Will British Overseas Territories finally turn on financial pariahs?

Last week, the government of Antigua and Barbuda called upon British officials for help in identifying two ships – the Garçon and Halo – believed to belong to the sanctioned Russian oligarch Roman Abramovich. Like many other such vessels owned by the Russian elite, the ships are not directly owned by its principal beneficiary, but rather by a murky network of frontmen. This creates a legal headache for authorities seeking to implement sanctions on billionaires associated with the Putin regime, which is further complicated by the labyrinthine legislation that tax havens often employ to attract shell companies.

The request for assistance comes days after Amanda Melling, a Foreign Office minister, travelled to the British Virgin Islands (BVI) amid fears that overseas UK tax havens may be used to evade sanctions. UK Overseas Territories (OT) and Crown Dependencies have a long history of being destinations of choice for hiding money or operating in a vacuum of financial accountability. In March, the House of Commons library published a report detailing the relationship between these territories and Russian oligarchs and cited Global Witness in claiming that over £34billion of their money was invested in the UK’s OT as of 2018.

While the UK establishment has long been criticised for turning a blind eye when it comes to Russian wealth of dubious origins, the war in Ukraine has galvanised public opinion and forced authorities to act, with dozens of yachts and bank accounts belonging to oligarchs being seized in recent weeks. The prospect of British OTs acting as safe havens for these individuals raised alarms back home and sent politicians scrambling to plug the loopholes.

As they come under increasing pressure from London to clean up their act, the question of whether Overseas Territories will become tougher on corrupt oligarchs and financial swindlers is still an open one. A legal battle currently taking place in the Cayman Islands, however, will likely provide some indication about whether such a shift is ever likely to take place.

The case involves several high-profile stakeholders – including the Kuwait Port Authority (KPA) and the Public Institution for Social Security (PIFSS) – suing Mark Williams, the former manager of the Port Fund (TPF), on charges of fraud. The plaintiffs allege that, while in charge of Port Link, Williams conspired to defraud the fund by transferring large sums of money through back channels and third-party banks. Since the interception of one such payment by a Dubai bank in 2017 kicked off the legal case against Williams, other investors that were caught up in the defrauding of TPF have also started their own claims. Most recently, the Gulf Investment Corporation (GIC) and the state of Qatar have sued TPF, with the latter party also launching a claim against Cayman-based law firm Walkers for their alleged role in the affair.

What also makes this case central to the future of the Cayman Island jurisprudence is that back in November, the territory’s Grand Court ruled in favour of the KPA and PIFSS request to pursue litigations against Williams, making it the first time in Cayman Island history when a court permitted defrauded investors to file claims against a fund’s management on the fund’s behalf. In uncharted waters, the Cayman Islands legal system will now have to make a ruling that might become a landmark case for the jurisdiction’s reputation as a facilitator of fraud and money-laundering.

To further complicate matters for British tax havens, China announced earlier this year that it will place limits on the ability of Chinese companies to expand abroad. Attracted by the same excesses of capitalism as everyone else, Chinese companies flocked to Western tax havens in recent years, with the Caymans, the British Virgin Islands and Bermuda hosting Chinese companies worth almost $4 trillion.

Overseas territories now must deal with pressure from European governments, legal challenges from clients worldwide, and a closing door from Chinese companies. It appears unlikely that these jurisdictions will be able to continue operating as hubs of global financial malfeasance for much longer. With most of the world closing in on tax havens, overseas territories should be wise to see the writing on the wall. In the long run, being tougher on financial pariahs might just prove more lucrative.

 

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