Dirty money in the UK is harming more than our reputation

The writer is MP for Sutton Coldfield and was Development Secretary 2010-2012

The UK is losing its reputation as a trusted jurisdiction. Our companies have become the vehicles of choice to launder ill-gotten gains. The vulnerability of our property market, the weakness of our regulation and our pathetic enforcement against economic crime are all being exploited by those happy to profit from this wrongdoing. It’s time for the government to act.

The Pandora Papers recently shone a light on the country’s industrial-scale role in facilitating tax avoidance and illicit finance, revealing the offshore owners of £4bn in UK property. They exposed over six hundred companies in the British Virgin Islands, and hundreds of others elsewhere, through 12m records.

Why does this matter? Because the OECD has estimated that tax havens may be costing developing countries a sum of up to three times the global aid budget. The ONE Campaign estimate that, in developing countries alone, around $1tn is lost to corruption each year.

It is these countries that suffer disproportionately from the channelling of dirty money into tax havens as autocrats, dictators and oligarchs shift their money offshore. Instead of funding vital public services such as healthcare and education in the global south, the money often ends up in the developed world where it is used to purchase property, clean reputations and buy influence. And it’s Britain that sits right at the heart of this.

The UK and our network of offshore tax havens — the Overseas Territories and Crown Dependencies — have become global money laundering hubs. Parliament’s Intelligence and Security Committee recently labelled our capital the “London laundromat”.

We will never build a prosperous, Global Britain off the back of dirty money. We can’t create sustainable economic growth while being the jurisdiction of choice for kleptocrats and crooks. The National Crime Agency estimates that money laundering costs the UK economy £100bn every year. Transparency International has found at least 900 UK shell companies used in corruption and money laundering cases. The government’s integrated review of defence, security and foreign policy highlighted that economic crime and illicit finance “fund organised crime groups, terrorists and other malicious actors, undermine good governance and faith in our economy, and tarnish our global reputation”. 

The review committed again to introducing draft legislation “as soon as parliamentary time allows”. Yet still we wait. In 2015, David Cameron announced a register of the true owners of UK properties, to prevent stolen or corrupt money being hidden, and in 2018, the Department for Business, Energy and Industrial Strategy published a draft bill for such a register. Along with proposed changes to Companies House, these reforms will help tackle money laundering and tax avoidance. But no parliamentary time has been found for this legislation.

These transparency measures are robust and well-drafted, with cross-party support. Tackling this issue is popular — 83 per cent of Conservative voters support “tougher action” on tax avoidance in the wake of the Pandora Papers. They would reinforce the City’s reputation as a great place to do business and limit due diligence costs for investors. But above all, they would show that the government delivers on its commitments.

Transparency is a powerful tool. We have seen this with our public register of company ownership. But we also need an open register of the ultimate beneficial owners of UK properties owned overseas. With such transparency, we could see who owns what and where, and in which directions illicit finance flows. Only then can we root out dirty money.