From Panama To Paradise, The Offshore World Takes Another Hit

By Nigel Green
Founder and chief executive of deVere Group

Almost 19 months to the day since the Panama Papers case burst on to the front pages, the international financial services industry is in the spotlight of notoriety yet again, this time with the so-called Paradise Papers.

The major leak of confidential documents from leading offshore law firm, Appleby, based in Bermuda, originally surfaced at German newspaper Süddeutsche Zeitung, and was then shared across the globe by media organizations linked to the Washington DC-based International Consortium of Investigative Journalists.

The 13.4 million so-called Paradise Papers contain the names and financial affairs of over 120,000 high profile individuals and organisations, including Queen Elizabeth II, who has allegedly invested some £10 million of her money into funds in the Cayman Islands and Bermuda; U.S. Secretary of Commerce, Wilbur Ross, and Colombia President, Juan Manuel Santos, amongst many others, as well as multinational companies such as Facebook, Apple, Nike, Siemens and Yahoo, plus many more.

The amount of money involved, which is allegedly being moved and ‘hidden’ in ‘tax havens’ is reported to be around $10 trillion. Only this time the ‘tax haven’ in question is Bermuda, not Panama.

Naturally, such big names and all the trillions of dollars involved make for gripping headlines - at the time, the Panama Papers scandal was purportedly the biggest to hit the global financial services world - and I’m certain that we’ve only just scratched the surface. 

Political scrutiny is mounting with the Labour Leader, Jeremy Corbyn, this week calling for the Queen to apologize for her offshore investments, and has called for a public inquiry saying everyone, even Her Majesty, must be scrutinized. 

However, this ‘dark, concealed’ world that we’ve seen all over the media since the Panama Papers, and now the Paradise Papers, were revealed, is certainly not the world of financial services that I know.

Indeed, according to Appleby, following the allegations: “There is no evidence of any wrongdoing, either on the part of ourselves or our clients. We are a law firm which advises clients on legitimate and lawful ways to conduct their business. We do not tolerate the illegal behavior.”

Of course, just because some people may be using, or have previously used, offshore financial centers with illegal motives, certainly does not mean everyone does. The vast majority of the offshore sector only provides products and services that are entirely compliant and legal.

That said, the Paradise Papers case focuses on a number of key issues that must be tackled head-on. Such claims do not represent the wider global financial services sector as a whole, which plays a hugely beneficial role in the global economy.

Indeed, even the term ‘tax haven’ is now incredibly archaic. Today, financial data is being routinely exchanged amongst worldwide tax authorities constantly. As such, ‘stashing cash’ on these so-called treasure islands and not expecting to be found out would be extremely unwise.

As a result, why do so many people, globally, opt for offshore investing?

There is a whole host of advantages to using offshore accounts, but in my experience of working with expats and globally-minded individuals, these accounts are preferred purely for their convenience. 

Indeed, an offshore account is simply an account in a jurisdiction different to the one in which the person resides, offering secure, centralized flexible and worldwide access to funds, no matter where the person may move to in future. This is significant for expatriates who reside outside their ‘home country’, as they tend to lead pretty transient lives. 

Furthermore, offshore accounts offer a wide choice of multicurrency savings and investment vehicles.

In reality, despite what the Paradise Papers may have you believe, the majority of individuals who use offshore investment products are not planning to break any laws. Nor are they immensely high net worth. Most are hard-working people who are seeking the optimum financial solutions available offshore, as part of a robust financial planning strategy.

Additionally, organizations can benefit greatly from using offshore financial hubs. They can assist businesses operating in numerous jurisdictions to avoid double taxation on the same income, as they would only be eligible for tax in their home countries, as well as flexible corporate structures, issuance of different share classes and a solid legal system.

Also, another point that often gets lost in the sensationalism of offshore hubs is that they provide legitimate financial refuge for people residing in countries where there may be economic and/or political unrest, volatile currency or expropriation of assets. Offshore financial centers can offer a level of secrecy, which is a highly valued trait by people residing in such areas.

As an example, kidnap and extortion are very real threats in certain parts of the world for people who keep their funds onshore. This is why financial privacy can be an absolute necessity.

As I’ve said on previous occasions, there is a significant difference between financial privacy and secrecy. Of course, the exchange of data between government authorities for tax purposes is, on the whole, fully within the law. Although sharing information with anyone else, such as your competitors, is not. Financial privacy can be vital. Secrecy is not.

However, despite what has been brought to the fore in the recent Paradise Papers revelations, most global financial centers are fully regulated, and provide a highly in-demand service for individuals and organizations worldwide. Although of course, wrongdoing does occur, as it does in every industry, it is essential that those using offshore hubs wholly legally, and reaping the many benefits, are not tarred with the same notorious ‘tax haven’ stigma.