London Summit: US Must End Tax 'Hypocrisy' or Corruption Will Prevail

If the U.S. does not end its "hypocrisy" and hold itself to the same tax transparency standards as other nations, efforts to reform offshore secrecy will fail, leaders of the UK's overseas territories warned at the global anti-corruption summit in London on Thursday.

The comments--from leaders of the Cayman Islands, Bermuda, and the Isle of Man--came as U.S. Secretary of State John Kerry told those gathered at the summit, "Corruption, writ large, is as much of an enemy [as terrorism], because it destroys nation states, as some of the extremists we are fighting or the other challenges we face."

The summit follows a massive leak of documents known as the Panama Papers which exposed how the world's elite use offshore tax havens to hide their wealth, including British Prime Minister David Cameron, who hosted the conference.

Cayman Islands Premier Alden McLaughlin slammed states such as Delaware--where a majority of U.S.-based shell companies are situated--and said it was "time to put behind us the shades of hypocrisy that have been part and parcel of global discussion of this issue for years and years."

"So long as countries with real commitments on the world stage continue to focus on jurisdictions that are smaller in size while ignoring the larger jurisdictions, the results will be continued failure," McClaughlin said. "This is going to be a complete disaster if you insist that most places in the world have to conform to a particular standard, and you leave principally the United States and a couple of other rogue nations completely out of it. Because all the shady business is going to migrate to Delaware, Wyoming, Panama, you name it."

Six nations attending the conference--Afghanistan, France, the Netherlands, Nigeria, Kenya, and the UK--agreed to set up publicly accessible central registers of company owners and profiteers, also known as "beneficial owners." The registers are set to be reviewed at a follow-up conference in August 2017.

For its part, the Obama administration last week announced new rules that would require financial institutions to verify the beneficial owners of any entity that uses the institution's services. The Treasury Department also proposed a rule that would require certain foreign-owned companies to obtain tax identity numbers from the U.S. Internal Revenue Service (IRS), which means they would have to report ownership and transaction information to the agency.

But anti-corruption and tax policy experts said the measures fell short of true reform. "The measure includes a loophole that could well perpetuate the problem of anonymous shell companies," said Gary Kalman, the executive director of the Financial Accountability and Corporate Transparency (FACT) Coalition. "The loophole is dangerous if exploited by terrorists, human traffickers, and corrupt foreign dictators to launder their money through the U.S. financial system."

The loophole, according to Global Financial Security legal counsel Heather Lowe, would "allow banks to open accounts for companies without having any idea of the identity of the people who ultimately own or control that company. Without this critical information, banks can't determine whether the people behind the company are on a sanctions list, a drug kingpin list, or are public officials who may be stealing from their countries treasury or trying to stash their bribe money in U.S. banks."

Following the release of the Panama Papers, an analysis by the advocacy group Tax Justice Network found that offshore havens have "siphoned" more than $12 trillion from emerging economies worldwide.

Jose Ugaz, chair of Transparency International, said the summit was a "good day for the fight against corruption, but there is more to do."

"Well done to the countries that have shown leadership; but it is hard to credit those who still fail to make sufficient progress. We need to build on trust and a common agenda between governments, business and civil society so that we deliver more than words," Ugaz said. "We need actions to create change."