New offshore entity disclosure requirements seen conflicting with legal privilege

The UK government’s demands for greater transparency with respect to the identity of offshore entities is coming up against the UK legal profession’s long-established legal obligations to its clients not to disclose their information, it is emerging.

According to a notice on the Law Society’s website, which was picked up and reported by the Society of Trust & Estate Practitioners’ online news portal,  notices that will request firms “that advise clients on the establishment of offshore companies or trusts to provide details to HMRC of any client seeking to create an offshore entity and their interest in the entity”, beginning next month, are seen as “likely to conflict” with clients’ right to legal professional privilege (LPP), the STEP Bulletin says, citing the Law Society of England and Wales among its sources.

So-called “trust or company service providers” (TCSPs) are due to begin receiving ‘pre-notice letters’ in connection with the new disclosure obligations, the STEP Bulletin report notes, adding that there could be some lack of clarity as to how a TCSP is defined for the purposes of this new disclosure rule.

It says the pre-notice letters will ask advisers to provide the name and address of their client; the entity details (name, jurisdiction, date of registration); and “details of persons with beneficial ownership or interest in the entity”.

According to the STEP report, both STEP and the Law Society have been in “protracted talks” with HMRC over the past year about the difficulty firms will have in squaring their LPP obligations to their clients with their obligations to comply with the new regulations.

Difficulties firms affected by the new information demands may have in obtaining the relevant data matter are another area of concern, the STEP report notes.

Global transparency demands

The demands for greater transparency are being forced on governments around the world, in response to concerns about widespread, large-scale tax evasion and avoidance that were first sparked by the global financial crisis in 2008, and renewed last year after the so-called Panama Papers revelations. As reported,  this involved the leak of more than 11 million documents from a Panamanian law firm, Mossack Fonseca, via a never-yet-unidentified source, to Germany’s  Suddeutsche Zeitung newspaper, which then shared them with the International Consortium of Investigative Journalists, which, in turn, passed them to some  107 media organisations around the world.

In its statement on the matter, the E&W Law Society says it “understands why HMRC regards such demands for information as being in the public interest”, but notes that “it is, however, also a matter of settled law that when a balance is to be struck between competing public interests, predominance is to be given to legal professional privilege”.

“Neither the Law Society nor individual law firms will wish to be in conflict with HMRC,” the statement continues.

“Nevertheless, the Law Society has informed HMRC that it will vigorously defend and protect legal professional privilege by all possible means, including litigation as necessary.”

The challenge of reconciling clients’ needs and expectations of privilege with new demands for transparency has been in the news on other fronts in recent years. London-based Withers LLP partner Filippo Noseda, for example, has been calling attention to the way he says the OECD’s Common Reporting Standard requirements for automatic information exchange pose a potentially “major threat to privacy and data protection rules, and indeed threatens basic human rights in important areas”.

ABOUT THE AUTHOR
Helen Burggraf
Helen Burggraf is the editor of International Investment. A US-trained journalist, she has worked in Rome, New York City and London, covering everything from the fashion and retailing industries to the global drinking water and water-treatment sector, private equity, and most recently, the international cross-border financial services/advice industry.

Read more from Helen Burggraf

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