Britain could be about to crack down on trillions of dollars hidden offshore

Britain and its Overseas Territories and Crown Dependencies have long been the scourge of the anti-money laundering community.

The UK’s secretive network of islands—former parts of the British Empire that didn’t choose independence—hold over a third of the world’s offshore wealth (estimated at $32 trillion in 2012), according to Oxfam. The Tax Justice Network, an NGO, says if you considered them all as one country, it would be the most financially secretive one in the world. Just one territory, the British Virgin Islands (BVI), was overwhelmingly the tax haven most commonly used by companies in the Panama Papers, the trove of documents leaked earlier this year.

But an amendment to the UK parliament’s Criminal Finances bill tabled on Dec. 20 is aiming to change all that. Dame Margaret Hodge, a senior backbench Labour MP who once told Google it does “evil” with its tax arrangements, has gained serious cross-party support for forcing the Overseas Territories (which include the Cayman Islands, Bermuda and Turks & Caicos, but not Crown Dependencies like Jersey and Guernsey) to publish a register of the beneficial owners of every company in their jurisdiction by 2020. That means members of the super-rich who hide money there would have to reveal themselves as owners of their companies or find tax arrangements in rival territories such as Panama or the Seychelles.

Beyond upending the hundreds of thousands of shell companies hiding potentially hundreds of billions of dollars’ worth of taxes in the territories, this would have two hefty global consequences, according to Tax Justice Network chief executive Alex Cobham. “Firstly, it will be a decisive confirmation that this is the new international standard for transparency,” he said. “Secondly, and somewhat more pointedly, I think it will take off the table the argument that some other jurisdictions have made: that they shouldn’t be made to do this when the UK’s secrecy network isn’t doing it.”

However, Hodge’s amendment, which has support from MPs in almost every political party, comes with a sizeable potential downside. While the British government has the power to impose decrees, called “orders in council,” on its territories, it has mostly—except in cases like abolishing the death penalty and decriminalizing homosexuality—held off doing so, to avoid impinging on the territories’ sovereignty. In the case of tax havens, such a move would also threaten some islands’ economic models so much that one or two could feasibly decide to go for independence, Cobham says.

“The risk for them would be that they break with the UK but in a few years they find that the expectations globally are such that they have to [open a public registry] anyway and then they’ve kind of broken for nothing,” he said, pointing to the BVI as the most likely candidate for independence.

The islands will also have to weigh the fact that their main attraction to international investors over other tax havens is that they are backed by Britain’s robust legal system. One way of placating them would be for the UK government to offer transitionary aid as they shift their economies from running off incorporating shell companies, Cobham says.

At least 80 MPs have backed Hodge’s amendment, giving them a decent chance of forcing the Conservative government’s hand on an issue where international norms are moving ever further in the direction of outlawing tax havens. Importantly, it has the support of senior Conservative backbencher and former international development secretary Andrew Mitchell, and the leader of occasional Tory allies the Democratic Unionist party. In a statement, Mitchell highlighted the harm offshore tax-dodging does to countries in the Global South, which the OECD once estimated lose three times the amount in taxes that they gain in financial aid: “Africa is actually a net creditor to the world,” he said.