The leak of over eleven million documents from the Panamanian law firm, Mossack Fonseca, has spilled the beans on the ultra-secretive world of offshore money.
The leak has exposed scores of very rich people, from heads of government to footballers, other celebrities and international criminals, as being involved in complex financial arrangements to save them money. Some of these arrangements are perfectly legal. But others amount to tax evasion, money-laundering and much else. The scandal has already claimed the scalp of Iceland’s prime minister.
Here, David Cameron claims to have taken the lead in recent years in trying to open up this murky world. But questions are being asked about the extent of his commitment to transparency, in terms both of public policy and of his own family’s affairs. How much transparency do we need?
The names exposed in the Mossack Fonseca leak seem like a catalogue of the rich, the famous and the dodgily secretive. Many of Vladimir Putin’s associates figure in the list, adding weight to long-standing rumours that the Russian president has salted away billions in offshore accounts, no doubt against a rainy day.
Mossack Fonseca’s role over the last forty years or so has been to help set up around 200,000 companies registered in offshore tax havens. In itself there is nothing illegal in this activity and the law firm insists it has an unblemished record, never having been charged with any criminal activity.
It is estimated that of these companies around 32,000 were set up through the activity of British-based professional services, such as accountants, banks and lawyers. This makes Britain second only to Hong Kong in its involvement with the offshore industry. Furthermore, by far the most common destination for the funds put into these shell companies was the British Virgin Islands.
Much of the money then found itself transferred into the London property market where the new owners of extremely expensive residential and commercial property were registered in the names of these shell companies, with no one able to find out who the real, or ‘beneficial’ owners actually are. Nor can it be discovered whether the money used to buy these properties has come from legitimate sources or was actually money from criminal activity being laundered.
Although places like Panama and the British Virgin Islands are identified as the homes of the offshore industry, in the eyes of many it is London that is really at the centre of things. London has been described as the money-laundering capital of the world. Nicholas Shakson, a tax expert, says: ‘London is the epicentre of so much of the sleaze that happens in the world’.
David Cameron has made opening up the shadowy world of offshore finance one of the chief aims of his premiership. He used his chairmanship of the G20 some years ago to put the issue on the agenda of the international body. But ever since he has been accused of watering down his own proposals.
Central to his plans has been the idea of forcing tax havens, including those under one form or another of British jurisdiction, to set up public registers in which the beneficial owners of shell companies would be listed. Back in 2014 he said that ‘public access to a central register is key to improving the transparency of company ownership and vital to meeting the urgent challenges of illicit finance and tax evasion’. But according to Seema Malhotra, Labour’s shadow Treasury minister, the Prime Minister dropped the idea in response to strong pressure from tax havens such as Bermuda, the Cayman Islands and the British Virgin Islands. Instead, he suggested, they should be open only to relevant tax authorities and the police upon request.
It has also emerged that in November 2013, when the European Union was considering its own policy on the issue, Mr Cameron wrote to Herman von Rompuy, the president of the European Council, urging the EU to exclude trusts from any proposal to set up registers. He wrote; ‘It is clearly important we recognise the important differences between companies and trusts. This means that the solution for addressing the potential misuse of companies – such as central public registries – may well not be appropriate generally’.
Defenders of the Prime Minister’s action argue that the broader remit, including trusts, would not have been achievable and would ‘distract from action against those areas of most concern, such as shell companies’. But his critics claim his main purpose was to protect those wealthy British citizens who use offshore trusts as part of their inheritance planning or, as some would put it less euphemistically, to avoid paying inheritance tax.
Mr Cameron’s political problems on the issue have been compounded by questions concerning his own family’s involvement with offshore finance. Among those named in the Mossack Fonseca leaks was the Prime Minister’s own late father, Ian Cameron, a stockbroker who made use of the lifting of exchange controls by the Thatcher government in 1979 to help create an offshore fund for international investors to place their money somewhere where there was a zero tax rate. The purpose, it was claimed, was not to avoid tax altogether but rather to ensure that such investors would have to pay tax only in their home countries rather than also in the country where they were investing their money. To some, however, this still seems like tax avoidance.
The Prime Minister has been accused this week of being a little coy about his family’s possible involvement with offshore finance. Answers to questions have dribbled out and while he insists that his immediate family does not and will not benefit from any offshore funds (since he says they don’t hold any) he has been less forthcoming about whether his family has benefited in the past.
Central to the wider issue is the question of how to balance the public interest in transparency and the private interest in secrecy. Defenders of privacy argue that publicly available registers of beneficial ownership of companies and trusts would fundamentally undermine the right of people to privacy in their financial affairs. Some have even gone so far as to suggest that such transparency would expose the wealthy to the possibility of kidnapping.
But campaigners for greater transparency argue that the Mossack Fonseca leaks demonstrate as nothing else could just how much the rich are able to evade the rules – especially the tax rules – that govern the rest of us, and just how easy it is for international criminals to get the proceeds of their nefarious activity laundered via tax havens and into London.
We need total transparency, they say. Some also argue that transparency should extend to the rest of us and that all our tax affairs should be publicly available to scrutiny, as they are, for example, in Norway.
What’s your view? Does the Mossack Fonseca leak surprise you, or does it confirm what you suspected all along? Do you think transparency is the way forward or do you think the principle of secrecy in the aid of privacy trumps it? Do you think that David Cameron has genuinely tried to promote transparency or do you think his apparent compromises on trusts and on public access to registers of beneficial ownership of companies undermine his claim to be a reformer? What would you want to see happen to the offshore industry? And would you be happy for your own tax affairs to be open to public scrutiny?
