In 2016 the Panamanian law firm Mossack Fonseca, was subject to a massive insider data breach which disclosed 11.5 million files amounting to 2.6 terabytes of data – a treasure trove of global offshore financial activity exposing financial connections of thousands from all walks of international life in more than 50 countries. Mossack Fonseca had set up thousands of offshore companies on behalf of its clients in 21 tax havens. The political impact still has miles of road to run, regardless of any wrongdoing, as public perception of the ill use of tax havens caught the imagination.
“There’s an unwritten rule at the firm — what we do away from Memphis stays away from Memphis.” “The Firm” – John Grisham, published in 1991.
John Grisham’s best-selling novel (and film), The Firm, is all about the exposure, by a newly qualified lawyer of the illicit activities of the fictitious Memphis law firm Bendini, Lambert and Locke. However, in real life, their activities would seem to pale into insignificance compared with the Panama Papers.
But what is the big deal? Many of the world’s major banks, leading law firms and insurers have connections to offshore tax havens, as do many companies, in the pursuit of legitimately reducing their tax liabilities. For many years, trust funds have been set up offshore to provide a licit service to clients from many tax jurisdictions. However, tax evasion has become a hot topic and may be associated with illicitly obtained wealth.
The Criminal Finances Act 2017 changes the UK landscape for those (corporate or individuals) trying to salt away illicit assets or move them to the UK in areas such as property, cash, art etc. Through seeking an Unexplained Wealth Order (UWOs) law enforcement agencies can:
- Seek an UWO from the High Court where assets over £50k are considered disproportionate to known income – and require the asset holder to explain and produce evidence of the origin of the assets.
- Request interim freezing orders to run alongside UWOs.
- UWOs can be taken out against a Politically Exposed Person (PEP) and anyone reasonably suspected of being involved in, or connected to someone involved in, serious crime.
- Failure to provide satisfactory evidence of the origin of an asset subject to a UWO will result in a rebuttable presumption that the asset was obtained unlawfully and render it recoverable property under the Proceeds of Crime Act.
The Act also has a corporate offence which applies to all companies in every sector. This strict liability offence of “failing to prevent the facilitation of tax evasion” mirrors that of Section 7 of the Bribery Act – “failure to prevent bribery”.
It is increasingly difficult to hide illicit activity in today’s cyber networked world. All a whistle-blower has to do, is to download data on a memory stick, take a picture of a document on a smartphone, send a text or email and/or pick up the phone to an enforcement agency. Unintended accidents such as the sending of an incriminating email to a wrong address may also alert the authorities. Whichever, exposure may lead to investigations into alleged activities such as money laundering, fraud and bribery.
It’s time for companies of all sizes to “smell the coffee” and ensure they have robust procedures in place to prevent bribery and tax evasion. It takes just one disclosure from a whistle-blower, acting in good faith, to alert the authorities to individual or corporate wrong doing.