The documents, released and analysed by the International Consortium of Investigative Journalists (ICIJ) – the same organisation responsible for the ‘LuxLeaks’ of 2014-2015 – refer to, among many others, heads of state including King Salman of Saudi Arabia and Icelandic Prime Minister Sigmundur Gunnlaugsson, who held undisclosed offshore accounts and shareholdings.
“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,” said Gerard Ryle, director of the ICIJ.
Friends, family members or associates of other heads of state, including Russian President Vladimir Putin, UK Prime Minister David Cameron and Syrian President Bashar Al-Assad have been shown to have taken advice – not necessarily leading to illegal activities – from Mossack Fonesca.
Former heads of state including China’s Li Peng, Egypt’s Hosni Mubarak and Libya’s Muammar Qaddafi have also been implicated by the leaked documents.
“Once again the banking world has been rocked by leaks,” said Andrew Haslip, Verdict Financial’s head of content in Asia-Pacific for private wealth management. “The Panama Papers leak is, by all accounts, the largest to date and appears to have snagged a number of high-profile clients. No doubt another round of investigations by tax authorities will be forthcoming, followed by hefty fines and, in a few rare instances, criminal charges.”
“However, the leak is not likely to significantly impact the offshore wealth management sector. Offshore wealth managers have been dealing with the decline in client anonymity for quite some time, and the Panama Papers are simply the biggest leak to date,” Haslip continued. “Ever since automatic disclosure became the standard in the wake of the financial crisis, the industry has been transitioning away from client anonymity as an impetus for investing offshore.”
If anything, the leaks could lead high net worth individuals (HNWIs) to move more money to jurisdictions such as Singapore, Hong Kong, the UK, Switzerland and the US.
One aspect of the leak which could be particularly damaging in the context of the continuing debate about countries publicly moving against evasion and avoidance while also engaging in aggressive tax competition on the policy front, is the extent to which the use of the UK’s offshore network has been exposed.
Jeremy Corbyn, Leader of the Opposition, said that the fact the UK allows its territory in the southern hemisphere to be used for tax purposes is a “national disgrace”.
“The tabloid press have been desperately screaming ‘look over there’, acting as if rich foreign crooks are the only big story here,” he said. “They aren’t.”
“What most of those exposed have in common – home and abroad – is that they used British tax havens like the British Virgin Islands.”
After the LuxLeaks scandal, which exposed the use of tax rulings agreed between the Grand Duchy and companies represented by PwC Luxembourg to help multinationals lower their tax bills, state aid investigations into tax rulings were ramped up and became a key part of the European Commission’s agenda.
With the ruling UK Conservative party being heavily affected by the Panama Papers – several peers and former members of parliament, as well as the Prime Minister’s own father are among those named in the 11 million documents leaked by the ICIJ – there will be significant pressure to tighten up the UK’s offshore network, which includes major offshore centres such as Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, Gibraltar, Guernsey, the Isle of Man and Jersey.
Cameron has so far only responded through a press statement from Number 10 – the prime minister’s residence.
Downing Street said laid last night the issue was a private matter for the Cameron family. A spokesman said: ‘The Government’s tax reforms are about making sure that some of the richest people in the country pay a decent share of income tax’.”
Opposition politician, Shadow Chancellor John McDonnell, called on Cameron to take “real action”.
“The Panama Papers revelations are extremely serious. HMRC [the UK revenue authority] should treat this with utmost priority and urgently launch investigation,” he tweeted. “[David] Cameron promised and has failed to end tax secrecy and crack down on ‘morally unacceptable’ offshore schemes, real action is now needed.”
Drives from other countries are also likely. While there have been few high-profile figures from the US implicated by the papers, Global Financial Integrity (GFI), a US-based research and advisory organisation, has called on major financial centres to take action.
“Doing legitimate business in secrecy jurisdictions is not illegal, but the Panama Papers investigation is yet another example of how individuals and businesses are systematically abusing the secrecy they provide,” said Liz Confalone, GFI policy counsel. “Banks and law firms routinely conspire to hide their clients’ money and fail to follow through on required customer due diligence checks.”
“The governments of the US and other major financial centres particularly need to make corporate ownership information public through corporate registries. The Panama Papers investigation must be the nail in the coffin of anonymous companies.”
Mossack Fonseca said in a statement: "It is legal and common for companies to establish commercial entities in different jurisdictions for a variety of legitimate reasons, including conducting cross-border mergers and acquisitions, bankruptcies, estate planning, personal safety, restructuring and pooling of investment capital from different jurisdictions in neutral legal and tax regimes that does not benefit or disadvantage any one investor."
