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April 4, 2016updated 05 Apr 2016 9:35am

Watershed of Panama Papers reveals governments must do more to counter tax avoidance

By Spear's

How will HMRC use the information now that it’s public? Alex Matchett reports.

The publicity around the leak of 11.5 million secretive files from a Panamanian law firm should force global tax authorities to do more to counter tax avoidance says a leading expert. The files were leaked from law firm Mossack Fonseca to the International Consortium of Investigative Journalists (ICIJ). Alex Cobham, research director at the Tax Justice Network which has previously advised the ICIJ on the papers, said they show governments are dragging their feet when it comes to countering serious tax avoidance.

‘It confirms what a lot of people thought after the Swiss leaks [affecting HSBC and passed to HMRC in 2010], which is that if there’s a whistleblower interested in seriously pushing accountability with this sort of information, they would be very badly advised to give it to tax authorities. It’s only by it becoming public that you put the pressure on tax authorities to act.’

In what may come as surprise to many the appearance of the ‘Panama Papers’ in public is actually only the latest stage in an ongoing process of revelation that has involved governments and tax authorities around the world. ‘It’s been known that this data is around for quite a while,’ says Cobham. ‘In fact I understand it has been potentially offered to a number of tax authorities. And yet there doesn’t seem to be any great action until it becomes public.’

Jennie Granger, HMRC director general of enforcement and compliance, has stated ‘HMRC can confirm that we have 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. We have asked the ICIJ to share the leaked data that they have obtained with us.’ However HMRC were not able to confirm if they had been offered the files prior to them becoming public knowledge.

However it seems as a matter of policy, HMRC is not afraid of using illicitly sourced information to launch investigations. Jessica Parker, partner at law firm Corker Binning pointed to the taxman’s use of data stolen from the Swiss division of HSBC by an IT contractor. Although it appears HMRC will not pay for information: ‘When the Swiss private bank Julius Baer suffered a similar leak in 2012 the UK Government declared that it would not “actively seek to acquire customer data stolen from Swiss banks” perhaps seeking to distance themselves from the German tax investigators who paid the bank employee for the information,’ says Parker. ‘[But] it appears from the statement released today that HMRC have no qualms about the manner in which the Panama Papers have come to light.’

There is scope to suggest HMRC deliberately waited for the papers to officially come through a public source as information stolen can jeopardise future prosecutions. ‘The data ‘theft’ again raises the interesting issue of whether HMRC will be able to use the information to mount criminal prosecutions on the grounds of admissibility of ‘evidence’,’ said Sean Wakeman, tax investigations partner at tax advisers Crowe Clark Whitehill. ‘With the last major data theft from HSBC in Geneva, the HMRC was only able to mount a single successful prosecution.’

HSBC, Rothschild, Coutts, Société Générale and Swiss giants UBS and Credit Suisse, were among the top ten banks named in the leaks requesting private companies to be set up for clients. That information is unsurprising says Cobham, ‘we know that some big banks are major users of anonymous company services. On the other hand I am surprised no one has put these questions to HSBC or RBS or Coutts. Just to say “Why is it that you stand out so much?” Particularly HSBC the only real high street name in there: is that consistent with your business model, i.e. is it based on financial secrecy or is there some more straight forward explanation about your particular operation with this Panamanian operator?”’

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The official statement the London based bank offered by way of response said: ‘We work closely with the authorities to fight financial crime and implement sanctions. Our policy is clear that offshore accounts can only remain open either where clients have been thoroughly vetted, where authorities ask us to maintain an account for the purposes of monitoring activity, or where an account has been frozen based on sanctions obligations.’

The impact of the information now available will undoubtedly be felt for quite some time. Although tax avoidance and evasion is nothing new the scale revealed by the 11.5 million files is illuminating. ‘It’s surprising perhaps just how many people from the very elite in major democratic countries were willing to channel their affairs through there,’ says Cobham. ‘That speaks to the complete acceptability, at some level, of financial secrecy which is what we’re now seeing unravelling.’

And as it does so it may claim a great many more casualties caught in the wrong side of fiscal temper: ‘It begs the question of how far elites are involved in bigger financial secrecy jurisdictions like Switzerland. What would we see if we had that type of leak from the bigger Swiss banks?’

Cobham says the scale of tax avoidance revealed by the leak has all but eroded any tolerance for non-disclosure of assets, identifying ‘an anger about the use of secrecy that isn’t assuaged by being told this can be used for legitimate purposes. The secrecy itself is being considered illegitimate.’

For corporate tax payers that means the argument for concealing your identity is ‘almost impossible to sustain’. For individual privacy Cobham says there’s still an argument but only if they take this opportunity to differentiate the cause from nefarious purposes. The Panama Papers mean anyone advocating individual privacy ‘ought to be getting out in front of this and calling for greater transparency. As long as we have a global system of financial secrecy that allows and encourages this use, by elites around the world, the argument in favour of tax payer confidentiality is under threat.’

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