Tax avoidance and keeping details private aren’t crimes
Recent revelations arising out of the Paradise Papers have been gleefully seized upon by commentators who see “anything offshore” as evil.
You cannot, and must not, confuse an ethical argument regarding tax policy and social responsibility with the subject, criminal activity.
Tax evasion, corruption and money laundering are criminal acts. Tax avoidance and protecting confidential and private financial information from public disclosure are not.
The term “loophole” exasperates. Every anti-1 per cent commentator uses it whenever offshore tax is raised. There are no loopholes. Describing tax-efficiency as exploiting loopholes implies that operating offshore entities is for the corrupt. Purported “loopholes” exist because the onshore law makers allow them.
It is in everybody’s interest to have offshore, taxefficient systems available to business. The tax efficient movement of capital from the developed to the developing world is a social good.
If some commentators have their way, we will see these businesses uproot and move elsewhere, taking their jobs and leaving unemployment behind. No government will act unilaterally to change their tax laws in a competitive world: to do so would be to risk economic suicide.
The British Virgin Islands (BVI), where my firm is based and from where we seek to recover assets taken in complex fraud and corruption cases, is the world’s largest offshore company service provider. It is a favourite target of collectivist commentators. Yet the BVI has given the major tax authorities access to its records via Tax Exchange Agreements.
Ultimate Beneficial Ownership (UBO) information is readily available to 27 governments, including economic behemoths, China, France, Germany, Japan, India and both the U.K. and U.S.A.
Law enforcement services can access the information by a Letter of Request sent via diplomatic channels. A new 24-hour electronic request for UBO data disclosure system is being put in place with the U.K. And in a civil dispute involving wrongdoing, lawyers can gain access to this information by Court Disclosure Order.
So what part of the information held by the BVI is secret? It is naive to think public UBO registers are the answer. Why? Crooks lie — that’s what makes them criminals.
They are deceitful and will simply put forward men of straw to front their schemes. This is the same for the U.K. and its much-exalted open register: it is only as good and accurate as the information honest people submit. If Al Capone or Meyer Lansky were alive today, does anyone seriously believe they would truthfully disclose their UBO status on a public UBO register?
Add to this the deplorable position in the U.S., where their “offshore” service providers in Nevada and Delaware do not require local company formation agents to gather verifiable UBO identification information. This is why few Americans were implicated in the Panama Papers; there was no need for them to go further afield.
Some of the latest International Consortium of Investigative Journalists (ICIJ) exposés in the Guardian sees Formula One champion, Lewis Hamilton, castigated for avoiding paying value added tax on his purchase of a private jet; while Nike, Apple and other companies are being damned for simply maximizing their profitability. However, all appear to have one thing in common: their actions appear to be perfectly legal.
Once the ICIJ starts exposing criminal activity, then we will all (myself included) sit up and take note, demanding that the perpetrators be punished. Until then, much of this is nothing more than titillation.
As the source of the breach is a wellrespected offshore law firm, Appleby, it may open-up additional arguments concerning issues of “Legal Professional Privilege” or (LPP).
LPP is a bedrock of most common law systems. If criminal activity is identified, then the correct procedure would see evidence referred to the authorities. This would enable a judge to decide on the LPP issue and consider the potential ramifications of how the evidence came into the possession of the prosecutors. Should it be admitted into evidence? Can the alleged offender receive a fair trial, given that the tale has already been spread across the media?
No doubt I will be taken to task by those who think the rich need to be hung from lampposts. But being tax efficient is not a crime and those who have the temerity and desire to conduct their business in privacy should not be punished for it.
Martin Kenney is managing partner of Martin Kenney & Co., solicitors, a specialist investigative and asset recovery practice based in the British Virgin Islands and focused on multi-jurisdictional fraud and grand corruption cases. martinkenney.com |@MKSolicitors.