Articles (such as this one published by Foreign Policy and this one by BBC) and documentaries (such as 2017 film "The Spider's Web" described here) detail the history and extent of Britain’s "Empire of Tax Evasion".

According to the BBC article this empire had its start in a accounting decision made by BoE in 1957. This decision, viewed as the start of the Eurodollar market, was to allow commercial banks to lend and borrow to foreign clients as long as the currency was something else than British pounds and both sides of the transaction resided outside of UK.

The BBC article says about this:

Banks from all around the world could borrow and lend in dollars without being subject to US tax or banking regulations - making banking in dollars more profitable out of London than out of Wall Street.

Offshore banks didn't have to hold money in reserve for every dollar they lent (as they would in the US), which would dramatically cut their costs.

While transactions were arranged in London, the lenders and borrowers could be registered anywhere. But the parties to Eurodollar transactions needed addresses.

So, zero-tax jurisdictions from the Cayman Islands to the Montserrat were used by London's investment banks as the official tax residences of their wealthy customers.

Clients could avoid both tax and undesirable scrutiny - for example from the US tax authorities.

Further down the article explains:

By 1980, the so-called Eurodollar market was worth more than half a trillion.

After the deregulation of the City of London in the 1986 "Big Bang", US banks joined in, setting up in London.

And as the 1990s and 2000s progressed, it became the undisputed global centre for foreign currency trading.

The Foreign Policy magazine article describes the current extent of the trading tentacles like so:

With the City of London at its center, Britain’s network of refuges from taxes, regulations, and other pesky laws stretches first to the crown dependencies — the Isle of Man, Guernsey, and Jersey — and then into the 14 British overseas territories: places like the British Virgin Islands, Bermuda, and the Cayman Islands. From there, this web extends to places like Hong Kong, not under British rule since 1997 but, according to author Nicholas Shaxson, still feeding “billions in business to the City.”

In the wake of disclosures such as the Panama Papers and the Paradise Papers, the European Union came out with directives that are expected to tackle money laundering and tax avoidance. One of these is the Fourth Anti-Money Laundering Directive that went into effect on June 26th, 2017. This directive introduced changes in below areas, among others:

  • reinforcing the risk assessment obligation for banks, lawyers, and accountants;
  • setting clear transparency requirements about beneficial ownership for companies. This information will be stored in a central register, such as commercial registers, and will be available to national authorities and obliged entities

UK was still a member of the European Union when the tax avoidance legislation was first adopted but decided to start the referendum on EU membership soon afterwards. This article at the londoneconomic.com says about the timing:

The directive, which was presented by the Commission on 28th January 2016 and was adopted on June 20th of the same year, follows the Conservative-led Brexit process with surprising accuracy.

One month after the Anti-Tax Avoidance Directive was presented David Cameron announced a referendum on Britain’s relationship with the EU, and three days after it was adopted the vote to Leave had been cast.

And even though UK has agreed to provide the information about corporate ownership (requested by the EU legislation), the Tax Justice Network described the cooperation as follows in a speech given at the European Parliament (reference):

But this is something of a Potemkin village: yes, the UK has committed to an open public registry of beneficial ownership of companies, but in practice the information available from Companies House is frequently out of date, inaccurate and consequently useless. Compliance across the entire financial services sector is weak, reflecting an under-resourced and fragmented regulatory service.

Among the many things revealed by the Panama and Paradise Papers leaks, it should be clear to everyone that British territories like the British Virgin Islands, Cayman, and the Channel Islands are intimately linked to the UK through commercial, legal and political ties.


Despite all the promises to be transparent and cooperative, Britain’s offshore secrecy jurisdictions have resolutely refused to make their company registries open to public scrutiny, and some have even threatened to secede if this is forced upon them.

Reasons such as those listed above would of course make it complicated to enforce any legislation aimed at curbing tax evasion.


  1. What might be the consequences from a full implementation of these EU directives on the City of London?
  2. What consequences might result from Brexit on whether UK follows these directives?
  • 3
    I'm sorry, but this seems to be pushing a conspiracy theory which annoys the heck out of me. The conservative who led the process (Cameron) was so dismayed by the leave win he actually resigned. Beyond the fact that the banking sector in Brexit would either lose the lucrative financial passport, or have to agree to regulation
    – user19831
    Sep 15, 2019 at 6:28
  • @Orangesandlemons, the loss of the financial passport was not in the plans when Cameron announced the referendum. Neither was there any expectation that EU would not accept the equivalence rules for banking. The expectation in UK at that point seemed to have been that EU would be willing to come with more concessions to UK.
    – user100487
    Sep 15, 2019 at 14:17
  • 2
    On another note. On Cameron, looks like he asked EU to not include offshore trusts in the EU tax crackdown back in 2013. Apparently his family had been using such vehicles and so have some other Brexit supporters. Not sure how much does this matter in the end.
    – user100487
    Sep 15, 2019 at 14:38
  • 1
    @Orangesandlemons, ok well apparently the opinion of politicians in EU was that his proposals were supporting a possible tax loophole. The Financial Times article David Cameron’s EU intervention on trusts set up tax loophole says "David Cameron personally intervened in 2013 to weaken an EU drive to reveal the beneficiaries of trusts, creating a possible loophole that other European nations warned could be exploited by tax evaders..."
    – user100487
    Sep 18, 2019 at 5:20
  • 1
    Just to add a recent article about a similar case of tax evasion: theguardian.com/business/2019/sep/20/… The article mentions that one of the German whistleblowers "welcomes Brexit" in the hope that it will reduce the [bad] influence of the City on EU financial institutions.
    – Erwan
    Sep 21, 2019 at 13:37

1 Answer 1


What might be the consequences from a full implementation of these EU directives on the City of London?

Nothing especially problematic?

According to Shearman & Sterling "UK IMPLEMENTS EU’S FIFTH ANTI-MONEY LAUNDERING DIRECTIVE" 2020-01-10:

The U.K. has opted to go further than certain of the EU’s requirements, indicating that it intends to continue in its position as a leading global financial center, and its strict regulation and enforcement of the AML and CTF regimes.

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