Advocate William RedgravePartner

Ed ShorrockDirector of Regulatory Services

The Panama Papers: What now for Jersey?

Breakfast Briefing29 April 2016Royal Yacht Hotel St. Helier

What is in the Panama Papers?Why are they such big news?What has the effect been so far?What can we expect?Are central registries the answer?What now for Jersey?

Contents

What is in the Panama Papers?

11.5m documents, 2.6 Tb. 40 years’ worth of recordsOnly 1% published so far 9 May: Database release of 200,000 entities

Panama Paper contents

Identifies 215,000 entities set up in 21 jurisdictionsHalf the companies are BVI incorporatedClients mainly introduced by banks and their

affiliatesMaterial includes identities of directors,

shareholders and UBOs

Panama Paper contents

MF - a law firm, but mainly an incorporation agent and registered agent

Offered "virtual office" with fake email and fake names for $1,500.

For $17,500, a “very sensitive” service: would find a “natural person trustee” – pretend UBO of a company, who would “sign lots of documents”

(Guardian, 8 April 2016)

What did MF do?

Prominent people identifiedCurrent leaders of UAE, Ukraine, Saudi, Iceland

Former leaders of Iraq, Jordan, Qatar, Sudan, Italy (Berlusconi)

Relatives of current leaders: Xi, Assad, Sharif, Zuma, Abbas, Cameron

Relatives of former leaders: Annan, Thatcher

Close friends of Putin (Roldugin)

Jackie Chan

Panama Paper contents

Poor client due diligence Identified in BVI FSC inquiries re sanctions:

Cowie – North Korea link not picked up

Alaa Mubarak – MF fined $37,500 for not identifying UBO of $1bn company

Previously extensive use of reliance on introducers and intermediaries, often abused

Panama Paper contents

MF unable to name UBOs on request, but improved following law change in 2008:2005-2008 – of 100 requests could only name 5

2008 – 2014 – law changed - of 500 requests, could name 70

2015 – 90 requests – named all but one

Panama Paper contents

MF financial model based on volume Typical cost to incorporate: US$1,000, of which

US$400 goes to governmentGenerates 50% of BVI government revenueUK government encouragement for OTs and CDs to develop

own economies

Panama Paper contents

Why are they such big news?

History of data leaks: BVI (2013), Luxembourg (2014), HSBC (2015) and now Panama, the biggest

Sheer quantity of info, and prominence of individuals

Staged release – clever PR To many in IFCs, ‘revelations’ about products and

services are entirely unrevealingMedia encourages popular prejudice

Why such big news?

Attitude of MF co-founder attracted criticism:MF had no responsibility for what clients do with the

offshore companies that MF sells

Blaming MF for what people do with their companies would be like blaming a car factory “if the car was used in a robbery”

Why such big news?

Effect so far

Resignation of Iceland PM and Spanish ministerPressure on Cameron: #resigncameron Tax return publication for MPs? 5 EU countries agree on 14 April to automatically

exchange UBO information for trusts and companies – now expanded to all EU countries

Panama effects

MF offices raided in Panama and BrazilUS DoJ (and other prosecutors) ask to see

documents and consider local investigationsAcceleration of signing of Exchange of Notes

between UK and Jersey (12 April) re UBO information

Panama effects

What can we expect?

Another round of disclosures on 9 May with searchable database of 200,000 companies, trusts, foundations and funds

Extension of pilot initiative re automatic exchange of UBO information - globally?

What can we expect?

“As a next step, we should also call for the development of a system of interlinked registries containing full benefit [sic] ownership information and mandate the OECD, in co-operation with FATF, to develop common international standards for these registries and their interlinking.

…we are willing to ensure the effective implementation of the exchange of information standards and to deal with non-cooperative jurisdictions on the basis of an international list and through defensive measures.”George Osborne to European colleagues, 14 April 2016

What can we expect?

Prospect of more blacklists? (Some EU countries have voiced concerns)

More media pressure to “crack down on offshore”:“He [David Cameron] needs to get tough with the treasure islands and follow Charles de Gaulle’s example. When Monaco refused a tax measure he requested, he forced them to surrender by surrounding the kingdom with soldiers and turning off their water supply” Polly Toynbee, Guardian

What can we expect?

Increasingly widely held view that even basic tax planning using offshore structures is unacceptable

Registers of trusts back on the agendaOffshore registries of all entities to be public? The level playing field argument – the US

What can we expect?

Significant announcements expected at UK anti-corruption summit in May

Legislative developments in the UKOffshore companies buying British property could be

forced to reveal their UBOs

Criminalisation of companies for failing to prevent their staff facilitating tax evasion

What can we expect?

Are central registries the

answer?

Policy driven by journalists and politicians seeking to dominate the news agenda. The 5 Ps:

1. Panama2. Press3. Population4. Politicians5. Policy

Are central registries the answer?

The speed at which the steps take place is ever increasing

Does this make for sound policy development and implementation?

Politicians feel under pressure to actWhat is in the interest of the public is not

necessarily in the public interest

Are central registries the answer?

Garbage in – garbage outMost registries are passive, archiving repositories

of informationWhere is the evidence that central registries are

effective?Easy to promise returns from a policy not yet in

practice

Are central registries the answer?

A registry designed to achieve stated objectives needs:Leadership

Resources: Skilled staff, infrastructure, IT

Ability to verify documents being provided to it

Enforcement powers

Does the UK have this in place? Reliance on self-reporting

Are central registries the answer?

What is the alternative? Licensing, supervision and enforcement of CSPsCSPs have the direct client contacts: CSP is a

private sector information collection agency, delivering a public good at no public cost

Can only work within the context of a proper regulatory regime

Costs of a publicly funded registry?

Are central registries the answer?

What is the evidence that CSPs are effective? Little evidence that central registries do work as

there are so few! 2011-2012 study by Griffith University on CSP

performanceHeadlines: Half of responses did not ask for proper

ID, 22% for nothing; IFCs better than onshore; Corruption risks less of a deterrent than terrorism risks

Are central registries the answer?

Transparency is not an end in itself, it is part of the answer but access to this information needs to be balanced against legitimate privacy concerns

Are central registries the answer?

What now for Jersey?

All IFCs are affected by political/reputational impact

Jersey has featured in Panama reports already:Spanish minister case - featured Jersey BBVA office,

from library footage

Azerbaijani president’s daughters – MF Jersey provided nominee directors for company holding UK property – UK lawyers say they have “no political connections”

Jersey

Risks to Jersey:Pressure for CDs to adopt register of trusts? Public?

EU initiative to automatically share UBO information even if not public

Impact on attractiveness of Jersey products

Cost implications of expanded registry

Jersey

Regulatory attentionFCA call to firms to investigate MF links

Could it happen here? P.42/2016 (Southern)“directs the JFSC (i) to request the handover of any information held by financial institutions registered in Jersey about their dealings with….MF, and (ii) to ask what action the institutions concerned are taking as a result of any significant issues or relationships identified”

Jersey

“7      Guiding principles

In exercising any of its functions the Commission may take into account any matter which it considers appropriate, but shall in particular have regard to –

………

(b)     the protection and enhancement of the reputation and integrity of Jersey in commercial and financial matters;

(c)     the best economic interests of Jersey; and

(d)     the need to counter financial crime both in Jersey and elsewhere.”

Jersey

Litigation?9 May database release likely to include structures

with Jersey links

Creditors (private individuals and states) will be searching it for illegally obtained / concealed assets

Reputational and commercial damage to institutions and clients

Jersey

What to do?You know if you have used MF

Assess due diligence and commercial rationale – be proactive

Put yourself in the shoes of a creditor or journalist

Be ready to handle media and client enquiries

Jersey

Advocate William RedgravePartner

Ed ShorrockDirector of Regulatory Services

The Panama Papers: What now for Jersey?

Breakfast Briefing29 April 2016Royal Yacht Hotel St. Helier

© 2016 Baker & Partners