2nd September: Orrisdale Head to Cronk y Bing / Shells of the Isle of Man

Credit: Colin Waite / Shutterstock

A quick reminder that via this swim, I’m raising money to support the excellent marine conservation work of the Manx Wildlife Trust and Blue Marine Foundation via this Justgiving page

Tweeting from @michaelpmdavis

Yesterday started really well with the discovery of Steve’s missing kayak tow line as I walked along the beach to start my swim at Orrisdale Head. It then got better as I found the spring tide sending me flying northwards along the coast.

Not that I was fully conscious of this. The water above was choppy and below it was a dull blue suspension garnished with sprigs of orangey-pink seaweed and lion’s mane jellyfish of a similar colour scheme. I couldn’t see the bottom and couldn’t see over the wave tops either. If I had, it probably wouldn’t have helped as the land up here – the ‘gift of the glaciers’ – is a low-lying and fairly uniform set of sandy stripes with few trees, hills or buildings to pick out. It was only when we got towards Jurby Head, with its prominent white church, that I realised how fast I was being pushed along.

During a five minute tea break of energy bar, gel, water and gannet and fulmar watching, Steve’s GPS recorded us moving some hundreds of metres further north. After two and a half hours and around 12km we had to battle to get in to the shore to avoid overshooting our objective – the Cronk y Bing nature reserve which is managed by the Manx Wildlife Trust, for whom I am fundraising, and is home to pyramid orchids and labyrinth spiders.

360 degree view between Orrisdale Head and The Lhen

Today

Yesterday’s tide-propelled swim leaves me just about 10km short of the Point of Ayre. Getting there should be doable, but swimming around it to get back to my starting point on the east side might not be. The Point is where competing tidal flows converge and make mischief. At the time of tide I get there, it may be unswim-able. Predicted bad weather for Wednesday through to the end of the week could then force me to hold off from completing until the Saturday! I’m heading out shortly to give it a go.

In my last blog I wrote about a case involving an Isle of Man company, oil giant Exxon and a corruptly-allocated oil block in Liberia.

I wanted to write some more about whether this case should be seen as an aberration or reflecting a wider set of reputational risks for the Isle of Man. I had thought I’d be able to have a couple of bites at this quite complicated theme. But with the possibility of this journey around the Island wrapping up today, I’ve tried to boil down the remaining things I was itching to say into a single post.

The boiling down hasn’t been entirely successful – apologies – and what’s left is quite long. But if you’ve got a few more minutes, please do read on!

A bad apple?

In my last post I talked about a situation involving an Isle of Man anonymous company implicated in a corruption case. But is this just a case of one particularly bad apple? Unfortunately, the answer may well be “no”. There are, in fact, a range of other indications that the Isle of Man could be at risk of being implicated in corruption and money laundering cases.

The Isle of Man’s property portfolio ‘across’

Last month, Isle of Man shell companies were once again the subject of uncomplimentary reporting in the UK press. The Times and the Mail online both ran stories based on the discovery by Finance Uncovered and Angola’s leading investigative reporter, Rafael Marques that Isabel dos Santos, daughter of the former president of Angola, had used an Isle of Man firm to quietly acquire a £13 million mansion in Kensington.

Isabel dos Santos is often described as being Africa’s richest woman, and estimated to be worth around $2.1 billion. But when Rafael Marques and Forbes Magazine investigated the source of her wealth a few years ago, they concluded that “As best as we can trace, every major Angolan investment held by [Isabel] dos Santos stems either from taking a chunk of a company that wants to do business in the country or from the stroke of the president’s pen that cut her into the action. Her story is a rare window into the same, tragic kleptocratic narrative that grips resource-rich countries around the world.”

The regime of Isabel’s father, Jose Eduardo dos Santos, which ruled Angola from 1979 to 2017, achieved international notoriety for staggering levels of corruption, much of it centred on the country’s oil and diamonds, as well as numerous credible allegations of extrajudicial killings and suppression of dissent.

Much of the corruption of the Jose Eduardo dos Santos regime in Angola was associated with its oil sector. In 2016, not long before he left office, President dos Santos appointed his daughter, Isabel, as head of the state oil company, Sonangol. However she was removed from this post by his successor in November 2017. Isabel dos Santos was recently revealed to have bought a £13 million Kensington mansion via an Isle of Man shell company. Credit: Martin Lueke / Shutterstock

As my Global Witness colleague Ava Lee recently explained on Manx Radio, Isabel dos Santos is one of many owners of UK property to control her asset through an Isle of Man company. Indeed, there are 10,704 unique freeholds and leaseholds owned by at least one Isle of Man firm. Over a third of the Isle of Man company-owned properties in England and Wales are in Greater London, with the highest concentrations in the City of Westminster and Chelsea and Kensington, where Isabel dos Santos has her mansion.

Who are the owners of all this property? The answer is that we don’t know because the Isle of Man does not yet allow public access to its register of company beneficial (real) owners (more on this below). It seems possible though, that Manx companies are being used as a vehicle by people like Isabel dos Santos who don’t live anywhere near the Island. Why would they go to the trouble? Perhaps to avoid paying taxes. Maybe because they don’t want people to know who they are and the source of their money. Either possibility should give the Isle of Man authorities cause for concern about the Island’s reputation.

The jet set

Then there’s the Isle of Man’s Aircraft Register. The Aircraft Register came under scrutiny in the aftermath of the publication of extracts from the ‘Paradise Papers’. Most media coverage focused on Lewis Hamilton and whether the way he avoided paying VAT by registering his private jet in the Isle of Man was legal. Some of the less well-known names raised a different question, though: should the Island’s authorities have been concerned not just about VAT avoidance but also the risk of registering planes obtained using illicit funds?

One of those named as controlling a jet registered in the Isle of Man was Russian oligarch, Oleg Deripaska, often described in the press as an ally of Vladimir Putin. In 2018, he found himself subject to U.S. sanctions, with U.S. Treasury observing that he “has been investigated for money laundering, and has been accused of threatening the lives of business rivals, illegally wiretapping a government official, and taking part in extortion and racketeering.  There are also allegations that Deripaska bribed a government official, ordered the murder of a businessman, and had links to a Russian organized crime group.” In April, Mr Deripaska denounced these claims as “filthy lies” and launched a lawsuit aimed at overturning the sanctions.

According to the Guardian newspaper, Paradise Papers leaks suggest Isle of Man customs authorities processed VAT refunds for aluminium magnate Oleg Deripaska, who in 2018 was subject to targeted sanctions by the U.S. government, which cited his alleged role in money laundering. Credit: ID1974 / Shutterstock

Nigerian Central Bank chief Godwin Emefiele co-owned a company that imported planes into the Isle of Man in 2013 and 2015 and which operated a bank account in London. Nigeria’s code of conduct for public officials says that they “shall not maintain or operate a bank account in any country outside Nigeria”. A lawyer acting for Mr Emefiele told the Guardian newspaper that he did not have a “personal bank account” offshore nor did he derive “personal financial benefit” from shares in the companies involved.

If you delve a little into the Isle of Man Aircraft Register you soon find a fair number of business jets that are owned by companies incorporated in secrecy jurisdictions. As of last month, 75 were owned by firms registered in The British Virgin Islands, 13 Bermuda and 8 in the Cayman Islands, for example. How does the Isle of Man Aircraft Register check on who the real owners are and assess the provenance of the funds used to buy the planes?

I tried to meet the Aircraft Register staff earlier this year, without success, and then asked them some questions by e-mail that initially didn’t meet with a response. Last month, however, I got an e-mail from a ‘reputation management’ firm called Lansons. According to its website, Lansons is “Enhancing the Isle of Man’s reputation as a transparent, well-regulated jurisdiction through a wide-ranging public affairs and media engagement programme”.

Lansons’ e-mail answered my questions to the Aircraft Register as follows:

Question 1 – What due diligence checks do you perform on the beneficial owners of aircraft – particularly aircraft owned by private individuals and companies – that are proposed for registration in the Isle of Man?

– The Isle of Man Aircraft Registry complies with all International Standards and Recommended Practices with regards to the registration and safety oversight of business jets and twin turbine helicopters. The Isle of Man will continue to monitor and proactively comply with these standards as they evolve. The role of the Isle of Man Aircraft Registry is one of Registrar and Aviation Safety & Security Regulator. Its purpose is to ensure that aircraft registered on the Island comply with ICAO standards.

Question 2 – In this context, what steps do you take when the aircraft are owned by companies incorporated in secrecy jurisdictions such as the British Virgin Islands, which do not allow access to data on companies’ beneficial owners?

 A – There are currently no requirements under international standards to monitor this information. However, the Isle of Man Aircraft Registry operates a register of the highest possible standards and works very closely with local and international agencies to undertake relevant checks and respond accordingly in a timely fashion.

The yacht club

In fairness to the Aircraft Registry, it does at least allow limited public access to some of the data it holds. Not so the Isle of Man Ship Registry. Again I was not able to meet any of the staff managing the register during my visits to the Island and got no answers to my written questions about how they established who were the beneficial owners of vessels on their books. One member of staff did, however, direct me to the Ship Register’s annual report, which shows that 354 of the vessels registered in the Isle of Man – over a third of the total – are ‘pleasure yachts’.

So what? You might say.

The thing is that private jets and yachts, along with ample property portfolios, are well-established as essential accessories of any self-respecting kleptocrat or oligarch. That’s why, in June, a UN Office on Drugs and Crime Expert Group Meeting included in its Oslo Statement on Corruption involving Vast Quantities of Assets that

“The ultimate beneficial ownership information of high-value real estate, yachts, aircraft, and other vehicles, and art works should be maintained, so it can be accessible to the appropriate public authorities, including law enforcement.”

When it comes to yachts there almost seems to be a competition between oligarchs and kleptocrats to see who’s got the biggest. Notable recent sightings (and seizures by law enforcement agencies) have included ‘Equanimity’ (not owned by an Isle of Man company, it should be stressed), the plaything of Jho Low, key protagonist in the 1MDB money laundering scandal that has deprived Malaysia of several billion dollars. Credit: Adam AmrHmzh / Shutterstock

I asked both the Aircraft Register and the Ship Register whether they maintained information on beneficial owners of the aircraft/vessels registered in the Isle of Man database in line with this recommendation and whether they would be making this information public.

In response to my query to the Aircraft Register, Lansons responded with the following:

The Isle of Man has a longstanding, and independently verified, track record of meeting international standards and will continue to comply with the unified regulations of the international community. We are proud of our global leadership in tax cooperation, transparency and in combatting money laundering and countering the financing of terrorism.”

Credit: Global Witness

The beneficial ownership question

If the Isle of Man is at risk of being implicated in corruption and money laundering, what can be done about it?

John Christensen, the Tax Justice Network founder and Manx Grand Prix fan, argues that a critical next step the Isle of Man government needs to take, is the introduction of a full, comprehensive, verified, publicly searchable register of companies’ beneficial ownership.

This arcane-sounding issue of public registers of beneficial owners of companies matters because paper-based companies with secret ownership – often known as anonymous companies or shell companies – are widely recognised as the getaway vehicles of choice for criminals and corrupt politicians the world over.

Anonymous companies hide the identities of their real – ‘beneficial’ – owners who can then use them as a veil from behind which they can acquire and dispose of assets obtained through corruption or some other form of criminality, and then launder the proceeds through the international financial system undetected. Anonymous companies are also very popular with people trying to dodge taxes.

Anonymous companies are the getaway vehicle of choice for corrupt politicians and other criminals the world over. Credit: Global Witness

The case for a public beneficial ownership register on the Isle of Man

Over 40 jurisdictions have now committed putting in place public registers of companies’ beneficial ownership. These include Britain’s Overseas Territories – encompassing secrecy jurisdictions like the British Virgin Islands and Cayman Islands – which have been forced to get on board by a House of Commons vote in May last year.

The MPs leading the vote on the Overseas Territories, Dame Margaret Hodge (Labour) and Andrew Mitchell (Conservative) visited the Isle of Man, Jersey and Guernsey to try to persuade them to introduce public beneficial ownership registers as well. Margaret Hodge described to me how, in Douglas, they were met with “absolute denial and outrage, from the government and the financial services industries, at the idea that they were anything other than squeaky clean”. The Isle of Man government stuck to the line – which I have heard a few times in meetings with officials – that they would move to public registers of companies’ beneficial owners when this became a global standard.

This line of argument didn’t much convince the MPs. In March this year they sought to attach to a bill providing for the impacts of a ‘no deal’ Brexit on the UK’s financial services industries, a provision requiring the Isle of Man, Jersey and Guernsey to publish registers of companies’ beneficial owners. Theresa May’s government, which had unsuccessfully opposed the vote on the Overseas Territories in 2018, saw it was facing defeat once again and withdrew its financial services bill.

Anonymous companies or shell companies are often structured like a set of Russian dolls, with one company being owned by another in a separate jurisdiction that in turn is owned by a third in yet another part of the world and so on. This makes it very difficult for law enforcement authorities, journalists or anyone else to find out who the real owners are. Credit: Global Witness

A constitutional crisis?

I happened to be on the Island just a few days after all this happened. The mood among some in the political firmament and financial services industries was indignation at the Island being pushed around by Westminster. There was talk of a “constitutional crisis”, stemming from the perception that the right of the Island’s parliament, Tynwald, to set the Island’s domestic laws was being violated.

The Isle of Man’s constitutional relationship with the UK is pretty murky terrain, however. It’s bounded more by what a 1973 Royal Commission report termed ‘convention’, together with rather equivocal precedent, rather than anything written down. While it might be the height of bad manners for Westminster MPs to legislate for the Island over the heads of Tynwald, if they choose to do so, there’s probably not a whole lot the Isle of Man authorities can do about it.

There’s another consideration too. Were the Isle of Man government to embark on a showdown with the UK over the constitutional relationship, it would be taking a massive gamble on the Island’s future. It’s one thing to do that on a matter of high principle about the fundamental freedoms and wellbeing of the Island’s citizens. Quite another to do so to preserve the secrecy of thousands of foreign shell company owners who probably couldn’t even place the Isle of Man on a map.

Grasping the nettle or kicking into the long grass?

Fortunately, cooler heads prevailed and The Isle of Man government, together with its counterparts in Jersey and Guernsey, announced in June that by the end of 2023 they will have tabled legislation to make their registers of beneficial ownership public, aligning themselves with European standards.

As my Global Witness colleague Naomi Hirst pointed out, however, “The timeframe is long – much longer than European Member States will have to play with – and the national action plans the Crown Dependencies have drafted are replete with get-out clauses. There is no detail yet on how the registers will be made public. Moreover, they have given themselves plenty of room to manoeuvre by setting out how they will continue to abide by ‘global best practice’ and pay heed to international standards.”

It’s a bit hard to believe that the Isle of Man authorities really need four plus years. I’ve heard a few times the view that the existing – closed access – register of beneficial owners of companies on the Island is of a high quality, with some saying that it is better, in fact, than the public register in the UK. Taking these assertions at face value, it would seem a relatively small step to make such a register available not just to a handful of officials but the wider public.

John Christensen’s take is fairly withering:

“I looked at [the announcement] and thought, there’s something wrong with this, it’s kind of lacking in ambition. [The Crown Dependencies] are talking about starting discussions in four years’ time. What concerns me is that it’s a clear signal to their clients: start moving into offshore trusts – we won’t be covering trusts, this will give you enough time to rearrange your affairs so that you’re covered.”

Scepticism at home

It’s also only fair to note that some in the financial services industries on the Isle of Man also appear to see flaws in the approach being proposed.

One criticism that has been voiced is that only beneficial owners of 25% or more of a company would be identified. That means that if you had five criminals each owning 20% of a shell company, they could happily go about their nefarious business undetected. This is a very good point which the UK, in its own beneficial ownership registry has failed to address, but which the Isle of Man authorities could. They could lower the threshold on ownership share or dispense with it altogether so that more or all beneficial owners are declared.

Points of reference past and present

On this question of a beneficial ownership threshold but on broader efforts to prevent money laundering too, the Isle of Man could play a leadership role, globally, by doing better than the UK and other jurisdictions. There is an opportunity to avoid being cast as a foot-dragger and instead become a standard-setter. The question is whether the Island’s leaders can look beyond the short-term and embrace it, just as some argue they already have in the realm of marine conservation.

Is marine conservation a legitimate point of comparison? Maybe it’s a stretch. But it’s striking how, when it comes to the creation of marine nature reserves (as described in my 18th August post, below), the Isle of Man government has used its autonomy and agility to go beyond what bigger jurisdictions with more political baggage have done. It has won quite a few fans along the way and is seen, in some quarters, as a standard-setter, internationally.

Another, more provocative, point of comparison, that highlights the risks of being seen as a foot-dragger, is the demise of the Eighteenth Century ‘running trade’ in which some of my ancestors were instrumental, when the Isle of Man was the biggest smuggling hub in the world (my 15th August post has more details on this). There are, of course, many differences with the situation today, starting with the scale of the smuggling back then as compared with the scale of the money laundering risks now. But one can argue, nonetheless, that the circumstances in which Britain curtailed the Island’s autonomy in 1765 in an effort to stamp out the smuggling, and devastated its economy in the process, still have some resonance:

  • The Isle of Man was overly dependent on a single business sector that was facing increasing criticism from influential policy-makers beyond its shores.
  • It was suffering from ‘state capture’ – the leaders of the smuggling business had excessive influence over policy-making. They reinforced this influence through threats to relocate to more conducive offshore jurisdictions if their activities were restricted.
  • The Isle of Man’s leaders were over-reliant, politically, on an argument that all was legitimate because the Isle of Man’s laws made it so.
  • They failed to see the writing on the wall and develop any kind of plan B.

There are grounds for confidence that lessons, historical and contemporary, negative and positive, will be applied and the Isle of Man’s leaders can protect the Island’s reputation and long term prospects by addressing the risks of an association with corruption and money laundering. But it may require – now – some bold short-term steps, alongside the development of a long term vision, to make sure that happens.

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