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Politics & Law Series: Expert Comment

Why British law doesn’t necessarily apply in overseas territories

Claire de Than, Senior Lecturer in The City Law School, explains the differences between British Overseas Territories and Crown Dependencies in the context of revelations that laws in some overseas territories might have been exploited by unscrupulous persons to set up tax havens.
by John Stevenson (Senior Communications Officer)

By Claire de Than, Senior Law Lecturer

Until the Panama Papers scandal broke, it would have been easy to think that the widest possible definition of the United Kingdom is England, Wales, Scotland and Northern Ireland. But the territory is much wider than that – which has caused confusion in political debates and journalism about the Panama Papers.

Portrait of Claire De ThanThere are 14 British Overseas Territories (BOTs) – including the British Virgin Islands (BVI), the centre of much of the discussion – and three Crown Dependencies (CDs). Following the revelations that the different laws in some overseas territories have been exploited by the unscrupulous, a debate has ensued about whether the United Kingdom government can do anything about what goes on in the British territories perceived as tax havens.

Labour leader, Jeremy Corbyn, and former business secretary Vince Cable have said these “UK tax havens” could be brought under direct rule.

But does Britain actually have the power to “clamp down on tax evasion” in these territories? It is technically possible for some of the small territories under discussion, the British Overseas Territories, but for the Crown Dependencies it would be an act of war to attempt to do so.

Constitutional questions

To assist in understanding why the labels matter, here is a basic guide to the differences between British Overseas Territories and Crown Dependencies, their diversity and their constitutional positions. When politicians such as Corbyn and Cable talk of bringing overseas territories and Crown Dependencies into line, it implies that they are breaking UK laws. In fact the extent to which they comply with UK laws varies significantly in the first place. Many have large amounts of their own law. Most BOTs (and all CDs) are free to choose whether to adopt their own versions of English statutes.

BOTs and CDs are not the same legally, historically, or politically. There are some similarities between the two groupings, but also important differences.

There are 14 British Overseas Territories, all of which were once colonies in some sense and remain British by choice. Each has a governor to represent the UK. Some are military bases with no permanent population at all, others are thriving international commercial centres. Their laws vary significantly. Gibraltar, for example, is geographically close to the European Union, so its laws have been heavily influenced by the UK’s need to comply with EU rules on tax transparency and whistleblowing. The vast area of Antarctica which is British does not have any law of its own since it has no permanent inhabitants, and Pitcairn has only about 50 people – so determining its laws has been a major academic and judicial exercise.

While all BOTs follow English common law to some extent, they do so to differing degrees – depending on local circumstances – and many have detailed codified criminal laws of their own. English law was adopted by each territory at different dates, so some BOTs’ laws have become something of a snapshot of English laws from times past.

Man in a paper boat made from a dollar bill

Some follow English law more closely because producing your own legislation can be an expensive business. The larger territories have their own codified laws, which may be based on English law or that of another country altogether, or may be unique. Most have their own courts and legislatures.

When drafting their criminal codes, BOTs looked beyond English law and adopted rules from a range of other sources. Anguilla, BVI and Montserrat, for example, have been influenced by their membership of the Eastern Caribbean Supreme Court.

Crown Dependencies have a misleading name, since they are the more independent category. The Bailiwicks of Jersey and Guernsey, and the Isle of Man, are part of the British Isles, but not Great Britain and each has a population of between 60,000 and 100,000 people.

The Queen is head of state of CDs and each has a lieutenant-governor to represent her. However they are not part of the UK nor of the EU. They are relics of the Norman, Norwegian and Scottish Duchies – not ex-colonies of the British Empire – so are self-governing and have their own legal systems, tax systems, courts, legislatures and elections.

Laws require Royal Assent once passed, but Royal Assent can only be denied under very specific circumstances. Very few Acts of the Westminster parliament now extend to them – and the Crown Dependencies would dispute any idea that the UK could still legislate directly for them without their consent. The islands are active in the international legal and political fields and negotiate their own treaties, including many bilateral treaties about tax liability. Thus the UK has no direct control over tax laws in the Crown Dependencies.

Meaningful discussions

Although the CDs have autonomy in relation to tax, they have committed to sharing more information about the businesses registered in their territories. In fact, in proposing that facilitating tax evasion be made a criminal offence, the UK is behind the times. It has been a crime in Jersey for several years already.

Imposing direct rule on CDs is not constitutionally possible, so the solution to any dispute between a CD and the UK, including one about financial transparency, would have to come about through co-operation and partnership. Direct rule for a BOT is technically possible, but would be an extreme measure of last resort. Turks and Caicos was taken under direct rule by the UK from 2009-12 due to a political corruption scandal; direct rule is still a technical possibility for the British Virgin Islands, but an unlikely one. For meaningful discussions about solutions to tax evasion, it is important to get the labels and distinctions right.

Definition
Codified laws

Codified laws refer to rules and regulations that have been collected, restated, and written down for the purpose of providing civil order to a society. This process of collecting, restating, and writing down laws is known as codification. Codified laws are sometimes referred to as statutes, codes, acts, bills, or simply ‘laws.’

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