A vast amount of data obtained by Washington D.C’s International Consortium of Investigative Journalists (ICIJ) has brought to light the dubious financial practices of the world’s elite upper classes.
The leaked data includes over 11.9 million damning pieces of evidence (6.4 million documents, 1 million emails, 3 million images, and half-a-million spreadsheets), that expose the secretive world of offshore finance.
The documents name a vast array of high-profile individuals, including 300 public officials, 35 former and present world leaders 330 politicians, and over 100 of the world’s billionaires from more than 90 countries worldwide, who all evidently utilise lucrative offshore tax havens, such as those of the Caymen Islands, Monaco, Switzerland, Singapore and Panama, to hide their wealth and avoid paying their fair share of tax.
The leak has derived from 14 undisclosed sources, and is divulged through 2.94 terabytes of data, making the leak of the Pandora Papers one of the biggest exposing events in our lifetime; surpassing 2016’s Panama Papers (2.6 terabytes) and 2017’s Paradise Papers (1.4 terabytes).
What have the Pandora Papers brought to light?
Here are some of the key findings:
- Mohamed Amers – a major donor to the UK’s Conservative Party – facilitated a bribe worth in the region of £162 million from the daughter of the then president of Uzbekistan Islam Karimov; a payment that was recently found to be entirely corrupt.
- The rulers of Qatar purchased two of London’s most expensive homes in a deal worth around £120 million through the use of offshore companies, saving £18.5 million in stamp duty tax
- The King of Jordan Abdullah II bin Al-Hussein purchased a total of 15 homes across the UK and US between 1999 and 2021 in a £70 million spending spree that was facilitated by a secretive network of off-shore companies.
- Former UK Prime Minister Tony Blair and his wife Cherie purposely avoided paying £312,000 in stamp duty when they purchased a £6.45 million townhouse in London in 2017.
- Sir Philip Green – whose company BHS collapsed back in 2015 – acquired a string of luxury properties in London through a business incorporated in the British Virgin Islands; another popular tax haven.
The Papers also mention the names of other noteworthy individuals, such as the Russian President Vladimir Putin, Kenya’s President Uhuru Kenyatta, and Czech Prime Minister Andrej Babis.
And the purchasing of stamp-free property was not the only form of asset mentioned in the Pandora Papers. The leak also showed how the rich and famous had exploited such tactics to amass countless private collections of luxury yachts, top-line vehicles, and pricey works of art; including works by Pablo Picasso and the elusive British artist Banksy. The extensive itinerary that has been brought to light would usually be considered as ‘off the radar’ items, hidden behind the complexities of the cloak and dagger network through which they were purchased.
Is it illegal?
Whether it comes as a surprise or not, the use of off-shore tax havens isn’t strictly illegal. The leaked data reveals how complex networks of companies are being established across borders with the primary purpose of hiding, or distorting, the perception of ownership and wealth.
For example, Sir Philip Green founded his company Amberley Limited in the aforementioned tax haven of the British Virgin Islands, which he then used to purchase a £4.95 million flat in London’s exclusive Mayfair neighbourhood.
Likewise, a company by the name of Mottistone Holdings – which is ‘owned’ by Philip’s 25-year-old daughter Chloe Green and is also unsurprisingly stationed in the British Virgin Islands – was used to purchase a £10.6 mansion in London’s Belgravia district in 2015.
Practices such as these that utilise tax loopholes are not strictly unlawful, but they are viewed as highly unethical. According to the ICIJ, there could be as much as $32 trillion being hidden away in such schemes, whilst the International Monetary Fund comments how the use of tax havens costs governments worldwide up to $600 billion in lost taxes each year.
And it’s a relatively simple process to establish. To start, all an individual would need to do is open a shell company within a chosen jurisdiction, often with a high level of secrecy involved. However, what sets this process apart from typical earners and billionaires is the cost associated with creating and maintaining the company.
Specialist firms will charge to establish and maintain shell companies on the behalf of a client; usually for a hefty fee. What’s more, such firms can act as the main address and company director, leaving no trail of who is ultimately behind the face of the business.
There are many legitimate reasons as to why someone would want to pursue this path. Offshore havens do protect assets from the likes of unstable governments and cybercriminals, however they’re equally as capable of hiding the fraudulent activities and crime itself.
What’s the response from the UK Government?
Exacerbated by the fact that many former and current members of the House were implicated in the leak of the Papers, it would be highly within the interests of the UK Government to react quickly to the criticism they’ve faced in its wake.
The government has drafted their ‘Registration of Overseas Entities’ bill – a bill that seeks to close a loophole that allows individuals to buy and sell UK property anonymously by using shell companies. The legislation incorporates reforms to Companies House, which the Government committed to in 2020, however, the document itself is yet to be presented to MPs.
The bill was drafted in the aftermath of the leaking of the Paradise Papers (2017), however, any palpable initiative to stop this unethical process from progressing any further appears to remain some way off.
When speaking to The Fintech Times, Rachel Woolley, Global Director of Financial Crime at Fenergo explained: “The Pandora Papers suggest a broken system, where regulators are barely tipping the iceberg in the fight against financial crime.
“The Papers reveal a much higher power at play here – Governments; the real custodians of the financial system with the authority to drive change from the top. The industry in its entirety is failing to stop criminals from exploiting the same loopholes as those mentioned in the Pandora Papers and from continuing to cause serious social and economic harm by allowing them hide illicit gains in property.
“We must also look to the facilitators, the law firms, accountants, and professional services firms that appear to be asleep at the wheel by allowing criminals to exploit the same tax loopholes as the prominent figures named in the Pandora Papers. The regulatory landscape is evolving to hold such firms to account but will they have the necessary expertise, systems and controls to effectively detect and prevent financial crime?
“Whilst these structures and offshore activity may be legal, it creates a significant burden for financial institutions that must separate the legitimate wealth from the illicit wealth in order to comply with their obligations to detect and prevent financial crime.
“More must be done by holding governments, politicians and the firms facilitating money laundering transactions accountable for financial crime. By introducing legislation across the board to perform enhanced customer due diligence, anti-bribery, and corruption measures for know your customer (KYC) and anti-money laundering (AML) compliance, the industry will have better oversight of the high-net-worth individuals and politically exposed persons (PEPs) who are behind the offshore firms purchasing property and intercept where needed.
“Without accountability, there is no incentive to stop financial crime, especially where there are financial gains to be made in mature economies. If we don’t act now and drive change from the top down, the wider repercussions will impact every one of us as criminals continue to launder proceeds made from serious crimes, such as human trafficking and cyber-attacks.”
