Trading under the UK flag brings obligations as well as gains

Two metaphorical earthquakes hit the British Virgin Islands last month, one from Miami and the other from London. The aftershocks have not only jolted the Caribbean archipelago’s reputation and political stability. They also raise profound questions for the UK’s other overseas territory tax havens such as Bermuda and the Cayman Islands.

The US tremor was the arrest on drug trafficking and money laundering charges of the head of the BVI’s elected government, premier Andrew Fahie. The jolt from the UK was a commission of inquiry, which recommended suspending the BVI’s elected government and imposing direct rule from London for up to two years to address “parlous failings” in governance and high-level corruption.

BVI politicians closed ranks and formed a unity government to resist direct rule. Neighbouring islands backed them, decrying the “retrograde” idea of UK control, which they said would violate a UN resolution on decolonisation.

The British government faces a dilemma as it considers the inquiry’s key recommendation, which emphatically concluded that direct rule was the only way to address a persistent failure by local officials to serve their community properly. The BVI’s politicians were equally emphatic in insisting that the way forward was to work in partnership with the Queen’s appointed representative, not to be replaced by him. In an era when Britain’s colonial history in the Caribbean faces increasing criticism, as royal visitors have discovered, imposing direct rule risks flying in the face of 21st-century reality.

Yet this is not the first time the reputation of the BVI or other Caribbean tax havens has been impugned. The Panama Papers and subsequent leaks have exposed the extent to which British overseas territories sheltered assets in secrecy on behalf of the unscrupulous.

The BVI has since improved compliance with international law enforcement. Yet until recently it resisted establishing a public register of beneficial ownership of more than 370,000 offshore companies. Some of the same local politicians who now pledge to implement the inquiry’s recommendations were last year criticising the whole process as unnecessary.

While colonialist behaviour is inexcusable, so is high-level corruption. What the inquiry found to be the sometimes arbitrary conduct of BVI officials in granting full citizenship rights also deserves attention. A sizeable proportion of the population are disenfranchised by a 20-year residence requirement to gain full rights.

The BVI’s shenanigans are not the first to have surfaced in Britain’s remaining Caribbean territories. The Turks and Caicos Islands’ premier resigned in 2009 after corruption allegations, and the Cayman Islands premier was arrested in 2012, also as part of a graft probe (the former’s trial is ongoing; the latter was acquitted).

The essential problem is that some territories have built a profitable offshore business trading on the UK brand name, offering recourse to British courts. Yet they have not always been willing to accept UK standards of governance or transparency. The UK’s own acquiescence in dirty money makes it awkward to lecture others, notwithstanding recent steps to tackle the issue.

As other Caribbean nations have found, independence brings freedom from London but may mean a harder sell to investors. Britain’s remaining Caribbean territories should choose: if they want the benefits of trading under the UK flag, they should fully accept the governance and transparency responsibilities that come with it. The only alternative should be full independence.

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