Hong Kong’s low taxes should not make it vulnerable to money launderers

Kalina Tsang and Eryn Schornick say the city must set up a public central register of beneficial owners to make it less attractive as a tax haven, thereby making it harder to move dirty money

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Hong Kong should be wary of how rampant tax avoidance practices in the city can tarnish its reputation. Photo: EPA-EFE

Published: 5:50pm, 5 Dec 2017Updated: 6:55pm, 5 Dec 2017

More than a year after the Panama Papers revelation, Hong Kong is again in the spotlight for being a money laundering haven. A recent in-depth study by economist Gabriel Zucman and his colleagues shows that Hong Kong remains a favoured tax haven for foreigners. The city has apparently failed to learn any lessons about how rampant tax avoidance practices can tar its reputation.

Before 2007, Hong Kong held less offshore wealth than Jersey, the Bahamas, or the Cayman Islands. But from 2007 to 2015, it was second only to Switzerland in terms of offshore wealth, which increased sixfold during that period. Zucman specifically notes that anonymous shell corporations make it extremely challenging to identify the real people behind the companies, making it an efficient tool for moving dirty money.

Fridge magnets depicting a Jersey cow are displayed for sale in St Helier, on the British island of Jersey, on November 9. The Channel island of Jersey has come under the spotlight with the publication of the Paradise Papers, a trove of leaked financial documents highlighting its status as a tax haven for multinational companies. Photo: AFP

The EU is expected to announce its blacklist of tax havens this month, after screening 92 jurisdictions, including Hong Kong. If Hong Kong were included on the EU’s list, the city would be deemed an unsuitable business partner.

Hong Kong should rebrand itself as a low tax haven

An integral part of the global effort to combat tax havens and money laundering is increased public information on company owners, or what are legally known as “beneficial owners” – the real people who control or benefit economically from a legal entity. Oxfam Hong Kong and the Financial Transparency Coalition call upon all governments worldwide, including the government of Hong Kong, to require the disclosure of beneficial ownership information and to make it publicly available. Such a measure would allow poor countries to access information necessary to identify tax dodgers and to recover the billions in lost tax revenue that could be used to substantially improve basic public services.

A public central registry of company owners would ensure such transparency. The UK, Denmark and Ukraine have such a registry, and many more are taking steps to set one up. The EU already requires its 28 member states to establish a register, and is likely to soon require them to make this information public.