Henry Balani: The Panama Papers – Not everyone is a crook


The current ‘Panama Papers’ #panamapapers revelations promises to provide extensive details around the use and misuse of tax havens by prominent politicians and wealthy individuals around the world (The Power Players) .  We expect they will reveal other criminal activity including dodging AML sanctions and tax evasion.  No doubt legislators around the globe will be demanding reforms of offshore tax havens as a result.

It is important to recognize that (at this point) the creation of offshore holding companies is itself not illegal – there are legitimate reasons why these exist, including the need to create anonymity to avoid kidnapping and other terrorist threats as well as for other legitimate business reasons.  There may be countries where an immature legal system requires successful legitimate companies to be protected from corruption and exploitation in their home country.

Ultimately the key will be to identify the ultimate beneficial owner (UBO) and to ensure the appropriate due diligence is conducted to ensure the sources of funds are not criminal.  These offshore tax havens will need to demonstrate to their banking counterparts that these due diligence procedures have in fact been conducted. Banks should also require that the ultimate beneficial owner (UBO) is identified and screened in each financial transaction.  Transparency is key and it is about identifying the UBO in a manner where their right to privacy is also considered. No doubt this procedure will hit many roadblocks, primarily data privacy issues, but hopefully the ‘Panama Papers’ and the ensuing scandal should provide enough impetus for reform.

Let’s not immediately jump to accusations that everyone on the list has conducted shady transactions.  Setting up offshore holding companies does not immediately mean tax avoidance.  No doubt criminal activity will surface but let’s not accuse everyone of being a crook right from the start.

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