Offshore world hit by major Panama documents leak

Governments, tax authorities, journalists and experts on tax evasion and avoidance on Monday were digesting news, reported yesterday, of a major leak of confidential and reportedly revealing documents from a Panamanian law firm.

Some are calling it the biggest leak of confidential information ever to hit the global financial services industry.

The news is expected to make uncomfortable reading for those who have been arguing that new regulations and disclosure laws have been at last putting an end to the use of so-called tax havens by wealthy people and companies keen to hide their assets from authorities, although many of the files are said to date back four decades.

According to the BBC, one of the media organisations which broke the story in the UK, more than eleven million documents were leaked from the Panamanian law firm, Mossack Fonseca.

In its report on its website, the BBC calls Fonseca “one of the world’s most secretive companies”, although it also noted that the company “says it has operated beyond reproach for 40 years and has never been charged with criminal wrong-doing”.

Within the last few hours, the BBC updated its online report to add the news that Iceland’s prime minister, Sigmundur Gunnlaugson – “who had an undeclared interest linked to his wife’s wealth” – was among “72 current or former heads of state” that were mentioned in the data, and now is facing calls for his resignation.

Also revealed in the data, the BBC report says, is “a suspected billion-dollar money laundering ring involving close associates of President Putin”.

The BBC’s report was in conjunction with a US-based organisation called the International Consortium of Investigative Journalists, which also carries a report of the document leak on its website.

According to the BBC, the 11 million documents were passed by an as-yet-unidentified source to Germany’s  Suddeutsche Zeitung newspaper, which then shared them with the ICIJ, and which, in turn, passed them to some  107 media organisations, including the BBC’s Panorama TV show and the UK’s Guardian newspaper, in 78 countries around the world.

The BBC will air a piece on the leak on its news show, Panorama, tonight, on the BBC1 television channel at 19:30 UK time. The broadcast will continue to be available afterwards as a podcast, the BBC says on its website.

In its online report, the BBC says the leaked documents “revealed how the rich and powerful use tax havens to hide their wealth”, as well as to help its clients to “launder money, dodge sanctions and evade tax”.

‘Blow to the offshore world’

The BBC quotes Gerard Ryle, director of the ICIJ, as saying that the leaked documents “covered the day-to-day business at Mossack Fonseca over the past 40 years”, and that as a result, the leak may prove to be probably the biggest blow the offshore world has ever taken, because of the extent of the documents”.

In its strenuous denials that it was complicit in any wrong-doing, Mossack Fonseca told the BBC that it has “always complied with international protocols to ensure the companies they incorporate are not used for tax evasion, money-laundering, terrorist finance or other illicit purposes”.

It added: “For 40 years Mossack Fonseca has operated beyond reproach in our home country and in other jurisdictions where we have operations. Our firm has never been accused or charged in connection with criminal wrongdoing.

“If we detect suspicious activity or misconduct, we are quick to report it to the authorities. Similarly, when authorities approach us with evidence of possible misconduct, we always cooperate fully with them.”

Mossack Fonseca is also quoted as pointing out that offshore companies are available worldwide and are used for a variety of legitimate purposes, not just for hiding money.

HMRC team ‘in place’

In the UK, HM Revenue & Customs is reported to already have a team in place to begin work on sifting through the relevant “Panama Papers”, as they are starting to be called.

Frank Strachan, a partner and head of tax services at Edwin Coe, said he expects to see “a more robust approach from HMRC in relation to this data” than was the case with some previous data leaks, such as those having to do with certain HSBC accounts.

“HMRC will want to be seen to act, so expect investigations and potential criminal cases to be registered for those who may have questions to answer,” he added.

Strachan insisted, meanwhile,  that whatever impressions to the contrary the data leak may suggest, “the future is [still] global financial transparency”.

“So anyone who has unexplained or unexplainable offshore funds needs to be aware that the type of data leaked from Panama is typical [of] the type of information which will be passed to HMRC from 2017 onwards,” he added, referring to the pending implementation of the OECD’s Common Reporting Standard, a new system which is aimed at bringing automatic exchange of information into force globally.

As for how the Panama leak compares with previous data leaks out of Swiss and Liechtenstein institutions, Strachan said it could “potentially dwarf” them, because it offers a “peak behind the curtain to see who the beneficial owners are”, in addition to being “global, not just affecting the UK and a few other European countries”.

David Marchant, publisher of the US-based news website, which specialises in exposing financial crime, particularly in the Caribbean, told International Investment on Sunday night that he was “not at all surprised” by the news of the data leak.

“I think that a lot of other law firms will be breathing a sigh of relief that it [the company which had its files leaked] wasn’t them,” he added.

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