When the world woke up to news of history’s biggest ever data leak a year ago, it lifted the lid on the murky world of offshore tax regimes--usually sun-kissed islands where the rich, famous and infamous alike, can hide wealth from view. The Panama Papers involved 11.5m files from the database of the world’s fourth biggest offshore law firm, Mossack Fonseca, and was obtained by international press from an anonymous source. While the wider public was shocked by the practices exposed, it is probably a safe assumption to say most professionals were not. -Although they may have alarmed by its scale, the methods used were basic and themselves not new; Mossack Fonseca was not re-inventing the wheel.
Secrets exposed, the tough questions to be asked now, a year later, are: What has changed for the better? And were the revelations worth it? Did the act of revealing the clandestine world bring about change--including increased transparency, and perhaps a tightening of the net around those who squirrel away vast ill-gotten sums?
In terms of progress, there are undoubted positives. Certainly no one can argue that the fact that the public at large is now more aware of the practice is a good thing.
There are also ongoing investigations. The European Parliament has also began conducting a body of work to investigate how this element of the global economy works to provide thoughts for a range of initiatives which could be implemented across Europe. It has established its own inquiry – a panel to which I have given evidence alongside others.
The impact at home
London is more than 5,000 miles from Panama City but the gaze of transparency has been cast here too. The Criminal Finances Bill, introduced to the UK in October 2016, is designed to stop London being used as a soft target safe-haven for kleptocrats and corrupt officials. As was reported last year by the Guardian, “Land Registry figures show UK real estate worth more than £170bn is held by more than 30,000 tax haven companies.”
Targeting property used by criminals seeking a safe haven is an excellent step in the right direction. Too often the UK has had to deal with former ministers of corrupt governments who earned very little on paper but arrive in the UK able to pitch up in grand homes and with seemingly bottomless bank accounts. These measures will help target property, houses, bank accounts and other trappings of those under suspicion if they cannot explain how they made their money.
Further, it was announced recently that the Criminal Finances Bill is also set to be extended to freezing the wealth of those involved in human rights abuses.
Make no mistake, these are much-needed and long overdue measures. They must be used.
European Parliament investigation
There is no silver bullet, of course. Progress is slower than we would like and it is only a matter of time before other offshore centres such as the Seychelles come under scrutiny.
The Panama Papers have been viewed as a such a serious situation globally that the special committee set up by the European Parliament to investigate the scale and, if possible, route of the problem. It is closely examining the role of bankers, accountants and lawyers in this international merry-go-round.
I gave evidence to the committee and in short, told them that it was rare for anyone to set up and offshore structure without professional help. As I testified:
‘…It is very common that intermediaries play a role, but how deeply involved they are varies wildly. Ramon Fonseca has said himself since the leak: “It’s like if you buy a car and sell it to a dealership and it sells it to a woman who kills someone - the factory isn’t responsible”…. [But] dealerships have a good degree of knowledge of what the driver intends to do with the car when it is bought. They should at least be checking the driver has a licence.’
When professionals do not pose questions to clients over the source of wealth, or true intentions, when setting up offshore structures, some, including myself, would call this “wilful blindness.”
Mandate for more
Arguably, the Panama Papers saga failed to shake toughened professionals to the core—and thus I would argue that as well as legislative powers, we need a ground up approach to solving the problem exposed so robustly a year ago. Professionals all around the world need to understand what “Know Your Client” procedures are there for, they need to understand that the onus is on them to act properly, and they need to feel motivated to stop hiding behind it as a tick-box exercise.
And for those who do turn a blind eye to current Know Your Client rules, there need to be tougher sanctions imposed internationally. We must place advisers in the crosshairs when appropriate.
All professionals – lawyers included – still have a role to play in this.
Only then can we the begin to talk about the Panama Papers having a positive influence on flushing out the corrupt.
Daniel Hall is director of asset recovery at Burford Capital.