The incoming company registers could have a highly damaging impact for the firms involved. But it doesn’t have to be so bad, writes Matt Bell
‘Secrecy over who owns companies and assets is the friend of money launderers, tax evaders, and terrorists.’
The above proclamation may sound polemical, but was in fact the opening to a Financial Times editorial earlier this year, arguing that the British Crown dependencies should embrace public registers of the owners of companies incorporated in their jurisdictions.
The decision to do exactly that was announced last month, as Guernsey, Jersey, and Isle of Man all pledged to adopt such registers by 2023.
The decision was made by the three islands having seen off attempts from Westminster to introduce transparency by force, by way of a cross-party amendment to the Brexit legislation. It was right that such a move was made voluntarily – if it can really be called that – rather than risk a constitutional crisis by the UK Parliament imposing legislation on self-governing territories without any representation in Westminster.
But those who will find their names on the new registers will become a target for the British press, even though the vast majority of them have never, and would never, launder money, evade tax or fund terrorism.
Announcements on the decision focused on the role public registers would play in the fight against money laundering and terrorist financing, but the implications for entirely legitimate companies registered in these jurisdictions are enormous.
Companies that choose to register in either Guernsey, Jersey or Isle of Man will have various reasons to do so, but let’s be frank: these jurisdictions have taxation regimes that are preferable for many businesses. The current – and soon-to-end – anonymity afforded by the lack of public registers on the Crown dependencies allows many business owners to avoid conclusions being drawn about how much tax their firms pay. Four years from now, that liberty will come to an end.
For all the political rhetoric about money launderers, tax evaders or terrorists, there is an alarming and unhelpful conflation between this group – i.e. criminals – and those whose guiding motivation for registering in the Crown dependencies is the tax efficiency these jurisdictions offer.
The latter is not illegal, but it is a distinction that the British press rarely spell out; something which has led to a dim view amongst the British public towards those who seek to pay less tax.
The public sees tax avoidance as the biggest issue that British businesses need to address, according to the latest polling commissioned by the Institute of Business Ethics. It is a greater concern than executive pay, environmental responsibility, discrimination, and bullying and harassment.
Firms who find themselves under the microscope of public scrutiny often lose customers, and a 2017 YouGov survey revealed that over half (55 per cent) of cases in which consumers decided to boycott a brand had been driven by reports of tax avoidance or tax evasion.
The issues of tax avoidance and evasion are frequently conflated. In the court of public opinion, however, actions that are illegal and those that are immoral but legal are often given the same guilty verdict.
The impact on the reputation of these firms, and the people who own them, could be highly damaging, but it does not have to be.
Generally speaking, the advice we give those about to face scrutiny in the media is to get ahead of it. Step into the spotlight in your own, managed way, rather than being pushed. Explain before you are asked, but also know where the questions are likely to come from, what they are likely to be and how you would respond to them.
Company registers in Guernsey, Jersey and the Isle of Man will be introduced in 2023, but difficult questions for companies incorporated on these islands are likely to come much sooner than this. The scrutiny and exposure faced by these firms and their owners may shred the reputations of those who are not prepared.
Many firms may hope to stay quiet for the moment, and publish a concise statement on their company website the day before the register comes. This will not cut it. Firms should invest in serious and strategic reputation management now, and control the potential fallout that 2023 will otherwise bring.
Matt Bell is a senior consultant at Pagefield Global, litigation and dispute advisory.