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OFFSHORE LEAKS: AN INDUSTRY INSIDER COMMENTS
Q Wealth’s own Peter Macfarlane, a proud offshore practitioner who has been involved in offshore finance for more than two decades, comments on why the Offshore Leaks scandal is more hype and scaremongering than anything else.
OFFSHORE LEAKS: AN INDUSTRY INSIDER COMMENTS
by Peter Macfarlane
The ICIJ was, until recently, a rather young and obscure organization based in Washington D.C. It has actually produced some rather good investigative reporting, much of it uncovering government abuses and failures – for example, an accurate expose on how governments are routinely using international arrest warrants as a tool of repression.
Going back to the mid-nineties, I had brief dealings with their member Nicky Hager whose book Secret Power revealed and described the system known as Echelon that allowed (and still allows) major Western governments to spy – illegally – on their citizens’ communications. Based on interviews with intelligence officers and fieldwork in several countries, that book led to a year-long European Parliament investigation into Echelon. At that time, Nicky seemed decidedly in the anti-big-repressive-government camp. Now he seems to have moved right over to the other side, and decided that private individuals who object to paying for big-repressive-government are worthy of being repressed themselves in the fashion of Offshore Leaks.
However, I digress. This article is about “Offshore Leaks”. Offshore Leaks has catapulted the ICIJ directly into the public spotlight. It’s more than anything else a self-serving publicity campaign… but their timing was perfect in hitting the increasing wave of opposition to the use of legitimate international investing and tax planning tools that we have covered here on numerous occasions.
The bottom line is simple: Money is power, and the big, inefficient governments of the world want to control what their citizens do with their hard-earned money. They have drafted in the mainstream media to demonize anyone who might oppose paying taxes. (Whatever the government demands… aka “Their fair share”) This phenomenon is exactly what we are seeing here with Offshore Leaks.
There are a number of important conclusions we can draw from Offshore Leaks, some lessons to be learned, and some urgent restructuring might be required for some offshore investors. The main one is that the BVI’s days as the world’s leading tax haven are numbered. More on that later and in future articles.
What is Offshore Leaks? Well, first and foremost, it’s much ado about nothing. The ICIJ claims it is more significant than Julian Assange’s Wikileaks, which was similarly a lot of hyperbole about very little material of any genuine public significance. Just like Wikileaks, Offshore Leaks tells us things we could just as easily have googled had we been interested. For example, look at one of the main ‘conclusions’ of the ICIJ’s investigation:
“The mega-rich use complex offshore structures to own mansions, yachts, art masterpieces and other assets, gaining tax advantages and anonymity not available to average people.”
The first part of that sentence is something we knew already. The second part, however, just doesn’t add up. Elsewhere on the same site they say: “Offshore companies are ridiculously easy to establish and effective at concealing your identity. Watch our animated video explaining the process.” Their own video on the same page basically shows you how to set up an offshore structure for under $1000 over the internet… I would say that very much places it affordably within the range of the average businessman. So why claim it not available to average people?
The answer, dear reader, is of course the whole reason that governments are worried about legal offshore financial structures! They are legal, and too many average people are taking advantage of them.
Let’s backtrack for a moment, though. What actually is “Offshore Leaks”?
The ICIJ somehow acquired (we would guess from a disgruntled employee) a hard drive containing the client databases, as well as years of internal emails, scanned documents and the like from two offshore service providers: Singapore-based Portcullis Trustnet, which also maintained an office in the Cook Islands, and Commonwealth Trust of the British Virgin Islands (BVI).
While both these two targeted companies were and still are active worldwide, Portcullis mainly looked to Asia for clients, and Commonwealth seems to have been focused on the Russian and Eastern European markets. This information could easily have been determined by looking at the companies’ respective websites. However, in an article explaining the project, we learn that after thousands of hours of research by hundreds of people, “ICIJ’s data analysis showed that the people setting up offshore entities lived most often in China, Hong Kong and Taiwan. Another important group of clients comes from Russia and former Soviet republics.”
Most of the purported ‘leaks’ are pure bunkum – the ICIJ even say so themselves, though in slightly different words. They had to trawl through the stolen data at great length hoping to find anything of public interest. A miniscule percentage of the data referred to anyone who was publicly known, and the articles are careful not to allege that anything illegal was done. Instead, we see rather desperate attempts to tar people, for example by saying they were ‘hiding’ money, which is certainly not illegal or even immoral in my book.
Anyone who knows something about the offshore business can read a lot between the lines on the Offshore Leaks articles – there’s a mixture between comments where it is obvious that the writer doesn’t know what he or she is talking about, and comments where facts are all mixed up but the article is designed to portray the target in a bad light.
The latest one, for example, talks about Paul ‘Crocodile Dundee’ Hogan. Now, for a start, this is old news. I remember our Q Wealth Expert and Australian lawyer John Walsh of Brannagh giving us a presentation about Hogan’s tax evasion case at one of our Q Wealth events in Ireland years ago.
On reading the Hogan article carefully, it transpires that the article has absolutely nothing whatsoever to do with the actual Offshore Leaks documents. Nada, nothing. It is based on court documents ‘obtained’ by a French newspaper (Court documents, of course, are public by default in most countries)
Furthermore it seems to claim that “Hogan’s $34 million ‘has been lying for almost 20 years in account number 379865 at the Corner Bank in Lausanne’” then a couple of lines later it is mentioned that a certain Mr Egglishaw “is alleged to have ‘absconded with or spent all’.” This accusation certainly doesn’t make any sense at all – the money’s either there or it’s been absconded with and spent, but the two are mutually exclusive. Any decent journalist would investigate and come up with a decent explanation for this incongruence before writing about it. However ICIJ writers Kate McClymont and François Pilet clearly have no clue either way, and just wanted to write a sensational piece connecting a well-known actor to offshore investments under the heading of Offshore Leaks. That’s about the typical level of journalism in this whole Offshore Leaks deal.
There’s also a lot about nominee directors. Perhaps because they think it’s easy for the public to understand, they have written in many articles about how nominee directors help clients to keep their own names off corporate documents. The implication, of course, is that the names would be public if nominees were not used. However, when we are talking about companies from BVI, Cook Islands or most offshore jurisdictions (with the exception of Panama), none of the corporate documents are public anyway… and besides that, as soon as a bank account is opened, the bank will always want to know and document who the beneficial owner. Therefore the use of nominees really has very little if any effect on the level of secrecy. Basically it’s just a wheeze for corporate service providers to try to charge their clients more money, and it’s something my firm prefers to avoid except where circumstances really warrant it.
Again on the subject of BVI companies, an interesting point is raised in another article. As usual, this article sensationalizes the matter by naming a big Swiss bank and painting a picture of intrigue within the Portcullis Trustnet company. In reality, the facts presented show the company behaving totally responsibly and in compliance with laws – choosing, for example, to decline business that might not have been reported to the IRS, even though as a Singapore-based organization they are not technically subject to American law.
The interesting point, however, is that BVI law is very clear on something: “The BVI law explicitly allowed offshore servicers to rely on reputable financial organizations to vouch for their clients under certain conditions.” In other words, if the business comes from a regulated professional such as a lawyer or a banker, it is not the same to a service provider as a case where the end-user client contacts the service provider directly. This is certainly true of nearly all offshore and onshore jurisdictions, and could conceivably be seen as a loophole… but then again, it would be totally impractical to create an environment where lots of different companies in different jurisdictions all have to carry out KYC procedures on the same piece of business.
I could go on for a long time picking holes in the Offshore Leaks articles, but I think the above demonstrates my view and the basis for it. I will try to continue to comment on an ongoing basis as they publish more material.
All in all, there’s just not much substance, but a lot of hype… exactly what the governments ordered. Most people see their news mainly as ‘soundbites’ these days and they don’t care much for the details. It’s enough that politicians, actors or business leaders who make legitimate use of offshore structures are tarred with the same brush as criminals, drug dealers, terrorists and money launderers. Sheesh… something must be done about it! And hey presto, another excuse to clamp down on people using legitimate international asset protection and investment structures.
Fortunately, the only reason for all this media hype about offshore, is because going offshore works! And it works big time! The offshore advantage truly is available today, over the internet, to the average entrepreneur for a few thousand bucks or less.
The more people who make use of this offshore advantage, the more we will see this type of hysteria from the governments and mainstream media. It’s all they can really do, because in our world of sovereign governments, there are insurmountable barriers to actually “clamping down” on offshore centers in the way politicians publicly claim they want to.