(Bloomberg) -- The U.K. has bowed to public concern over illicit money flowing through offshore tax havens. Territories such as the British Virgin Islands will have to publish open registers of company ownership by 2020. It's a welcome step, considering the U.K.'s historical hands-off approach, but transparency must be followed by accountability to produce long-lasting change.
First, the good news: an open register should sow seeds of panic in the offshore financial ecosystem, which has played a central role in recent money laundering and tax evasion scandals. Corporate anonymity has made the U.K.'s overseas territories a magnet for illicit overseas money, with billions flowing in from Russia over the past decade, according to campaign group Global Witness.
Sunlight is the best disinfectant. Even those -- like Jersey and Guernsey -- which can't, for constitutional reasons, be forced by the U.K. Parliament to open up may simply be embarrassed into following suit.
But for these registers to work, they will need extra resources. They will need policing to make sure the data provided are accurate as well as tough sanctions in cases where they are wrong.
This has been hard to achieve in the U.K., let alone in the offshore jurisdictions that are going to have a crack at it themselves. Take Britain's official companies register, which tracks some four million closely held companies. Companies House employs 1,000 people, of whom only six are devoted to monitoring breaches of its rules.
The burden on Companies House is only growing as recent transparency drives require more information be sent to the register -- including details of company ownership. There already seem to be gaps. Some 13 percent of firms have failed to name their controlling shareholders, according to the Financial Times.
The penalties for submitting false information to the register don't appear to be very strong.
In March, Companies House announced what it says is its first prosecution for falsifying company information -- itself concerning given the legislation creating the offence has existed for almost a decade. But the guilty party later claimed he had deliberately created a fake company with a board populated with unwitting celebrities to show how easy it was to game the register. The fact that this was the first prosecution and led to only a small fine -- a mere $2,187.54 -- is cause for concern.
Persistent doubts about the veracity of information on closely held companies risks hurting Britain's brand as a top financial center that functions transparently and according to the rule of law, according to Hogan Lovells partner Crispin Rapinet. He's right. More resources would help -- perhaps, as tax campaigner Richard Murphy suggests, funded by increased charges to access records held by Companies House. If the U.K. is to hold its overseas territories to a higher standard, improving its own records would be a good first step.
©2018 Bloomberg L.P.