How Should the British Offshore World Respond to a Crisis of Reputation?

My first boss, Bob Worcester, founder of polling giant Market and Opinion Research International (MORI), always said that corporate image is about perceptions not facts. And that's certainly how it seems to the British Crown Dependencies (CDs) and Overseas Territories (OTs) in 2018.

For more than 20 years they have jumped through every regulatory hoop that the world has asked them to. They regularly score well in international league tables of regulations and transparency. The facts are on their side. The bad old days should be behind them.

Instead, while standards have continually improved, their international reputation has worsened. The battle for perceptions is being lost.

In reality, the battle for perception isn't being lost; it isn't really being fought. There's been a one-sided ’debate’. NGOs (like Oxfam and Christian Aid) and activists (like Tax Justice Network and the International Consortium of Investigative Journalists) have had the debating floor to themselves. They've convinced most of the Western world that the British ’tax havens’ are responsible for billions of pounds of lost tax revenues and even the deaths of children in Africa. Whatever the offshore world thinks, the Panama Papers and the Paradise Papers have persuaded Governments and regulators that things haven’t improved sufficiently.

Faced with this toxic debate, most of the businesses that benefit from the offshore world have kept their heads down. In London, it is rare to hear anyone speak positively of the Crown Dependencies or Overseas Territories. The City, the financial services industry and the legal profession – all of whom benefit from the British offshore world – have stayed silent. Largely because they have reputational issues of their own and fear being attacked on another front. 

The Governments of the CDs and OTs have done everything their business sectors have asked of them. They've raised standards and worked with the UK Government to maintain an environment that allows businesses to succeed. And ’offshore’ businesses have succeeded, despite the growing reputational threat. But now they face a crisis that threatens their future.

The ’tax havens scandal’ has been linked to the very real increasing inequality in the world. And to the threats posed by international terrorists, organised crime and Russia. As a result, the world is demanding more action.

Recent (Council of Europe) Moneyval reports have criticised CDs’ enforcement of laws and regulations and demanded change. The EU is threatening to ’blacklist’ those CDs and OTs that don't meet its requirements to demonstrate ’economic substance’.   Conservative rebels led by Trade Commissioner Andrew Mitchell, in alliance with MP, Dame Margaret Hodge and the Labour Party, have forced the UK Government to compel the Overseas Territories to introduce public registers of beneficial ownership. Hodge and Mitchell have pledged to continue campaigning until the Crown Dependencies are compelled to follow suit.

So, what should the Crown Dependencies and Overseas Territories do?

The key question in any reputational debate is whether behavioural change is needed. Is this purely a communication problem or is there also a behaviour problem?  In short, the answer is both. CDs and OTs need to show improved law enforcement and greater transparency than they currently do. They need to freeze more funds, prevent more movements of money and catch more people. Crucially, they need to be proud and open about doing this. They also need to explain more clearly how their economies work and how they benefit the world. However, even if they did all of this, without more effective communication and lobbying they would still fail. Several of their opponents are really campaigning against low tax regimes. Some of their opponents are economic campaigners, determined to reduce Britain’s place in the world. The British offshore world needs both real behaviour change and greater resourcing of its communication, reputation management, public relations and lobbying programmes.

In the next few months CDs and OTs must do what they have pledged and avoid EU blacklisting. Their businesses can't currently tolerate operating in a blacklisted jurisdiction. However, Government and private sector must work quickly and closely together to ensure the price that has to be paid is not too high.  As of early December 2018, the prognosis is that the Crown Dependencies and some Overseas Territories will comfortably be able to maintain their economic capability and avoid blacklisting. Some OTs may, however, have to choose between blacklisting or economic damage. The bigger question, however, is whether the EU will simply raise the bar and threaten blacklisting again, the moment this round is over?

Secondly, and crucially, the CDs and OTs relationship with the UK must be fixed. Without the UK's support, the Crown Dependencies and Overseas Territories are like young gazelles roaming alone, at prey to circling lions. They will never be able to survive economic competition and attack from the EU, USA and China without UK protection. This may be the one area where CDs and OTs can work more effectively together, but it is a huge task. The right of British politics is divided and Prime Minister Theresa May, as David Cameron before her, is sceptical of the British offshore world. However, over the next 10 years, if they are to survive economically, the CDs and OTs must convince the UK to love its ’British family’.

If successful, this would buy time, but wouldn't change the global debate. The CDs and OTs would still be in the firing line. The ‘one sided debate’ needs to be balanced. This means more effective performance from Governments and private sector in the offshore world and businesses in the UK that benefit from the CDs and OTs.

Governments should stand up and be counted, and there have been encouraging signs. The Cayman Islands has said it won't be ruled by ’Orders in Council’ passed in London. Isle of Man Chief Minister Howard Quayle successfully battled the BBC's John Humphrys on the Today Programme earlier this year. And in Jersey and Guernsey, talk of ’joint independence’ is on the rise. I spoke at the Society of Trust & Estate Practitioners (STEP) annual conferences in Guernsey and Isle of Man this year. At both events, audiences wanted their Governments to speak out more.

The job is too big to be left to Governments. Offshore private sector firms need to make themselves heard and fund industry wide lobbying campaigns. At present there are only two membership organisations operating in the British offshore world – STEP and the IFC Forum.  Both are excellent, but only sufficiently funded to lobby behind the scenes on political, technical and regulatory issues. The Governments of Jersey and British Virgin Islands - and also the IFC Forum - have commissioned Capital Economics to produce original economic analysis. However, against the NGO lobby and the many international Government organisations, this is insufficient. It is time for every organisation that relies on the British offshore world to increase funding – to either IFC Forum, STEP or to both – or to a new pan-industry organisation.

Alliances need to be formed with influential friends. The world needs to be convinced of the validity of the CDs and OTs. If it isn't, then before too long, ’blue chip’ organisations will want nothing more to do with the British offshore world.

Tony Langham
Co-founder and Chief Executive, Lansons, London. Tony Langham has advised Governments, organisations and companies on their image and reputation for over 30 years. He has an active non executive career and has been named by Debrett’s as one of the 500 most influential people in the UK.