trending Market Intelligence /marketintelligence/en/news-insights/trending/rXmnWzP5bdjR3B2lYG91WA2 content esgSubNav
In This List

Banks named in Panama Papers, but it's just the tip of the offshore iceberg

Blog

Banking Essentials Newsletter: October Edition

Blog

Banking Essentials Newsletter: September Edition, Part - 2

Case Study

A Prestigious Global Business School Gains a Competitive Edge

Video

S&P Capital IQ Pro | Unrivaled Sector Coverage


Banks named in Panama Papers, but it's just the tip of the offshore iceberg

Thehuge Panama Papers leak on April 3 contains such a flood of information,embarrassing rich and powerful people around the world, that it is easy toforget that the documents come from only one of what could be many law firmshelping banks set up webs of companies used to hide money offshore.

All10 of the banks that set up the most shadow vehicles on behalf of clients usingPanamanian law firm Mossack Fonseca were European, according to data from 11.5million records obtained by SüddeutscheZeitung and shared with the International Consortium of InvestigativeJournalists and other media partners. But it is likely that banks from otherparts of the world such as the U.S. have been involved in similar activity,sometimes in the service of clients attempting to hide ill-gotten funds ordodge tax, Peter Cotorceanu, a lawyer at Anaford AG in Zurich and a former headof wealth planning for ultra-high net worth individuals at UBS, said in a phoneinterview.

"Thisparticular law firm, Mossack Fonseca, to my knowledge did not have a deeppenetration in the U.S," Cotorceanu said.

"Thereare other providers in the U.S. that would do the same thing for U.S.banks," he said, pointing especially to lenders based in Miami, which havea long history of working with Latin American clients.

Theleaked files from Mossack Fonseca, covering nearly 40 years of data, listnearly 15,600 paper companies created in offshore havens such as British VirginIslands and Panama by banks, including thousands set up by UBS Group AG and HSBC Holdings Plc. Journalists from around the worldporing over the documents say they uncovered evidence that associates ofRussian President Vladimir Putin moved as much as $2 billion through banks andshell companies, and detected offshore companies controlled by the primeministers of Iceland and Pakistan, the king of Saudi Arabia and the children ofthe president of Azerbaijan. The late father of U.K. Prime Minister DavidCameron was found to have set up an offshore fund that reduced tax payments.Other shell companies were linked to the sister of the former king of Spain andto Barcelona soccer star Leo Messi.

Thereare many legitimate reasons for holding money offshore, but the mechanism canmake it easier to evade tax or even hide the proceeds of crime.

Whilethe Mossack Fonseca records stretch back decades, banks, including some whichin the past may have knowingly facilitated tax evasion for their clients, havein recent years radically overhauled their procedures to avoid breaking thelaw, particularly since investigations into UBS and led to the twoSwiss banks paying billions of dollars in fines, Cotorceanu said.

"Giventhe scandals at UBS and subsequent scandals the banks have turned 180 degreesand are so scrupulous to try and avoid this business," he said, referringto Swiss banks in particular.

Buthe added: "They facilitated the creation of hundreds of thousands ofoffshore entities and it's not easy to just get rid of them overnight. A lot ofthe banks are going through a cleanup process in terms of trying to right theirpast wrongs and kick out clients that are in structures that are dodgy, or kickout clients that themselves are dodgy."

Whatis the biggest document leak in history, according to the journalists behindit, comes at a time when public anger over the amount of tax paid by richindividuals and by corporations has led politicians including the U.K.'sCameron to call for a crackdown on tax havens.

TheG-20 nations will examine ways to close international tax loopholes at a taxsymposium in July after the group endorsed a proposed OECD framework aimed atstopping companies from channeling their profits into tax havens. Globalcorporate income tax revenues lose from 4% to 10% a year due to firms' shiftingtheir reporting bases into low-tax jurisdictions, according to the OECD.

Whilemany question the usefulness of tax havens to the global economy as a whole,their existence provides a flow of fees to banks and cash into economies withlarge financial sectors. This could reduce the impetus for reform, JolyonMaugham QC, a barrister specializing in tax at Devereux Chambers in London,said.

"Theseoffshore arrangements are net negative for the global economy, but this doesnot have the consequence that they will disappear [because] of theseleaks," Maugham, who formerly advised the U.K.'s Labour Party on taxation,said in an interview.

"Theyare very resilient because they are closely connected to wealth and wealth isclosely connected to power."