Today, the idea appears to grow that holding wealth is something deserving of opprobrium. The more discreetly wealth is held, the stronger the assumption that what is being concealed are social, if not actual, crimes. What are the boundaries of legitimate privacy?

The so-called Pandora Papers, a haul of details of 330 politicians’ financial affairs, were revealed by the Washington DC-based International Consortium of Investigative Journalists last October.

This outfit has shone a light on Panama and other international financial centres. (See here for the "Paradise Papers" saga.) Politicians in Pakistan, the Czech Republic Prime Minister Andrej Babis and Jordan’s King Abdullah, were among those mentioned. The consortium also took aim at Switzerland, claiming that steps by the Alpine state to crack down on bad actors had not been successful. However, it is worth noting that some of the “leaks” relate to events which happened as far back as 2005, before Swiss bank secrecy laws were changed with regard to foreigners.

The ICIJ did not go into detail on how this data was provided, or by whom. What is particularly notable about this leak is the number of politicians alleged to have been involved, a damaging fact – assuming claims are correct – given that so many policymakers have been keen to go after offshore centres over recent years. In a new departure, the consortium pointed the finger at US jurisdictions, for instance South Dakota, rather than traditional offshore hubs outside the US such as Switzerland, Panama and the Cayman Islands.

As with other “papers,” the ICIJ was careful not to directly accuse those whose data it “leaked” of criminal offences. And, as before, the behaviour begs questions about whether the group has violated legitimate privacy in acquiring such a huge trove of information.  

In the following commentary, John Gould, senior partner at Russell-Cooke, and author of the "Law of Legal Services and Practice," second edition, published by LexisNexis, 2019, examines the saga one year on. The editors are pleased to share the analysis. The usual editorial disclaimers apply. We welcome responses from readers, so please get involved in the conversation. Email tom.burroughes@wealthbriefing.com

It was once clear that very substantial wealth brought high social status. Those who advised and represented the globally wealthy were able to take satisfaction in the lustre that that status reflected upon them. The rich chose the best of everything and so their chosen professionals might be expected to be the stars of their fields. Times have changed.

There has always been a sentiment that great wealth must often be the result of luck, inheritance, an unfair system, ruthlessness or shady dealing. It has never been the thing to display wealth too ostentatiously. Nowadays, however, there seems to be an advancing idea that the possession of wealth alone is something deserving of opprobrium. The more discreetly wealth is held, the stronger the assumption that what is being concealed are social, if not actual, crimes.

These social changes present reputational challenges to those who earn a living from advising or representing the wealthy.

Once the boundary was as simple as the law. No professional of integrity would facilitate breaking the law whether by way of tax evasion, regulatory breaches or fraud. Professional codes were essentially about maintaining the professional standards and reputation of the profession, not the advancement of broader social objectives or essentially political points of view. Professional work was generally performed confidentially with no prospect of it being randomly exposed to public view. 

Now professionals who advise the wealthy must consider the “brand risk” involved in their choice of clients and the services they provide. This is so even if the client is entirely legitimate and the service provided completely lawful. 

Over the last few months there have been numbers of very wealthy Russians with problems in search of professional advisors. It cannot be right or lawful to refuse to provide a professional service to any individual just because they are or were previously a Russian citizen. It should also be clear that complying with the restrictions on sanctioned individuals is not optional.

If individuals linked to the regimes in various countries have great wealth, it may be right to assume (in the absence of strong evidence to the contrary) that the original source of that wealth was related to state corruption, but the more remote the source the harder it is to know.  Full compliance with anti-money laundering processes may be sufficient to keep on the right side of the law but it is unlikely to be enough to mitigate the reputational risks of finding oneself acting for the modern day equivalent of Rasputin.

Even great care in choosing clients may not be enough. Sometimes simply being associated with something [or someone] can prove damaging if it unexpectedly reaches the public domain. 

In October 2021 the release began of what were called the Pandora Papers. 

The documents span five decades but mostly date from the period between 1996 and 2020. They include information on 29,000 beneficial owners tied to 27,000 companies. The documents come from fourteen “offshore service providers” which operate in jurisdictions including Anguilla, Belize, Singapore, Switzerland, Panama, Barbados, Cyprus, the United Arab Emirates, the Bahamas, the British Virgin Islands, the Seychelles and Vietnam. 

Their clients come from more than 200 countries and territories. The documents are said to include: spreadsheets; tax declarations; invoices; PowerPoint presentations; emails and company records listing directors and shareholders. They also include: suspicious activity reports; sanctions lists; due diligence reports; know-your-customer forms; passports; utility bills and photos. One can only speculate whether the leak was from one source or many sources but it seems likely that laws have been broken.

Within a football stadium’s worth of beneficial owners, there are said to have been more than 330 politicians and public officials. There are “big political donors,” billionaires and celebrities. The general point made by the consortium of journalists responsible for the disclosures is that secrecy can give cover to illicit money flows enabling bribery, money laundering, tax evasion, terrorist financing, human trafficking and other human rights abuses. Against such evils, rooting through the affairs of numerous individuals who are not in those categories and breaking the law, are, it is suggested, amply justified.

Poor nations may suffer disproportionately by wealth being stashed in tax havens and the very leaders who might make that more difficult are themselves implicated. The consortium denies that offshore service providers judiciously vet clients or strive to act within the law. Links, sometimes apparently very indirect, are made by the journalists between financial secrecy and numerous types of activity including: impeding criminal or civil proceedings; the smuggling of art and antiquities; complex inheritance arrangements; profiteering from evictions and even sex abuse. It was said that the publication came at a critical moment in the debate over the role of Western professionals in the “shadow economy.” It’s a bit like reasoning that criminals use banks and therefore anyone who also uses a bank should allow open access to their bank statements just in case.

It does not seem to be alleged that any particular number of the 29,000 beneficial owners whose information has been scrutinised by presumably self-selected individuals in numerous countries have done anything wrong. Celebrity status seems to have been as likely to attract attention as being a member of the Sinaloa Cartel.

This industrial scale trawling raises new risks for the high net worth advisor. Just as blameless individuals may have suffered reputational damage simply by association with the journalistic assertions relating to some of the beneficial owners, so might advisors who may have nothing to do with the criminal or the corrupt.

The Pandora Papers were neither the first nor the last of their kind. In early 2022 the details of accounts linked to 30,000 Credit Suisse clients all over the world were leaked, “unmasking” the beneficiaries of more than £80 billion ($92.5 billion). The anonymous source of the information was reported as believing that Swiss banking secrecy laws are immoral. 

Against media reporting that the beneficiaries included a human trafficker, a stock exchange boss jailed for bribery, a billionaire who ordered the murder of his girlfriend, looters of the Venezuela’s state oil company and corrupt politicians, Credit Suisse’s response that the reports were “tendentious interpretations” based on selective information supporting historical allegations dating back to a time when laws, practices and expectations were very different from now, didn’t receive much prominence. 

The fact that this sort of vigilante journalism is indiscriminate, usually based on stolen information and is unjustified in relation to the great majority of those “exposed,” doesn’t mean that there isn’t a problem.

In December 2021 Chatham House, the respected international affairs think tank based in London, published a report called “The UK’s kleptocracy problem – How servicing post-Soviet elites weakens the rule of law” (Heathershaw, Cooley, Mayne, Michel, Prelec, Sharman and de Oliveira).

Kleptocracy is a system in which ruling elites are able to steal public funds. It is a worldwide phenomenon, but countries such as Russia, Azerbaijan, Kazakhstan, Ukraine and Uzbekistan are often mentioned. In summary, the report considers that globalisation and de-regulation at the same time as the disintegration of the Soviet Union allowed a transnational kleptocracy to develop in which British professionals enabled post-Soviet elites to launder both their money and their reputations.

The report puts forward a troubling analysis:

“London has no shortage of lawyers, estate agents and wealth managers offering bespoke instruments for post-Soviet elites to hide their money and gain respectability. Individually, each of these service providers may facilitate a transaction that is legal and within established norms and codes of ethical conduct of these professions……

Such companies will … often work with law firms who will be able to help the client purchase property, prevent critical press coverage via ‘cease and desist letters’ to journalists and NGOs, and suggest ‘family office’ wealth managers who can place the client’s funds in safe, profitable projects.

Reputations are burnished in different ways: through the creation of charitable foundations; philanthropic giving; the support of think tanks and academic programmes at elite universities; the acquisition of prestigious commodities such as football clubs; or the endorsement of a member of the Western elite. There is often a distinct contrast between an individual’s philanthropic activities – which must be publicised – and his or her private wealth, investments and assets – where the emphasis is on maintaining secrecy at all costs.”

The charge that states, banks and professionals have not succeeded in excluding the thieves and the pushers from the security of their wealth is a powerful one. In the end, however, the solution must lie in enforcing the law, not attempts to shame the wealthy by breaking it.