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  1. Wealth
October 5, 2021

Pandora Papers: In defence of offshore trusts

By Spear's

Anyone who has a Will has a trust. So why does the word ‘trust’ trigger instant suspicion, asks Arabella Murphy

The name given to the latest mega-leak of documents – the Pandora Papers – is, one assumes, intended to suggest that Pandora’s box has been opened. Evils and secrets have burst forth.

But have they, really? I am always curious about the worth of such huge leaks. Actually, let’s call them what they are – data theft. When hackers target your bank account, it’s plainly wrong; but if a disgruntled employee takes a lot of private data about wealthy people, well…

The initial release of information always includes some genuine wrongdoing – corrupt politicians or alleged fraudsters, trying to hide wealth they presumably ought not to have. No one would ever try to defend them, and don’t expect to find sympathy for them here.

But the point is, those people hide their money all over the world: You’re as likely to find it in London or Miami as you are in an offshore financial centre, probably more so.

By far the majority of the information stolen, and then published, belongs to those who have nothing to hide, but (mostly) don’t choose to splash their wealth across the world’s newspapers.

Some media outlets feed public perception about wealth and trusts; there is little interest in distinguishing between the corrupt and the innocent, and it all gets published together. So let’s take a step back, and ask what is really interesting about all of those disclosures.

Oh, how we love secrets.

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As I’ve often said, secrecy brings to mind James Bond villains. All movie baddies worth their salt have a secret lair, or a secret plot to destroy the world. And as John Chadwick, the famous code-breaker, rightly said, ‘secrecy is the badge of fraud’.

Unless it’s the recipe for Coca-Cola, or your PIN number, it’s wrong to call someone’s information ‘secret’. What most people – rich or not – want and are generally entitled to have, is privacy, which is fundamentally different.

I have a favourite unattributed quote which defines privacy neatly: ‘It’s no secret, it’s just none of your business’.

The moment you have to share private information, it stops being private and becomes confidential. So, if you bury treasure in the garden and tell no-one, it’s a secret; if you keep your money in a box under the bed, your wealth is private.

But if you keep it in a bank account, your bank (and its staff) know the balance of your account and its identifying numbers, but you trust them to keep it confidential – that is, share it only when it is necessary.

So why is money held in the BVI, or Jersey, or even Panama, seen as ‘secret’, when an account with Citi in New York, or Barclays in London, is not?

It’s an interesting hangover from the past, when those places did indeed play host to those who didn’t pay their proper taxes, or wanted to conceal money they shouldn’t have. But that really is the past – with a few exceptions, the financial jurisdictions started introducing anti-money laundering rules in the 1990s, and were early adopters of global tax information exchange treaties (like CRS and FATCA).

So it’s public perception, rather than those jurisdictions, that hasn’t moved on.

The fact that people keep their money there, rather than in their own country, is usually neither exciting nor interesting. If you are British, living in the UK, there’s no tax advantage to keeping your money overseas, but there’s no disadvantage either.

The same is true for most countries in the world, whether they have high taxes or no taxes. But if you’re from Dubai (no tax), and move to the UK (high tax), you can choose to keep some money in a third country which is neutral – it won’t charge you tax that you might pay if you chose to bring it all to the UK.

Or if you own property in another country, you could choose to own it through a company, either to maintain your privacy or because it’s tax neutral.

There can be other good reasons too – for example, to ensure English inheritance rules (the laws, not the taxes) don’t apply to a property bought by someone who follows Sharia. Sometimes, the easiest way to do that is to use a trust, held offshore.

Trusts themselves are not at all exciting. Every English-style will contains a basic form of trust to help the executors administer the estate; every property owned by two or more people is held in a kind of trust (in common law countries like England); most charities are trusts.

People create trusts to hold assets for future generations, to provide for the young or those who might fritter it away, or as a unifying means of holding important assets (a business, or a group of properties) so that they are managed and administered together.

They’ve existed since the Crusades, and trusts, foundations, waqf and other equivalents are routinely found in almost every country in the world.

But somehow, if you add together a trust, and an offshore financial centre, and a high-profile family, it’s seen as toxic and secret. In our modern world, where data theft is easy, your personal affairs are up for grabs if you’re wealthy.

The fact of your wealth invites people to assume they are entitled to know more about you than they do about the secret ‘trust’ which exists when their neighbour and his wife co-own their home, or have a joint bank account in Oxford.

How can the wealthy guard against this? The sad reality is, you now can’t assume your affairs will never be leaked. But you can choose your jurisdiction carefully – not all are equal, so the better regulated they are, and the more obviously compliant with tax rules both they and you are, the better.

Next, choose your advisers and managers carefully – the good ones ask more questions about you, get to know you well, and charge fees for ensuring you are fully compliant.

And thirdly, choose your structures wisely – simple, boring, vanilla companies and trusts suit those with nothing to explain. If you don’t understand it, the press and the public won’t either.

So, while we should salute the ICIJ for their work exposing wrongdoing, I also think we should criticise them for the kind of lazy journalism that publishes several terabytes of information about people who have done nothing wrong – nothing except being wealthy.

Remember, it’s no secret – it’s just none of your business.

Arabella Murphy is the founding director of Propitious (London) Ltd, a strategic consultancy focusing on risk planning, family governance and mediation.

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