Paradise Papers: Exclusive – Labour plans tax fraud checks for bosses, Modern Slavery Act rules
16 Nov 2017

Individuals seeking to form companies in the United Kingdom should be first subject to financial crime record checks in order to curb the high number of firms being set up for money laundering purposes, Shadow Treasury Minister Anneliese Dodds told KYC360.

In recent days, the Paradise Papers have detailed the tax affairs of the wealthy and powerful, which has stirred up heated debate about whether the British government is doing enough to tackle aggressive tax avoidance and evasion.

The revelations come around the same time as the publication of a Transparency International new study which shows that over 700 companies registered in the UK have been directly involved in laundering stolen money out of several jurisdictions, and that the UK’s current companies registration process does not conduct checks on people setting up a firm or their source of wealth.

“At present companies are not registered [properly]. We are pushing for change, to have compliance checks when registering firms in order to determine if their owners have been involved in crimes like money laundering or tax evasion before,” said Dodds, suggesting that such individuals should be barred from registering a firm.

Firms which may be sub-contracted by Companies House should also undergo such checks, she added.

Labour, Britain’s main opposition party, is also to tackle disguised income set-ups, targeting those who choose not to disclose their full revenues to tax collector HMRC.

“The Paradise Papers show how revelations of disguised income don’t seem to stick enough, we have to question some of the avoidance schemes – are they legal or not? And if they are do pass the letter of the law, then we should consider looking at those,” she said.

“For example, the three stars actors in the film Mrs Brown’s Boys, it’s not totally clear if what was reportedly done for them was within the letter of the law, and if it was, then the laws should be tightened.”

Media reportage of the Paradise Papers indicate that three actors in sitcom Mrs Brown’s Boys had their payment sent offshore to avoid income tax and national insurance. The trio are reported to have shifted the money back as loans.

MP Dodds, who has also drafted parts of Labour’s policy on the taxation of individuals classified as non-domiciled (non-doms), said the proposed measures could be discussed as early as next week, when the UK’s budget is announced, or when the Finance Bill is raised.

In addition, existing laws could be used to put through some changes, she said.

Labour is also seeking tighter scrutiny on the financial backing of political parties after the Paradise Papers revealed the tax affairs of Tory donor and former deputy chairman Lord Michael Ashcroft, with a special focus on management of his offshore investments and suggestions that he made decisions which could be challenged by HMRC.

“There also needs to be due diligence checks for political party donations, parties should be tightening it up.”

“This includes having a careful view as to where the money comes from – is the source of the funds entangled with things like tax avoidance, evasion, human rights issues involved,” she said.

“Moe transparency is helpful,” she explained, “we’ve got legislation sitting there but not much change. We want to make sure such legislation is used in tackling financial crime. We are considering, for example, whether the Modern Slavery Act could be used for such measures.”

As with the Magnitksy Law in other countries, Dodds said Labour could use the Modern Slavery Act to sanction firms and company executives if they are found to have abused human rights linked to financial crime.

By Irene Madongo

Related topics:

Paradise Papers: Who has been exposed?

UK tax avoidance falls, evasion rises – a game of whack a Mole for HMRC

Hurricane headaches: Data privacy, fraud risks

Count this content towards your CPD minutes, by signing up to our CPD Wallet