Despite global outcry, tackling tax havens is a tough task
There's one part of the British Empire on which the sun still does not set: its tax havens.
Britain's former world dominance has left it with a string of tiny territories scattered around the globe, and many of them have become hubs for hiding money. Despite growing political pressure, shutting down these and other tax havens may be easier said than done.
The leak of 11.5 million documents from a Panamanian law firm that specialises in discreet financial services for the wealthy has brought renewed calls for a global clampdown on shadowy financial activity. Many feel Britain bears an especially large duty to act. More than half the 200,000 companies set up for clients by Panamanian firm Mossack Fonseca in the leaked files are registered in the British Virgin Islands, a British overseas territory in the Caribbean.
"Britain has a huge responsibility," Jeremy Corbyn, leader of the main opposition Labour Party, said on Tuesday. "The government needs to stop pussyfooting around on tax dodging."
As Britain's colonies gained independence after World War II, London encouraged several small Caribbean islands to become tax havens as a means to self-sufficiency. As a result, many of the world's tax havens have British links, including overseas territories such as the British Virgin Islands, Bermuda and the Cayman Islands.
The Channel Islands of Jersey and Guernsey off the French coast, which are possessions of the British Crown, have been havens for the wealthy and their money for almost a century.
The calls for change echoing around the world in the wake of the Panama revelations are not entirely new. When the global financial crisis erupted in 2008, cash-strapped governments looked for ways to claw back some of the billions hidden from tax authorities in overseas havens.
Since then, the Organization for Economic Cooperation and Development and the Group of 20 nations have persuaded more than 90 countries to share financial data in a bid to crack down on secret dealings.
Fiona Fernie, head of tax investigations at the law firm Pinsent Masons, said the resolve among governments was having a real effect.
"The big difference - the sea change - was that world leaders have decided to come together on this matter, to shut down the loopholes," she said.
"People can run, but eventually they will not be able to hide."
Britain's Prime Minister David Cameron has been among the loudest champions of greater transparency and is due to host an international anti-corruption summit in London next month. Legislation forcing British companies to disclose who really benefits from their ownership comes into force in June, and the government says it is "determined" to get the Cayman Islands and British Virgin Islands to adopt stronger transparency rules.
But the Panama papers contain embarrassing details of how the prime minister's late father, Ian Cameron, used an offshore shelter to keep his fortune safe from British tax.
Corbyn and other opposition figures say British authorities must go further and take offshore tax havens back under direct UK control - an extreme but not impossible move. Britain imposed direct rule on the Turks and Caicos islands in the Caribbean for three years from 2009 amid a corruption scandal.
Conservative lawmaker Dominic Grieve, a former attorney general, said eliminating the islands' tax-haven status could devastate local economies and would not stop abuse of the tax system.
"What will, in fact, happen is that people will go to other havens which may, in fact, have far less good regulation, so what we would in fact be encouraging is the very money laundering and criminality that we want to suppress," he told the BBC.
Crawford Spence, associate dean of Warwick Business School, said the Panama revelations would put pressure on world leaders to do more, but he did not expect big change.
Tax authorities in Britain have promised to investigate the leak, but Spence said "chronically understaffed" government bodies were no match for the tax evaders.
"Those who run tax havens and advise their clients to go through tax havens are so far ahead of the regulators, it's unbelievable," he said. "All the brightest people are working on that side, because that's where all the cash is."
Richard Murphy, an accountant and tax-reform activist, is more optimistic. He said the Panama papers show "a very significant decline in the number of new incorporations of offshore companies since 2008".
He believes negative publicity, rather than legal reforms, is making the wealthy mend their ways.
"I think the campaign against tax havens is working - but not at a legal level," he said. "People have realised there is a massive reputational risk to being caught in these places."
Justin Urquhart Stewart of Seven Investment Management said controversy over the huge leak could have the same effect on nations like Panama that have benefited from attracting offshore money.
"Panama will be embarrassed into taking action to try to make sure this does not happen again," he said. "But be wary once you've shut down one tax haven, lo and behold, you'll find there'll be another one along soon."
Meanwhile, governments around the world tried on Tuesday to contain the fallout from the publication of thousands of names of rich and powerful people who conducted offshore financial activity through Panamanian law firm Mossack Fonseca.
Iceland's Prime Minister Sigmundur David Gunnlaugsson resigned after thousands of angry protesters demanded that he step down and call new elections. The leaks showed possible links to an offshore company that could represent a serious conflict of interest.
China dismissed as "groundless" reports that relatives of current and retired politicians, including President Xi Jinping, own offshore companies.
The state media are ignoring the reports, and search results for the words "Panama documents" have been blocked on websites and social media.
And Ukraine's president was accused of abusing his office and of tax evasion by moving his candy business offshore, possibly depriving the country of millions of dollars in taxes.