The extensive revelation of offshore tax avoidance structures in the Paradise Papers has put the governments of Britain’s overseas territories, such as Bermuda and the Cayman Islands, on edge.
“The Cayman Islands is not a place to hide wealth, and it’s important for the public to know this,” said Tara Rivers, the country’s minister of financial services.
“You cannot hide money or avoid tax in Bermuda,” said David Burt, the island’s premier.
But experts said offshore centres potentially face a heavy blow from the sustained effort to prise open their secrets. Many of them are hugely reliant on financial services, with the sector accounting, for example, for nearly half of Jersey’s economy.
“The offshore centres are caught in a pincer movement between NGOs [non-govermental organisations] and the media on one hand and regulatory pressure on the other,” said Jason Sharman, professor of international relations at the University of Cambridge.
As a result banks, for example, are now less willing to open accounts for companies in offshore jurisdictions. “Reputation damage has increasingly translated into commercial damage,” he said.
He added that while offshore centres are “pretty resilient”, they are likely to have to improve their transparency further and try to diversify their economies.
Senior figures in the offshore centres are convinced that the timing of the latest revelations, ahead of a move by Brussels to issue a blacklist of tax havens, is no coincidence.
Gavin St Pier, chief minister of Guernsey, says the “coverage was part of a well-orchestrated, ongoing campaign to gain public access to private financial information”.
He attacked media reports as “misleading, sensationalist and simplistic” and said that, after a meeting of EU finance ministers in Brussels on Tuesday, “senior politicians and officials are clamouring to virtuously say how important it is that the UK cleans up its act with its Overseas Territories and Crown Dependencies”.
His comments highlight the important role played by Britain in the debate about tax havens, as its territories and dependencies — including Jersey, Guernsey, the Isle of Man, Gibraltar, Bermuda, British Virgin Islands and the Cayman Islands — account for a large share of the offshore finance industry.
In the past, Britain has put pressure on them to adopt more stringent transparency rules but London — broadly satisfied with the progress they have made — is now seen by some in Brussels as keen to protect them.
Sven Giegold, the European Green Party’s spokesperson for economic affairs in the European Parliament, said the British government had been hindering the EU’s fight against tax avoidance and money laundering for years and was particularly sceptical about the tax haven blacklist.
”It takes a lot of British humour to understand that Caribbean islands with a corporate tax rate of zero per cent should not be tax havens,” he said, adding that the Brexit negotiations should be used to “close down the UK’s tax havens”.
In the wake of the meeting, Toomas Tõniste, Estonia’s finance minister who holds the EU’s rotating presidency, said there was new impetus to an EU plan to blacklist tax havens. He said: “There was strong support for the idea of moving forward quickly.”
Mr Sharman said the outcome of the EU’s blacklisting drive was not yet clear, adding that there was “some irony” in the secrecy that surrounded a process that was devoted to increasing transparency. But he said the EU was seeking to impose its own set of idiosyncratic requirements, even though the offshore centres had good review “which in some cases are better than the UK itself” from the international bodies responsible for policing global rules on transparency and anti-money laundering.
Toby Quantrill, head of economic development at Christian Aid, is a longtime campaigner against the damage tax havens do to developing countries. But he thinks more should be done to help the Overseas Territories to diversify away from their current economic models.
Small island economies are vulnerable and they would not find it easy to replace lost income, he said. “The finance sector is very large in these places. If business moved elsewhere we feel there should be some responsibility to mitigate that.”