UK overseas territories – including the offshore financial centres of the Cayman Islands, Bermuda and the BVI – will be required to introduce public registers of local companies' beneficial owners by the end of 2020, after a Government U-turn on the Sanctions and Anti-Money Laundering Bill.

The UK Government and the territories1 have long opposed such measures, citing the territories' constitutional autonomy and the risk of serious damage to economies reliant on financial services. Previous efforts to pass similar measures (including at earlier stages of the Bill) have failed.

But on 1 May, the Government – facing defeat in the Commons – accepted an amendment during the final stages of debate on the Bill. The amendment requires each territory to establish "a publicly accessible register of the beneficial ownership of companies registered in [its] jurisdiction", with "all reasonable assistance" from the UK Government. Any territory that fails to establish a register by 31 December 2020 will have one imposed by the UK Government.

The amendment's primary goal is to combat financial crime in the territories. The UK has already taken steps to do this: in April 2017 it required territories and crown dependencies to establish similar registers accessible to UK authorities. But the amendment goes further: opening the registers to public scrutiny makes it harder to conceal corruption, money laundering, tax evasion and similar activities, and so makes the territories less attractive to criminals.

Nonetheless, the amendment is far from a silver bullet.

It does not apply to the UK's crown dependencies – Guernsey, Jersey and the Isle of Man – which face similar issues, but which Parliament cannot oblige to act (unlike the territories).

It does not extend to other forms of legal arrangement – such as trusts – that may be used to conceal criminal activity, although it will be hard for the Government to resist calls for an extension. The EU's upcoming Fifth Money Laundering Directive (5MLD) will require member states to provide more limited public access to registers of trust ownership, which may indicate where the territories will end up.

It is likely to simply shift the problem elsewhere – criminals can move their operations to other jurisdictions, such as Delaware, that offer similarly high levels of secrecy (and low levels of taxation), and that are harder for UK authorities to access. Cleaning up its territories may improve the UK’s image, but in practical terms hamper its efforts to fight financial crime.

It is also likely to put pressure on those using the territories for lawful tax avoidance, by exposing them to increased public scrutiny and criticism. Some will see this as an ancillary benefit, but it suggests that the territories may be right to fear a loss of legitimate business.

The amendment's long-term benefits are likely to centre on image and influence. The UK has suffered from a perception that it turns a blind eye to issues in its territories and dependencies, which hampers other countries' efforts to fight tax avoidance and financial crime2. The amendment goes some way to redressing this. The Government – despite its initial opposition – is likely to take a pragmatic approach and paint the amendment as the UK leading the fight against 'dirty money'.

This comes at an opportune moment, as the UK's anti-money laundering regime is currently being evaluated by the Financial Action Task Force (FATF)3, which is due to report at the end of 2018. A good result is important for the UK, given the weight attached to FATF's assessments and the desire to maintain the UK's status as a high-quality business destination post-Brexit. Failure to address the perceived issues surrounding the territories could lead to criticism, which the Government will now hope to avoid (or at least reduce).

Finally, the amendment may encourage the developing trend towards transparency around beneficial ownership, kickstarted by the revelations around the Panama Papers and similar leaks. The UK established a public register of ‘persons with significant control' of companies and LLPs in June 2016, and 5MLD will require member states to have public registers of companies' beneficial ownership. By extending these measures to 'traditional' offshore jurisdictions, the amendment could increase the pressure on other offshore jurisdictions to follow suit. This will not happen quickly, but could be the amendment's most significant long-term impact.

The Bill is not yet law, and the timeframe for the territories to implement public registers means that there is unlikely to be any short-term compliance impact for clients. However, clients may wish to consider the potential impact of this move on privacy issues or tax arrangements that involve the territories.