What happens in Panama…

I think the leak will prove to be probably the biggest blow the offshore world has ever taken because of the extent of the documents – Gerard Ryle, director of the International Consortium of Investigative Journalists (ICIJ)

The Panama Papers or the Panama Leaks has shined a light onto the murky depths of the secret separate global economy of dark money existing in the worlds tax havens.  It represents an unprecedented leak (over 11.5m files from the database of the world’s fourth biggest offshore law firm, Mossack Fonseca).

This gigantic leak shows the myriad ways in which the super-rich have exploited secretive offshore tax regimes, with detailed information on more than 214,000 offshore companies. It is composed of millions documents, many dating back to the 1970s. The 2.6-terabyte cache of information was given to newspaper Süddeutsche Zeitung in 2015 and subsequently to the  International Consortium of Investigative Journalists (ICIJ).

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It appears Mossack Fonseca has helped clients launder money, dodge sanctions and avoid tax. The shady Panama-based law firm provides services with reference to setting up and  incorporating companies in offshore jurisdictions operating  in tax havens including Switzerland, Cyprus and the British Virgin Islands, and in the British crown dependencies Guernsey, Jersey and the Isle of Man. The sheer scale of this network of linked off-shore shell companies in tax heavens facilitated by this firm (its tendrils connected to the holdings of 140 politicians and public officials from around the world) is shocking.

This enterprise is utterly staggering. Though much of the activity is not strictly illegal, it raises serious questions with regards to the morality of the scale of tax avoidance facilitated via a plethora of linked schemes, shell companies & fronts. The documents show  banks, law firms and other offshore players failures to follow legal requirements to ensure their clients are not involved in criminal enterprises, tax dodging or political corruption.

These findings show how deeply ingrained harmful practices and criminality are in the offshore world – Gabriel Zucman, economist at the University of California, Berkeley and author of The Hidden Wealth of Nations: The Scourge of Tax Havens.

It is a who’s who of the super-rich from super-stars to dictators to arms dealers and bankers. Highlights include a $2bn trail leading to  Vladimir Putin (regarding a Russian bank that has been blacklisted by the U.S. and the EU). Revelations about the Ukraine’s President, Petro Poroshenko at the height of the conflict in eastern Ukraine scrambling:

… to find a copy of a home utility bill for him to complete the paperwork to create a holding company in the British Virgin Islands. 

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It has placed Iceland’s Prime-Minister, Sigmundur Davíð Gunnlaugsson, under fire for failure to declare a stake in an offshore company.

Further, it includes information about offshore companies linked to the family of Xi Jinping, the families and associates of Hosni Mubarak, Moammar Gadhafi, and Syrian President Bashar al-Assad. Its big. Kim Kardashian big. Alongside this is the father of Prime-minister (PM) David Cameron . Ian Cameron, several former Tory MPs and the infamous party donor Lord Ashcroft, are all implicated in the huge leak of documents. Ian Cameron (a stockbroker & multi-millionaire) was a client of  Mossack Fonseca and apparently used the firm to shield his investment fund, Blairmore Holdings Inc., from UK taxes on capital gains & income. Cameron Senior was one of five UK-based directors until his death in 2010.

Blairmore (valued today at £25m) was established in 1982. From the information available it is clear Ian Cameron was instrumental in the formation of Blairmore Holdings.  The fund was designed to provide investors with steady long-term capital growth over and above the global rate of inflation.

The affairs of the fund should be managed and conducted so that it does not become resident in the United Kingdom for UK taxation purposes 

On his father’s death in October 2010, the PM inherited £300,000 in cash (coincidentally just under the inheritance tax threshold at that time).  In total, Ian Cameron left an estate of £2.7m but, under normal probate law, if there were assets outside England and Wales they would have to be administered in the territories in which they are registered. This leaves questions about the extent of Ian Cameron’s offshore investments, and by implication  the extent of the current PMs personal wealth linked to this.

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The Guardian has confirmed that in its 30 year existence, Blairmore Holdings Inc, has never paid any tax in the UK. The offshore firm has been controlled using an obscure financial instrument known as bearer shares. These do not carry the name of the owner and simply belong to the person holding the certificate in their hand. When asked if there was still any family money invested in the fund, the PM’s spokeswoman said:

That is a private matter [the prime minister has] taken a range of action to tackle evasion and aggressive tax avoidance

These revelations call into question much of David Cameron’s rhetoric in regards to clamping down on tax avoidance and on transparency more broadly. In a speech last year in Singapore, Cameron commented on how the corrupt, criminals and money launderers take advantage of anonymous company structures. Given these revelations, this may have been a case of the kettle calling the pot black. The leaked documents, implicating Ian Cameron, could be argued to taint the impact of any legitimate criticism the Prime-minster may levy on those perpetrating tax avoidance.

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Shadow Chancellor John McDonnell has stated that the Conservatives under Cameron have failed to end tax secrecy and has called for HM Revenues and Customs (HMRC) to launch an investigation. It would seem that Cameron has failed to act properly on tax evasion/avoidance and words are cheap. Richard Brooks, a Private Eye journalist and former HMRC tax inspector, stated:

If HMRC had seen the papers they would have had some very serious questions. The clear intention for Blairmore was to avoid becoming UK tax resident and the test for this, even in 2006, is the location of the central management and control. This means where the key business decisions are taken. The evidence here suggests in this period they weren’t taken outside the UK, in which case it is hard to see how the company was not managed and controlled, and therefore tax resident, in the UK at the time

There seems to be a *big* UK connection via various crown dependencies and oversea territories … makes you want to sing Jerusalem

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David Cameron might have a few questions to answer … How can we expect him to tackle tax avoidance when his own family benefit from such schemes? When Jimmy Carr was embroiled in tax avoidance it was ”morally wrong”…but now its a ”private matter”… It’s not a ”private matter” when you’re Prime-Minister of the United Kingdom Mr Cameron…

We’ve all been there. That awkward moment when your father is implicated in leaked documents detailing a vast network of off-shore shell companies in tax heavens set up via a shady Panamanian law firm…

This whole affair can be summed up in one word. Greed. It is greed on an industrial scale. The wealthiest (that much talked about 1%) have syphoned of billion and billions from the global economy, whilst forcing austerity upon ordinary people. Could this be the death knell for trickle-down economics? Though much of the activity engaged in via these shell companies and firms set up in tax haven is not illegal per se (in a formalistic sense) morally it raises serious questions. The classic  George Osborne line about a long term economic plan and how were all in this together..… will ring ever more hollow… I’m not really sure what to make of any of this. All I can say right now is that I can’t wait until they make the movie about it …

By Frederick Antonio Gallucci | International Law LLM | @gibblegbble

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4 thoughts on “What happens in Panama…

  1. Surely there will be a call for resignations over this matter. For the PM and MPs to claim they think not paying tax at this level is ‘not right’ and that they are doing all they can to clamp down on it, while actually knowing all about what goes on and how and by whom, and benefitting personally while not moving quickly to stop it is fraudulent, surely ? It is taking high office into disrepute. It is not acting in good faith on behalf on the taxpayer, who pays your salary and whom you promised to serve. Is this not so? Is this not so bad it is a matter for the courts to deal with, not an enquiry, not over ten years, but immediately, right now. If you catch a thief, try him and put him in jail. If you catch an MP lying to the public, taking a salary while being dishonest, surely the same outcome should apply.

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