Since the leak of the Panama Papers the world's wealthy and powerful have been busy finding excuses.
The leaking of the Panama Papers has caused severe embarrassment to financial and political establishments the world over.
Amid sweeping allegations of fraud, tax evasion and money laundering on an industrial scale, prominent figures caught up in the scandal have reacted in widely differing forms, all protesting innocence.
The Icelandic prime minister Sigmundu Davio nevertheless stepped down for an unspecified period.
British leader David Cameron, who previously owned shares in an offshore fund set up by his late father and avoiding UK taxes for 30 years, squirmed before finally admitting he should have handled his immediate dismissive response better. The shares were sold before he became prime minister.
Russia’s president Vladimir Putin claimed he was the victim of a western plot to discredit him and destabilise his country as it was reported that the leaked papers implicated several associates.
Elsewhere, banks, companies and wealthy individuals whose identities were disclosed in the leak of documents from the Panamanian law firm Mossack Fonseca rejected any suggestion of wrongdoing.
For Tom Cardamone, managing director of Global Financial Integrity, a research and government advisory organisation based in Washington DC, it is not too early to debate whether the Panama Papers could prove a catalyst for change.
In contrast to lessons learned from the US attacks of September 11, and the 2008 global financial crisis, he says, it remains unclear whether the revelations will be come to be seen as a crisis.
Writing at the website foreignpolicy.com, which claims decision-makers and influential people among a monthly online readership of 2.4 million, Cardamone wondered whether the world was “suffering from corruption fatigue”.
If the Panama Papers were perceived as reflecting crisis, then real change in the form of the elimination of anonymous shell corporations may be achieved, he said. “However, if the illegal activities of the politically ensconced and financial elite are seen as terrible but, alas, just business as usual, little reform is likely to occur.”
The necessary steps required significant political will, he added. “The crux of the problem is not tax havens themselves, or even offshore bank accounts. It is the secret, anonymous ownership of companies that allows tax evaders, money launderers and corrupt government officials to act with impunity. Take away the ability to create companies anonymously, and many other challenges become easier to address.”
The G20 group of the world’s major economies warned after its meeting of finance ministers and bank governors in Washington DC on April 15 that “defensive measures” would be considered against countries still not committed to implementing criteria for the automatic exchange of information by next year or 2018.
Without mentioning Panama, the post-Washington communiqué added: “G20 reiterates the high priority it attaches to financial transparency and effective implementation of the standards on transparency by all, in particular with regard to the beneficial ownership of legal persons and legal arrangements.”
It said improving transparency was vital to protect the integrity of the international financial system and prevent misuse or corruption, tax evasion, terrorist financing and money laundering.
But amid all the rhetoric, is must be remembered that people unconnected with big business or political leadership also use offshore strategies to protect their investments.
However history judges the disclosures, and the extent to which financial prudence became questionable or criminal, the ownership and use of offshore companies is not in itself an illegal act. It is among the strategies used all over the world to obtain maximum privacy and protection for assets.
Sykes Anderson Perry, a British law firm specialising in UK and international property and taxation services, goes so far as to say an overseas buyer wishing to invest in UK real estate should wherever possible consider doing so “in the name of an offshore company or other offshore vehicle”.
The firm is emphatically not advocating the breaking of any law but wants investors to be aware of the advantages of using offshore companies. A house sold as shares in the company that owns it would not make the buyer liable to stamp duty land tax, currently levied on a sliding scale on properties priced at more than £125,000 (Dh668,500).
“Purchases in the name of a trust/trust company are becoming an increasingly attractive option in light of the new taxes on companies owning residential properties worth more than £2million,” said Christopher Sykes, co-founder of the firm. “It is expensive to transfer a property into the name of a company at a later stage.”
Despite the rigorous efforts of United States federal agencies to collect taxes, even from those of its citizens not resident in the US, at least two states offer opportunities for substantially lower liability.
Tax havens and tax-friendly jurisdictions are dotted around the world and the citizens and business interests of many countries turn to them to safeguard their assets. There are clear differences between the different means adopted to achieve this while also meeting the classic test of legitimate tax avoidance as opposed to unlawful evasion.
Offshore companies: commonly businesses incorporated in countries under arrangements that limit outsiders’ access to information about them. They are broadly not subject to taxation in their home jurisdiction, though several countries have tightened their own laws so that US citizens, for example, are liable for tax on all worldwide income. Regulation of corporate activities is typically less rigid in such regimes.
Shelf companies – these have been described as companies that have had no activity but were “put on the shelf” to mature – acquire credit status and offer readymade registered business if sold on. However, assets – homes, cars, boats etc – can be placed with the ownership of such companies, further increasing value and creditworthiness.
Both devices have generally provided welcome confidentiality for the transactions of companies using them. Critics would call this suspicious secrecy but there are plenty of specialist advisers who argue that the desire for privacy is both understandable and, in itself, lawful.
But if the full impact the Panama Papers has yet to be seen, a growing clamour for greater transparency has seen the world move on. As recently as 2002, the Organisation for Economic Cooperation and Development (OECD), a Paris-based institution to which 34 countries from the Americas and Europe to Asia-Pacific belong, listed seven jurisdictions – Andorra, Liechtenstein, Liberia, Monaco, the Marshall Islands, Nauru and Vanuatu – as “uncooperative tax havens”, finding they did not make commitments to transparency and exchanges of information.
By 2009, all had made the commitments sought by the OECD and been removed from the list, with Andorra, Monaco and Liechtenstein the last to comply.Even so, such locations as the Cayman Islands, British Virgin Islands and Bermuda are still regarded as classic tax havens typically attracting offshore companies.
There are also also-called midshore jurisdictions such as Singapore and Hong Kong where some tax is levied, and some ostensibly conventional economies, including Britain, the Irish Republic and the Netherlands, which offer concessions of their own.
Confusingly for the layman trying to negotiate the maze of procedures applicable to investments and corporate structures, companies can become known as offshore even if located in an advantageous tax and regulatory regime within a large federal nation.
The US states of Delaware and Wyoming are examples. More than half the country’s publicly traded corporations and 60 per cent of the largest 500, as defined by the Fortune 500 list, are incorporated in Delaware.
Wyoming also promises a range of incentives to investors. A specialist company based in the small city of Cheyenne offers services described by a detailed Reuters report as making the state a serious potential rival to “the secretive business havens of Cyprus and the Cayman Islands”.
Wyoming Corporate Services says on its website that the state is “the best in America” for doing business, having – among other advantages – no personal or corporate income tax, no “burdensome regulations” and no requirement to disclose to shareholders.
The company also lists the benefits of mutual trust arrangements to keep the taxman’s hands off inheritances. It cites the case of the late Sam Walton, founder of the retailing giant Walmart, who lodged his business assets in a closely held family corporation giving each one of his four children 20 per cent of the stock, he and his retaining the remaining 20 per cent.
“The family’s corporation became worth billions of dollars but, upon Walton’s death, there was no estate tax due,” the company says. Walton’s widow was spared taxation as the surviving spouse and the family legitimately avoided billions of dollars in dues “all by using simple corporate tax strategies”.
As for the global fallout from the Panama Papers, there is more to come. The International Consortium of Investigative Journalists, the Washington-based network that conducted the investigation after the damaging documents were passed to a German newspaper, says it will publish a full list of companies dealing with Mossack Fonseca this month.
newsdesk@thenational.ae
