The fallout from the Panama Papers scandal of last year continues, and this article examines the UK response in particular.
One of the most dramatic “leaks” of offshore data in recent years came from Panama, and the “Panama Papers” saga has sent shockwaves around the world, leading, among other developments, to political resignations and discussion about the correct balance between legitimate client privacy and questionable secrecy. (To see a previous analysis of the issue, click here.) In this article, Marie-Louise Murray, associate of law firm Russell-Cooke, examines some of the issues that flow from the Panama episode, including the UK response to the matter. The editors of this news service are pleased to share these views; they do not necessarily endorse all comments from guest contributors and invite responses. Readers can email the editor at email@example.com.
In November 2016, offshore law firm Mossack Fonseca was fined $440,000 by the British Virgin Islands’ Financial Services Commission, the highest penalty the FSC has ever issued. The firm, central to the unprecedented April 2016 Panama Papers data leak, was fined after a six-month site inspection revealed several contraventions of the Anti-Money Laundering and Terrorist Financing Code of Practice and the BVI Regulatory Code. It had been fined $31,500 for anti-money laundering and information security breaches earlier in 2016.
Some believed this would deepen cracks created by the Panama Papers scandal in the already-fragile reputation of tax havens.
But is this penalty, described by campaigners as “embarrassingly inadequate”, simply a token gesture in response to recent media scrutiny, made by a cynical regulator biding its time until attention shifts to another scandal?
Why all the fuss?
Offshore asset-holding structures are not illegal. They can offer reduced tax liability in often politically and economically stable countries, with privacy (sometimes strict confidentiality) for sensitive transactions. However, the Panama Papers shed light on seemingly legitimate offshore structures disguising criminal activity - including illegally circumventing tax (tax evasion not avoidance), money laundering and terrorism.
Amid these revelations and a growing public focus on the perceived immorality of many permitted tax avoidance activities, regulators across the world have been forced to investigate.
As of December 2016 there had been inquiries in 79 countries and around 6,500 taxpayers and companies across the world were under investigation, as a result of the Panama Papers. Europol found 3,469 probable matches between their files and the Panama Papers, with 116 on an Islamic terrorism project. The European Parliament opened a 10-month inquiry into implementation failures of anti-tax avoidance and financial transparency rules. Germany introduced a “Panama Law”, requiring citizens to declare shell companies.
German MEP Michael Theurer raised concerns about “the influence of Great Britain on the former colonies and Crown dependencies and the role that [they] are playing”. Although Mossack Fonseca is Panama-based, over half the 214,000 structures uncovered in the leak are headquartered in UK overseas territory the British Virgin Islands.
Anti-corruption expert Mark Pieth described the UK as a “big part of the problem” by not forcing its offshore centres to be more transparent.