'Panama Papers' storm hits home

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The largest data leak in history has lifted the lid on the shady offshore tax dealings by numerous powerful individuals. So, what happens now?

Panama City-based law firm Mossack Fonseca is the fourth largest provider of offshore tax services in the world. A year ago, a whistleblower contacted the German newspaper Süddeutsche Zeitung and unleashed a flood of confidential documents. Over the weekend, the paper released all 2.6TB [Terabytes] of information, dating all the way back to the 1970s.

Mossack Fonseca has already returned fire, stating: “We are not involved in managing our clients’ companies. Excluding the professional fees we earn, we do not take possession or custody of clients’ money, or have anything to do with any of the direct financial aspects related to operating their businesses.”

The Panamanian firm may have pleaded its innocence, but the people named in the so-called “Panama papers” will have a lot more explaining to do. The data extends into the close orbit of influential politicians including Vladimir Putin, the prime minister of Iceland and David Cameron, who’s deceased father Ian Cameron was one of the firm’s clients. All-in-all, 72 heads of state are implicated the leak’s 11m documents.

The Süddeutsche Zeitung wrote: “Among others, Mossack Fonseca’s clients include criminals and members of various Mafia groups. The documents also expose bribery scandals and corrupt heads of state and government.

“The alleged offshore companies of 12 current and former heads of state make up one of the most spectacular parts of the leak, as do the links to other leaders, and to their families, closest advisors, and friends. The Panamanian law firm also counts almost 200 other politicians from around the globe among its clients, including a number of ministers.”

HMRC headache

The leaks present a massive headache for HMRC and tax advisers, with more than 1,800 British intermediaries named. From a sheer logistical point of the view, the overworked tax department will have to dig through the millions of pages. HMRC confirmed it has “already received a great deal of information on offshore companies, including in Panama, from a wide range of sources, which is currently the subject of intensive investigation”.

Rebecca Busfield, senior partner at Watt Busfield tax investigations, told AccountingWEB that HMRC will need to check “the quality of the data” and warned there may be issues resourcing the necessary investigations.

“Given the PAC’s and general public’s criticism of HMRC’s handling of the HSBC Swiss client leak, and the creation of the Liechtenstein Disclosure Facility (LDF), HMRC will be keen to be seen to be taking a tougher stance,” said Busfield.

“HMRC would probably like to get some high profile criminal prosecutions. Also George Osborne may try and get some favourable publicity given recent attacks in the press that he favours his wealthy supporters.”

According to Busfield, a new offshore disclosure facility will start in 2016. It will carry a larger penalty than the LDF and will not include immunity from prosecution and a larger penalty than the LDF.

“There is also a proposal to introduce a statutory requirement for taxpayers to come forward and correct their overseas tax affairs between April 2017 and September 2018, after which there will be very tough action by HMRC,” said Busfield.

“It is unlikely they will set up a Panamanian amnesty given the criticism of the UK/Swiss deal and Liechtenstein Disclosure Facility, although that may be helpful to get better quality information from the Panamanian intermediaries.”

Red alert for advisers

According to Dawn Register, a partner in tax dispute resolution at BDO, the pressure will intensify on advisers as HMRC is forced to clamp down. “The powers and increase in penalties for offshore evasion are already in the Budget. It will be introduced in the coming years. All the disclosure programmes have ended. There are no more amnesty programmes. We’re entering an era of very tough treatment by the Revenue. The pressure on advisers is huge.

“If you’re giving advice to someone who has complicated international tax affairs, you need to know what you’re talking about. The rules are so complicated. If they’re non-domiciles, if they’ve got offshore trusts, offshore companies - you need to be an expert in that area. To dabble, especially now, is now very, very dangerous,” said Register.

“If you know someone’s got a problem, you need to act very swiftly and make sure you’re either helping them to rectify their position or putting them in touch with someone who can.”

HMRC has been granted new powers to tackle evasion, including rules for accountants and advisers deemed to be “offshore enablers”. Under new powers, advisers who have even known about offshore evasion will have committed an offence.

Busfield agrees with Register’s diagnosis: “Any UK taxpayers who are associated with a Panamanian bank account should double check whether they have UK tax liabilities, and if necessary make a disclosure to HMRC. Depending on the size of the potential tax evasion, taxpayers should consider using the Contractual Disclosure Facility to try and get immunity from prosecution.”

Despite the size of this leak, Register wasn’t surprised by its occurrence.  “No, this is the way of the world now. Electronic data, hacking - it’s more of the same. The world is a smaller place and there’s less secrecy. There’s a huge political agenda to push for transparency. Tackling tax dodgers is a very popular political agenda.”

Why Panama?

The answer is that Panama, alongside Bahrain, Nauru and Vanuatu, has vigorously resisted the OECD’s common reporting standards. As the veil of secrecy around traditional strongholds like Switzerland has lifted in recent years, Panama offered a discreet option.

Jolyon Maugham QC explained on his blog Waiting for tax, “What Panama has offered – its USPs in the competitive world of tax havenry – is an especially strict form of secrecy, a type of opacity of ownership, and (if the reports of backdating are correct) a class of wealth management profession some of whom have especially compromised ethics.

“You go to Panama, in short, because, despite its profound disadvantages, you value these things.”

Speaking to AccountingWEB, Maugham expanded on Panama’s appeal: “The Panamanian tax authority isn’t terribly interested in delivering transparency to other revenue authorities. You’ve got dodgy bearer shares that are unusual and possibly particular to Panama, you’ve got a tax and wealth management industry that, in some cases, seems a little light on ethical standards - those are all powerful attractors if you’re engaging in evasion.”

Maugham welcomed the leak, saying: “It’s all very well for those in the know to say ‘Oh this is happening,’ but the reality is that until people see up and close, they are inclined to believe that those who say this is happening are exaggerating.

“The way you get reluctant governments to reform is by raising the political cost of inaction. If they feel the public is angry, they’ll react. You’d rather want a world where government did things merely because it’s the right thing to do, but if we can’t have that world, I’ll settle for one where government acts because it appreciates there is a very serious political cost to its inaction.”

A 30-minute Panorama documentary summarising some of Mossack Foneseca's actvities on behalf of UK clients, including the Prime Minister's father, can be viewed on the BBC iPlayer.

About Francois Badenhorst


I'm AccountingWEB's business editor. Feel free to get in touch with comments, tips, scoops or irreverent banter. 


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By ShayaG
12th Apr 2016 18:52

The difference between evasion and avoidance

Make a nice profit on art looted by the Vichy French and funnel the proceeds to some complex offshore trust which IRS will never know about because of anonymity and sign affidavit that you have nothing to do with the offshore trust  - avoidance.

Take cash in hand to cut someone's hedge - evasion.

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13th Apr 2016 09:24

Evasion and Avoidance

ShayaG wrote:

Make a nice profit on art looted by the Vichy French and funnel the proceeds to some complex offshore trust which IRS will never know about because of anonymity and sign affidavit that you have nothing to do with the offshore trust  - avoidance.

Take cash in hand to cut someone's hedge - evasion.


Using two extremes to prove otherwise wasn't the point I was making. Incremental increase in speed from 50 mph to 90 mph in a 70 mph speed limit, and defining where there is avoidance, aggressive avoidance and evasion is. It's this new terminology 'aggressive avoidance' that we're being asked to swallow as some kind of immoral behaviour that is now deemed in some circles as 'illegal'.

Besides which funneling funds which IRS never knew about and which were taxable is in fact (at least the last time I looked) evasion.

Using a scheme which is legal to lower ones tax bill with full disclosure to HMRC is avoidance - albeit HMRC don't often agree and have termed such things as 'aggressive avoidance'   which our dear leaders and the press have jumped upon to suggest immoral behaviour of the wealthy.

There's also a difference between confidentiality and secrecy. It would surely be easy enough for the IRS to go through their records and discover which are secret and which are merely confidential from Joe public, and as far as I know the Panama leaks are not suggesting these were secret merely we the public didn't know about them, and if they're confidential then fair play. 

The cauldron that is being mixed between secret and confidential is the same cauldron that mixes avoidance, aggressive avoidance and evasion to muddy the waters. If the IRS didn't know about Dodgy Dave's father's scheme (and I'm only repeating Dennis Skinner not making a personal accusation) then let us hope the Public Accounts Committee follow this up with the same endeavour as they do large corporations. 

OK, so I know that's wishful thinking, after all Turkey's don't vote for Christmas any more than the PAC would investigate one of their own. C'est la vie, I'll keep looking for the long lost Vichy art. 


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By ShayaG
12th Apr 2016 18:56

Capital gains can be manufactured

So some inside the circle think that the principle of tax neutrality should have applied equally to Winston Churchill and his secretary

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By ShayaG
13th Apr 2016 13:29

Shades of grey

It seems to me that the only real difference between avoidance and evasion is the ability to pay the fees of very expensive, exclusive and respectable professionals who will suspend disbelief and then use secrecy and obstructive tactics to delay enforcement - for an adequate fee.

This class of professionals sell the emperor's new clothes and call it tax avoidance. It is not the public who conflate the legal with the illegal - it is the purveyors of dodgy, hopeless schemes and the white collar enablers who construct layers of secrecy disguised by minutes, contracts and legal fictions as the utmost propriety.

Post Ramsay, and post 2008, the real "cant" is to quote bad law dating back to 1948. Social attitudes and in particular class deference have changed. We live in a society which quite rightly respects no privileges when it comes to application of the law. The era of "schemes" is over. Any accountant should be able to advise clients on what aggressive tax "avoidance" is and is not.

If it sounds too good to be true -  it probably is.

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By ShayaG
13th Apr 2016 17:10

Indicators of aggresive avoidance

Indicators, none of which are sufficient without the exercise of judgement, could include: -

Referral fees paid to the accountants.Excessive up front scheme fees computed as a percentage of tax saved.Nominee arrangements with respect to control or ownership.Use of complex, thinly traded or obscure financial instruments, assets and legal structures.Secrecy.Promoter employs more sales staff then professional staff.Use of overseas jurisdictions with a reputation for secrecy or inadequate reputation.Opinion written by the usual suspect barristers with a history of writing opinions supportive of failing schemes.Legal fees to support the scheme need to be paid by subscribers to the scheme,History of promoters previous schemes failing.Promises of alchemy - turning profits into losses, income into capital gains etc.Subjective or arbitrary inter-jurisdictional transfer pricing arrangements.Lack of commercial substance.

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17th Apr 2016 17:03

Another exemplar of utter hypocrisy!

BLiar. Yet another of the "Do as we order you; not as we do!" brigade.


IHT: from the time BLiar became PM to the time of his departure:

2007 300,000

2006 285,000

2005  275,000

2004 263,000

2003 255,000

2002 250,000

2001 242,000

2000 234,000

1999 231,000

1998 223,000

1997 215,000


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17th Apr 2016 16:31

or even
Jealousy, now have I spelt that correctly

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17th Apr 2016 17:05

And, of course...

carnmores wrote:
Jealousy, now have I spelt that correctly

Far more important in the cause of the matter.

Well done.


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