While it’s not well known, the British Empire isn’t dead. It’s only in hibernation. Occasionally, Britain awakens from somulence and exercises long-forgotten “retained powers” that give it essentially dictatorial powers over the remnants of its colonial empire. This legacy of colonial rule re-emerged earlier this month when Britain’s Foreign and Commonwealth Office (FCO) took the first steps toward imposing “direct rule” over the Turks & Caicos Islands (TCI). All this happened in a very British way: before the government imposes direct rule, committees of experts prepare detailed reports detailing the problems in a particular colony or colonies (now reborn as “overseas territories”). The reports recommend a solution to the problems found, which inevitably involve a loss of privacy or autonomy in the territory in question. Then the FCO or other government office issues a thinly veiled warning to the territory about the consequences of neglecting the recommendations. This was the pattern in the TCI, and in its case, the problems are very real. Several months ago, former Lord Justice Sir Robin Auld’s Commission of Inquiry issued a still-unpublished report into “possible corruption or other serious dishonesty in relation to past and present elected members of the Legislature in recent years.” Among other conclusions, the report found: There were “clear signs of political amorality and immaturity and of general administrative incompetence” The TCI government is “at a near standstill” with its “financial position so bad that the Government cannot pay many of its bills as they fall due” The Auld Commission recommended that the TCI’s governor (naturally appointed in London) suspend the constitution “for an indeterminate period.” In place of elected representatives, Auld recommended replacing the local government with direct rule from London. Finally, Auld recommended the U.K. government aggressively prosecute alleged wrongdoers, in some cases without a jury trial. All these initiatives are perfectly legal under the “Westminster Constitutions” governing U.K. overseas territories. This process is now underway, although in slow motion. A team of British investigators, lawyers and administrators is ready at a moment’s notice to travel from London to the TCI to replace the elected Parliament. A British naval frigate is on patrol in the Caribbean to provide military support if recalcitrant TCI politicians don’t fall into line. And fall into line they have, at least in part. The elected government now says it will push forward with at least some of the reforms in the Auld Commission report. But if they fail to do so, the British government, backed by military force, is ready to do so. Let me be very clear. For more than a decade, I’ve heard numerous reports of systemic corruption and cronyism in the TCI. For this reason, I’ve avoided recommending it (although its captive insurance laws and infrastructure are reasonably good). It also seems very likely that the only way corruption can be brought under control is with outside intervention. However, it’s important to realize that several other British overseas territories with significant offshore sectors have precisely the same—or a very similar— constitutional status as the TCI. These jurisdictions include Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, and Gibraltar. In all of these territories, the British government can—and on occasion has—imposed legislation on the inhabitants over the head of the elected legislature. For instance, in recent years, Britain has “encouraged” its overseas territories to sign Tax Information Exchange Agreements with high-tax countries. These agreements require the territories to release financial information on clients of banks and trust companies upon request to tax officials in the signatory countries. Britain is now “encouraging” those same territories to comply with the information-exchange provisions of the European Savings Tax Directive, which essentially eliminates financial privacy in nearly every European Union country. For many investors—myself included—there’s a certain comfort knowing that Britain stands behind its overseas territories. Yet this comfort comes at a terrible price to democratic rule and financial privacy. Before you invest or do business in any of these jurisdictions, be aware of what you’re dealing with. Copyright © 2009 by Mark Nestmann
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Britain Imposes Direct Rule on Turks & Caicos
