TI-UK Submission to FCO consultation on Overseas Territories

UK Foreign and Commonwealth Office Consultation on Overseas Territories

Submission by Transparency International UK (TI-UK) December 2011

Contact: Chandrashekhar Krishnan Executive Director Transparency International UK 32-36 Loman Street London SE1 OAU chandu.krishnan@transparency.org.uk www.transparency.org.uk

Introduction 1.

A description of Transparency International UK (TI-UK) is provided in the Annex.

2.

TI-UK welcomes this consultation by the Foreign and Commonwealth Office (FCO).

As an anti-corruption organisation, TI-UK has a vision of a world in which corruption is greatly reduced and the UK has zero tolerance for corruption both at home and abroad. TI defines corruption as the abuse of entrusted power for private gain.

Corruption has a hugely damaging impact on economic growth and sustainable development because it diverts scarce resources from development programmes, undermines the rule of law and weakens public and private institutions that are essential for growth and stability.

3.

TI-UK believes the UK should be doing more to reduce its ‘corruption footprint’ abroad. When UK nationals and companies pay bribes in the developing world to win business unfairly, and when UK institutions - including those in Overseas Territories (OTs) - provide a safe haven for the illicit wealth of corrupt foreign leaders, the UK becomes complicit in perpetuating corruption overseas. The effective enforcement of the new Bribery Act and a strengthening of the UK’s anti-money laundering (AML) regime should therefore be given a high priority.

4.

TI-UK welcomes the Government’s stated vision for the OTs to be vibrant and flourishing communities, proudly retaining aspects of their British identity and generating wider opportunities for their people. If this vision is to be realised, it is important that more attention is given to certain areas where the Government needs to work more closely with OTs to ensure they are compliant with international anti-corruption conventions to which the UK is a party. Otherwise, there is a danger that OTs may continue to be vulnerable to corruption and also become complicit in exacerbating corruption in other parts of the world.

5.

This submission by TI-UK responds, selectively, to issues that are relevant to the following questions raised in the FCO’s Consultation: • • •

How do you assess the quality of good governance, public financial management and economic planning in your Territory/the Territories?

What are the priorities for improvement?

How can the UK best work with your Territory/the Territories to strengthen these areas?

Enforcement of the UK’s Anti-Money Laundering AML Regime 6.

TI-UK has been particularly concerned about the proceeds of bribery and corruption entering the UK’s financial system because of weaknesses in its AML regime and weak financial regulatory capacity in UK OTs. TI-UK’s 2009 Report, ‘Combating

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Money Laundering and Recovering Looted Gains’1 made several recommendations for strengthening the AML regime, including stronger financial regulations in OTs. 7.

TI-UK continues to believe that there are serious challenges that need to be addressed in relation to some of the UK OTs that are offshore financial centres. They are constitutionally not part of the UK and in some of them, the Governor General is accountable for financial services. All the OTs have implemented AML regimes. They have Financial Intelligence Units (FIUs) and are members of the Egmont Group.

8.

However, some of the smaller OTs have extremely limited regulatory and law enforcement capacity. This makes it difficult for them to address money laundering risks effectively. This vulnerability has serious implications for the UK’s reputation. Recent developments in The Turks and Caicos have highlighted the problem. Michael Foot’s 2009 Review of the opportunities and challenges facing the British Crown Dependencies and six OTs also highlighted some aspects of this vulnerability (this Review was commissioned by HM Treasury).

9.

TI-UK makes the following recommendations: 1) In respect of the smaller OT financial centres, where regulatory capacity is particularly weak and where the UK Government has responsibility for financial affairs, the UK Government should make a clear decision either to encourage the winding down of the financial centres or to support an increase in capacity for regulation, policy analysis, law enforcement and international cooperation.

2) The UK Government should continue to work with other vulnerable OTs to ensure that each has a regulatory capacity that is commensurate with its financial centre operations; and that practical training and technical assistance are provided for this purpose.

3) The UK Government should encourage the OTs to publish their company registries as the UK does. This will help partially to make more transparent the beneficial owner of funds managed by financial institutions.

Enforcement of anti-bribery laws and conventions 10.

The UK is a party to the 1997 OECD Anti-Bribery Convention and the 2003 United Nations Convention Against Corruption (UNCAC). However, these Conventions have not been extended to all the OTs, which has the effect of undermining the UK’s overall enforcement of these major international legal instruments against bribery and corruption as well as the enforcement of the 2010 Bribery Act. 11.

There are specific jurisdictional issues that are highlighted in the UK Phase 1ter Report of the OECD Working Group on Bribery (WGB),2 that are of concern. The OTs Anguilla, Turks and Caicos, Bermuda, Gibraltar and Monserrat are not compliant with the OECD Convention. The UK Government has taken the position that it cannot impose legislation directly on OTs. However, it would be desirable for the Government to agree

1 2

http://www.transparency.org.uk/publications/101-2009-publications Adopted by the Working Group on 16 December 2010.

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with these OTs an urgent time-frame for their compliance, because inaction could limit the Bribery Act’s effectiveness.

12.

Another deficiency, also highlighted by the WGB, is that the Bribery Act does not provide the UK with jurisdiction to prosecute legal persons incorporated in the Crown Dependencies (CDs) and OTs. It confers nationality jurisdiction to prosecute natural persons from the CDs and OTs, but not with respect to legal persons incorporated there.

The Section 7 ‘failure to prevent bribery’ offence would apply to a company incorporated in the CDs and OTs only if the company carries a business, or a part of a business, in the UK. Companies incorporated in CDs and the Cayman Islands are subject to prosecution by the authorities in those Dependencies.

However, companies incorporated in other OTs which do not carry on a business in the UK could be used to commit foreign bribery. This is a significant loophole since some OTs are major financial centres where many companies are incorporated and/or operate. This underscores the urgency of encouraging the remaining OTs to become fully compliant with the OECD Convention so that it can be extended to them.

13.

TI-UK makes the following recommendation: 1) The UK Government should ensure that UNCAC and the OECD Convention are extended to all the OTs within an agreed time-frame. Technical assistance should be provided to those OTs who require help in becoming compliant with these Conventions.

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Annex Transparency International UK (www.transparency.org.uk), the UK national chapter of TI, fights corruption by promoting change in values and attitudes at home and abroad, through programmes that draw on the UK’s unique position as a world political and business centre with close links to developing countries.

TI-UK: • • • •

Raises awareness about corruption; Advocates legal and regulatory reform at national and international levels; Designs practical tools for institutions, individuals and companies wishing to combat corruption; and Acts as a leading centre of anti-corruption expertise in the UK.

TI-UK’s vision is for a world in which corruption is greatly reduced and the UK has zero tolerance for corruption both at home and abroad.

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