What are the Pandora Papers?
The Pandora Papers is the latest privacy leak of global wealth structures owned by ultra high net worth individuals and made public by the International Consortium of Investigative Journalists.
It is claimed journalists have trawled over 2.94 terabyte private data pertaining to ultra high net worth individuals and their global wealth structures to investigate global possessions owned through the network of offshore investment vehicles of trusts and companies.
It is suggested that private documents were leaked directly to the International Consortium of Investigative Journalists (ICIJ) by professional firms responsible for managing the worldwide wealth of ultra high net worth individuals who are known and powerful global players.
The offshore jurisdictions covered in the journalists’ investigation are Bahamas, Belize, British Virgin Islands, Cyprus, Hong Kong, New Zealand, Panama, Seychelles, Singapore, Switzerland, United Arab Emirates and some states in the USA.
It is suggested that the records were directly obtained from the following legal entities: All About Offshore Limited; Alemàn, Cordero, Galindo & Lee; Alpha Consulting Limited; Asiaciti Trust Asia Limited; CCS Trust Limited; CIL Trust International, Commence Overseas Limited; Demetrios A. Demetriades LLC; Fidelity Corporate Services Limited; Glenn D. Godfrey and Company LLP; Il Shin Corporate Consulting Limited; Il Shin CPA Limited; Overseas Management Company Inc; SFM Corporate Services; Trident Trust Company Limited.
Is this the first time when sensitive and private information about global wealth of ultra high net worth individuals is made public?
No. The use of offshore jurisdictions was vilified by sporadic sale of data that disgruntled bank officers came about through the course of their work. Then it was the journalistic joint effort that looked at the Panama Papers, Paradise Papers, FinCen files.
What is the purpose of offshore jurisdictions? Are they bad?
Offshore jurisdictions offer valuable tools to manage, own and invest worldwide wealth. These jurisdictions are designed to cater for the needs of the substantially wealthy. The idea behind was to offer a better playing field for the exclusive club of the extremely wealthy. These vehicles are necessary as the tools required to manage, own and invest valuable assets and do not normally exist elsewhere.
It is suggested that the characteristics of offshore jurisdictions make it easy for criminals to take advantage of secrecy and asset protection to exploit the system for their own benefit.
It should be noted that individual jurisdictions have pushed for greater transparency and the international community adopted robust standards to detect and implement anti-money laundering practices.
Most of the professionals working in the offshore industry are highly trained professionals, such as lawyers, accountants and STEP certified practitioners.
It is the professional code of conduct not to allow your professional standing, credentials and reputation to be exploited for criminal purposes.
What do Pandora Papers say?
Pandora Papers attempt to match beneficial owners to assets held worldwide. Some of the beneficial owners are identified as owning prime real estate in prestigious Mayfair, in London and other areas in the United Kingdom.
It is alleged that the main purpose of such offshore structures is tax avoidance.
It also suggests that some of the world leaders and other famous politicians hold high value property through such structures. Allegations of corrupt practices are made.
What is a beneficial owner?
The concept of the ultimate beneficial owner (UBO) was introduced by the anti-money laundering legislation. Financial services firms in providing their services have the legal duty to identify who is the ultimate owner of the assets.
This may not always be obvious and therefore, professionals in the industry are required to exhibit extreme care, attention and focus when identifying the individual behind the asset.
These records are to remain internal and confidential. However, some jurisdictions are now promoting greater transparency and have registries of beneficial ownership that are to remain public.
Are the Allegations made by journalists in Pandora Papers truthful?
Only time will tell.
In relation to tax avoidance allegations, it should be pointed out that tax is not the only reason why structures in offshore jurisdiction are chosen to hold high value property in London.
In fact, under the current UK tax rules, if the property is an individual’s primary residence, it may be much more costly to own such an asset through a structure.
There are valid reasons why an overseas person would choose to buy property through a structure. Such reasons are and not limited to privacy, inheritance and estate planning, the need to preserve foreign characteristics, the choice of law over the asset.
In relation to the high profile politicians and members of royal families; it should be mentioned that most royal families have their own wealth structures to manage the matters of the rightful heir and many members of the royal family. These are complex family and state matters. They are sensitive and require fine tuning.
In relation to the politicians and politically exposed persons, Financial Conduct Authority in the UK introduced detailed guidance that needs to be followed when financial service firms are onboarding politically exposed persons.
In other countries, other supervisory authorities produced a list of highly corrupt countries where funds from politically exposed persons should not be accepted into their monetary system.
5 Steps to protect your privacy:
You have chosen to operate an offshore structure to keep your wealth and family matters private and protected. However, you feel triggered at the thought that your name may end up in a journalistic investigation of offshore centres. What are the steps you can take and how can you manage your privacy?
Step 1: Choose your financial services provider wisely
There are a lot of offshore services providers that want to create an impression to their client that they are not too far away and always accessible to their client. This is not a bad approach for a client’s customer experience. However, this may also mean that there are too many people in several jurisdictions the company operates as a brand have access to client’s private and confidential information.
Therefore, it is better to take a step back and ask how and where private and confidential data is being held and who typically has access to it. This should be your first question.
In the world of increased compliance, there are more and more levels of mandatory compliance that need to be met by financial services firms. However, depending on this particular firm’s culture around client privacy and confidentiality strict measures may be taken to comply and still keep client’s records private and protected.
In fact, some regulators who are sensitive to clients’ privacy concerns encourage financial service firms to respect it and protect it and remain compliant with the legal and regulatory requirements.
Step 2: Choose your banking relationships carefully
Your bank is typically where an information leak may happen.
Often in our own conversations with clients. The dichotomy is put forward: do you choose a great private bank or an amazing private banker?
The answer depends on many variables. However, the bank’s security, privacy culture and a discerning private banker and their team become many important variables.
Step 3: Find out about compulsory financial international reporting and information exchange
Compulsory financial reporting and exchange of financial information for tax purposes was introduced several years ago and now it is a widespread phenomenon.
There are still options, however, for instance, some financial institutions agree with the client to pay the “fine”, so that the privacy remains intact and protected.
Step 4: Explore Alternative Tax residence
It is popular to choose a tax residence in a tax free haven. However, one needs to make certain that the new alternative tax residence is recognised by the previous tax jurisdiction.
In some cases, this may be an easy choice to make, in other instances, changing a taxing jurisdiction may require a considerable effort, so that the complex rules and requirements could be navigated carefully and with precision.
Step 5: Privacy and confidentiality laws
Some jurisdictions are serious about protecting the privacy and confidentiality of their residents. Therefore, it is usually possible to block the release of private and confidential information through the courts.
Worried about your own privacy and confidentiality and looking for a better way to protect your privacy and assets, get in touch.
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Saule Voluckyte, M.A.E.S, LL.B, FAIA
I have been working exclusively with UHNWI in Mayfair, London since January 2008. I built specialist knowledge and expertise required to serve ultra high net worth individuals investing, operating and relocating to the UK or Switzerland.
Within the industry, I am the single adviser who is able to traverse the different areas of expertise and bring a comprehensive approach across: global structuring, UK immigration, international taxation and FOREX to develop their global wealth strategy, while they build, grow and expand their wealth worldwide.
Previous experience as one of the senior advisors for the government, made me a go-to person when delicate and uncomfortable scenarios involving heads of state need to be handled with care and preserve privacy.