguilla in 2024. Montserrat is also scheduled to have its assessment in 2024.

European Union ‘high risk third countries’ on Money Laundering and Terrorism Financing

17) The European Commission is mandated to identify high-risk third countries that have strategic deficiencies in their regimes on anti-money laundering and counter terrorist financing. No OTs with financial centres are considered a high-risk third country.

Compliance with international tax standards

18) The OTs are committed to meeting international tax standards, notably those set out by the OECD and EU.

OECD standards

19) The OECD’s Global Forum sets criteria for jurisdictions on transparency in tax matters. Jurisdictions must meet two out of the following three criteria to avoid being blacklisted by the G20:

1. Automatic Exchange of Information (AEoI) – jurisdictions must lay relevant legislation and have completed their first Automatic Exchange of Information under the OECD’s Common Reporting Standard
2. Exchange of Information on Request (EoIR) – jurisdictions must be given a ‘Largely Compliant’ rating by the Global Forum for the Exchange of Information on Request standard
3. Jurisdictions must sign and ratify the Multilateral Convention on Mutual Administrative Assistance on Tax Matters

20) Bermuda, the BVI, Cayman Islands, Montserrat and the TCI have all worked hard to ensure compliance with these standards and have been judged as compliant jurisdictions. In October 2020 Anguilla was given a ‘non-compliant’ rating against the EoIR criterion as a result of historic deficiencies with their legislation - relating to the period 1 January 2015 to 31 December 2017. The Government of Anguilla is now addressing these deficiencies, has passed new legislation and is seeking a Supplementary Review from the OECD.

EU standards

21) The European Commission’s Code of Conduct sets a number of tax rules by which Member States must abide. It also encourages good tax practice beyond Member States. The EU set up its own tax blacklist in 2017 and the criteria for the EU’s list are arranged in three ‘sections’, which complement the OECD’s criteria. Jurisdictions must meet all three criteria to avoid being blacklisted by the EU.

i.Tax Transparency:

a. Automatic Exchange of Information (AEoI) – jurisdictions must lay relevant legislation, have exchange arrangements in place with all EU Member States and have completed their first Automatic Exchange of Information under the OECD’s Common Reporting Standard

b. Exchange of Information on Request (EoIR) – jurisdictions must be given a ‘Largely Compliant’ rating by the Global Forum for the Exchange of Information on Request standard

c. Sign and ratify the Multilateral Convention on Mutual Administrative Assistance on Tax Matters

ii. Fair taxation: the aim of this criterion is to ensure that jurisdictions do not put in place tax measures with a special low rate for foreign companies and requires that:

a. Jurisdictions should have no ‘harmful preferential tax measures’; and

b. Jurisdictions should ‘have no tax measures that facilitate arrangements aimed at attracting profits which do not reflect real economic activity in the jurisdiction’

Part ii.b. was created specifically for zero tax jurisdictions, which includes many of the OTs. In practice it means that the jurisdictions have had to introduce ‘economic substance requirements’ into legislation. These stipulate that, in order to register profits in that jurisdiction, entities have to prove that they also undertook the activities that generated those profits there.

iii. Anti-BEPS measures

The anti-Base Erosion and Profit Shifting (BEPS) project is a large OECD-led project to counter tax avoidance methods via changes to tax treaties and domestic legislation. Jurisdictions must commit to and effectively implement the OECD / G20’s minimum standards, as per the BEPS Inclusive Framework, to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment.

22) The OTs with financial centres are all focused on meeting the EU’s criteria on these tax matters, and the Territories with large financial centres (Cayman Islands, the BVI and Bermuda) are all deemed as ‘compliant’ jurisdictions by the EU.

23) The Territories also have a good record of acting on identified deficiencies. In February 2019 Bermuda was added to the EU’s blacklist due to technical defects in its statute book. It was removed from the list in May 2019. The Cayman Islands was blacklisted by the EU in February 2020 due to technical defects in its statute book. However, like Bermuda, the Cayman Islands Government worked quickly to fix these defects and was removed from the blacklist at the first available opportunity, in October 2020.

24) Because of its ‘non-compliant rating’ against the EoIR, the Government of Anguilla is currently on the EU’s tax blacklist; but as noted in paragraph 20 it is addressing these deficiencies and hopes to be removed at the next available opportunity.

Adopting publicly accessible registers of company beneficial ownership

25) Making beneficial ownership information on companies registered in the OTs accessible publicly will further improve corporate transparency and strengthen the cooperation between the UK and the OTs. The UK’s approach is to work in partnership with the OTs, which has allowed them to take the decision to introduce publicly accessible registers of company beneficial ownership themselves.

26) It should be acknowledged that the OTs’ commitments to this policy represent major progress. Publicly accessible registers of company beneficial ownership are not yet a global standard and very few jurisdictions (including within the EU) have adopted or committed to them; even though such registers are required by the 5th EU Anti-Money Laundering Directive. The current international standards set by the FATF require adequate, accurate and timely information on beneficial ownership, with a private register noted as one means of ensuring such access. As such, by implementing publicly accessible registers the OTs are in the vanguard on this matter.

27) The UK is spearheading an international campaign to encourage more countries to commit to publicly accessible registers by 2023. Action on access to beneficial ownership information in the OTs needs to be complemented by improved beneficial ownership transparency internationally. This is an essential tool in the global fight against economic crime, illicit financial flows and corruption.

28) The UKG considers that the end of 2023 is a reasonable deadline for the introduction of publicly accessible registers. Meeting this date will be a considerable task for many OTs, given their limited resources; especially those that do not yet have a company beneficial ownership register. It will involve significant legislative and operational changes. It took the UK over three years to introduce its own register.

29) To provide the OTs with assistance to establish publicly accessible registers, the UKG has run technical workshops. We have also secured funding to enable Open Ownership, a not-for-profit organisation that supports countries in implementing beneficial ownership registers, to provide individualised assistance to all OTs, and targeted support is ongoing (see Next Steps below).

30) Even though there is still much work to be done in the OTs, good progress has already been made by many, including:

• Anguilla: the government is working with an external provider to introduce a new company register, which will capture beneficial ownership information and will be publicly accessible.
• Bermuda: has had a private beneficial ownership register in place for over 70 years. This register has robust data verification methods and Bermuda’s regime to prevent Money Laundering and Terrorism Financing was rated at a ‘significant level of effectiveness’ in their recent FATF assessment. Bermuda is now working with an external provider to add functionality to allow for public access.
• BVI: is a long-standing member of the Egmont Group ^{[footnote 4]} and has an internationally recognised Beneficial Ownership Secure Search System (BOSSs) private register. Data captured is verified and complete, and only licenced corporate service providers (CSPs) can incorporate companies and input data. During 2019, beneficial ownership information was provided in all the requests made under its enabling law.
• The Cayman Islands: have a private system for holding company beneficial ownership information and are following a published plan for the implementation of a publicly accessible register.
• The Falkland Islands: are currently working with Open Ownership who are helping them to establish a publicly accessible register.
• Montserrat: the government is working on an online publicly accessible register of company beneficial ownership and have drafted appropriate legislation.
• St Helena, Ascension and Tristan da Cunha: will work with Open Ownership to establish publicly accessible registers.
• TCI: the government collect verified company beneficial ownership information and maintain a private system for collating and holding it, which they use to supply information to UK law enforcement agencies.
• Gibraltar: has already introduced its Register of Ultimate Beneficial Ownership, which is accessible to the public ^{[footnote 5]}.

31) The UK will continue to work with the OTs and provide all reasonable assistance as they develop their registers.

Draft Order in Council

32) Section 51 of the SAMLA requires the UK to “prepare a draft Order in Council requiring the government of any British Overseas Territory that has not introduced a publicly accessible register of the beneficial ownership of companies within its jurisdiction to do so” ^{[footnote 6]} by the end of 2020.

33) After the SAMLA passed, the UK assured the OTs of its commitment to working collaboratively with them on the introduction of the registers. The FCDO has prepared a draft Order in Council under Section 51 of SAMLA, which sets out the minimum standards we expect to see when the OTs adopt publicly accessible registers. In light of the firm commitments from all of the inhabited OTs to adopt publicly accessible registers, the UKG has decided that it is now not necessary to make the Order, but will keep this under review.

34) The UK is limited in so far as what it is permitted to put in the draft Order by Section 51 of the SAMLA. The Order:

• sets out the form that the registers must take
• contains provisions to ensure that the information in OTs’ registers is broadly equivalent to that available in accordance with the provisions of Part 21A of the UK Companies Act 2006
• sets a framework for Territory governments to use when developing their own registers
• includes a set of minimum requirements for what the UKG deems to be a compliant publicly accessible register of company beneficial ownership in the OTs

35) Drawing on UK and international best practice and standards, the Order also provides:

• a minimum definition of “beneficial ownership”. This encompasses both direct and indirect control over companies and includes, but is not limited to, control through shareholdings, voting rights or the right to appoint or remove a majority of directors. Where a Territory attaches a percentage to the type of control, the draft Order sets out that this cannot be higher than 25%
• that the information on an individual must include their name, country of residence, nationality, month and year tf birth
• that so far as reasonably practicable, the information contained in it should be accurate and complete
• where the public release of personal information would reasonably put a person at risk of violence, kidnapping, intimidation or other similar harm the information can be withheld

36) The Order also sets out that only those Territories with companies registered in their jurisdiction need to produce publicly accessible registers of company beneficial ownership, which excludes the uninhabited Territories from its requirements.

37) The UK expects Territories’ registers to follow international best practice and global norms on collection, verification, disclosure and accessibility of beneficial ownership information. We also expect Territories’ registers to be proportionate to their circumstances. For example, the requirement to produce a register will fall on all Territories with companies in their jurisdictions. This is a very diverse range of jurisdictions – from the Cayman Islands to the Pitcairn Islands. It would not be proportionate to expect the Pitcairn Islands to produce a register as sophisticated as the Cayman Islands, as long as they make the required information available in a manner that conforms to the minimum standards set out in the draft Order.

38) Whilst the legal authority of Section 51 of the SAMLA is limited to Part 21A of the UK Companies Act 2006, this should not limit the extent of each OT’s ambition. For example, there are many different types of corporate and legal entities registered in OTs (e.g. Limited Liability Partnerships) which do not completely map across to the definitions in Part 21A of the Companies Act. Territory governments may therefore wish to make public more detail in their registers than is set out in the draft Order.

39) The UK is also aware that Territory Governments will collect and hold additional information that may be made available only to a specified authority or class of individuals, or for a specified purpose, such as law enforcement agencies. And more broadly, we recognise the value of accessing beneficial ownership information alongside other basic corporate information. We will continue to work with the OTs to see if, and how, such information could be made available more widely.

Next steps

40) The draft Order in Council sets out the minimum requirements for a register that we consider would provide information broadly equivalent to that which is available under Part 21A of the Companies Act. We recognise, however, that minor differences could arise between the draft Order and Territories’ registers. For example, if OTs build their publicly accessible registers on their existing private registers, or where there may be different regional requirements.

41) Where differences are minor – and such that the UK can consider the information made available still to be broadly equivalent to that which is available under Part 21A of the Companies Act – we would not seek any further provisions from the Territories. We are encouraging all OTs to continue to work with the UK as they implement their registers to identify and resolve any issues.

42) The UK will also continue to support the implementation of publicly accessible registers of company beneficial ownership in the OTs. This support will be both financial and advisory, and based on individual Territories’ needs.

43) OT governments have shown they are willing to work with the UK and each other to achieve this significant policy change. For Territories that are financially constrained we are providing funding to support the procurement of their registers. The UK has recently supported Anguilla to procure a new register of company beneficial ownership. We are working with other Territories to ascertain if they require assistance.

44) Working with Open Ownership, the FCDO is producing a range of best practice guidance that Territories may use in order to implement the registers in their jurisdictions. This includes briefing materials for policy officials and guides for legislators. All Territories currently have access to the Open Ownership enhanced helpdesk function where they can contact their policy and technical experts and request assistance on any legal, regulatory or technology queries related to the implementation of registers or publication of data.

45) In addition, the FCDO will work to highlight the examples of best practice already in place in the Territories. This includes the BVI’s Beneficial Ownership Secure Search System (BOSS), which is internationally recognised as an excellent beneficial ownership information exchange with the capability to respond to requests in real time; and the company registry system in Bermuda that uses thorough validation techniques to ensure that its information is accurate. The UK will work with the OTs to facilitate the sharing of good practice between jurisdictions.

1. https://www.transparency.org.uk/overseas-territories-beneficial-ownership-2023-money-laundering-corruption ↩

2. Anguilla, Bermuda, BVI, Cayman Islands, Gibraltar, Turks and Caicos Islands ↩

3. https://www.gov.uk/government/publications/statutory-review-of-the-exchange-of-notes-arrangements/statutory-review-of-the-implementation-of-the-exchange-of-notes-on-beneficial-ownership-between-the-united-kingdom-crown-dependencies-and-overseas-te ↩

4. An international organization that facilitates cooperation and intelligence sharing between national financial intelligence units to investigate and prevent money laundering and terrorist financing. ↩

5. https://uboregister.egov.gi/ ↩

6. https://www.legislation.gov.uk/ukpga/2018/13/section/51/enacted ↩