Offshore data thieves, journalists and UK tax collector

The author of this article takes a scathing look at the conduct of journalists in some of the recent data leaks from offshore centers, such as the Panama, Paradise and Pandora “papers” cases.

Away from the pandemic, one of the regular stories in recent years has been about data “leaks” from offshore financial centers. They now look like a franchise with titles reminiscent of spy novels: Panama Papers, Pandora Papers and Paradise Papers. Other “papers” could be in sight. They raise serious questions: Should politicians willing to berate others for allegedly hiding money abroad be punished for doing the same? What is the legitimate boundary between privacy and secrecy? In a turbulent world, what is the justification for offshore centers and how can they strengthen their existence? And last, but not least, how do investigative journalists ensure that the information they obtain does not endanger the well-being and even the lives of the people whose personal information is put in the field? audience? After all, the International Consortium of Investigative Journalists, which coordinated these “articles”, was careful to note that none of the individuals mentioned in these accounts necessarily broke the law. And this is the crux of the problem.

In this article, Andrew Park, tax partner at Anderson LLP in London, reviews recent revelations, the behavior of the press and various professional organisations, and draws some conclusions. This is clearly controversial territory, and the editors are grateful to Park for his opinions and insights. The usual editorial disclaimers apply. To join the conversation, email [email protected]

Nearly six years have passed since the “Panama Papers” story first broke, The Guardian and BBC Panorama received the coveted Survey of the Decade award for their roles in it at the British Journalism Awards. The judges praised them for the way they “shed light on some of the darker corners of international finance”.

Although the Panama Papers followed a decade of data leaks from international banks in Switzerland, Liechtenstein and elsewhere, never before have journalists acquired such a comprehensive body of inside information from an offshore law firm. . Journalists from over 100 global news agencies coordinated by the International Consortium of Investigative Journalists got to work on c. 11.5 million documents – all, it seems, that Panamanian law firm and offshore service provider Mossack Fonseca had kept in its computer systems. Even now, little is known about the unidentified backer other than his claim to have a social justice motive.

The leaked information was incriminating in that it pointed to numerous instances of apparent wrongdoing – most of which was candidly recorded in internal and external correspondence. In addition to tax evasion, documentation has highlighted acts of fraud and individuals around the world violating international sanctions. In the UK, where the main impact was tax, the information was a goldmine for HMRC and led to dozens of successful criminal and civil investigations and the recovery of over £200million in unpaid tax .

Even without the Panama Papers, HMRC was in the midst of a new era in its ability to obtain information about the offshore activities of parties who are UK tax residents. In the years since the briefing, HMRC has never had so much information – from a succession of thefts and ongoing data leaks, but also from the automatic annual exchange of financial information from so-called “tax havens” and elsewhere under the Common Reporting Standard, privileged access to numerous overseas beneficial ownership registries and always two-way work and information sharing closer and better coordinated with counterpart foreign tax agencies such as the US Internal Revenue Service. Despite this, the leak of the Panama Papers was special because normal information-gathering protocols do not give HMRC access to copies of letters and emails, some of which frankly point out irregularities without circumspection or “frontage”. “. In other words, “irrefutable” material.

Even where deliberate wrongdoing may be apparent, HMRC’s normal modus operandi is to seek recovery of unpaid tax and collect interest and penalties through civil means rather than attempt criminal prosecution, except in the most extreme circumstances. serious. It only needs to glean information leading to the “discovery” of a tax loss to increase tax assessments outside the normal investigation window. It can base the discovery assessments on which it relies to recover unpaid tax on stolen or whistleblower information, like any other information. It also has broad powers of information to civil status when initial information would give a reasonable suspicion of loss of tax – deliberate or not – to ask the taxpayer or third parties for any additional information that could reasonably be required to verify the tax situation.

Bringing criminal charges with data leaks overseas can be problematic given the potential admissibility issues should HMRC seek to rely on stolen information that they may not be able to corroborate even once. that he knew what he was looking for.

In the Panama Papers, journalists and law enforcement had something that confirmed some of their worst suspicions and prejudices regarding the use of offshore jurisdictions. However, subsequent journalistic attempts to repeat the success and actively contribute to tax enforcement showed that – as far as international offshore law firms go – Mossack Fonseca was certainly an outlier.

In 2017, the ICIJ announced the “Paradise Papers” – which involved around six million documents stolen from the prestigious international law firm Appleby and its then trust company – both based in Bermuda. However, it turned out a wet firecracker. Although reporters felt they had public interest grounds for publicizing the private financial arrangements and business dealings of many of Appleby’s clients, they failed to point out any obvious wrongdoing – especially in a British tax context. Figures such as Her Majesty The Queen and Sir Lewis Hamilton were met with moral contempt for using offshore financial arrangements in their personal financial planning, but there was nothing illegal about it – even less criminal – when properly advised by reputable and competent professionals. Appleby soon brought legal action in the English High Court against the BBC and
The Guardian on their publication of confidential information taken in a criminal way and demanded details of all the documents passed on to the journalists. the BBC and The Guardian were forced into a private settlement with Appleby in May 2018.

HMRC is a vast sponge for financial information and will have carefully acquired and analyzed information from the Paradise Papers. However, unlike the Panama Papers, there were no headline-grabbing statistics published by HMRC, the number of inquiries opened and the tax recovered as a result. The information may have helped HMRC collect additional tax. However, if so, it appears its success has been on a much smaller scale and limited to helping inform highly technical counter-avoidance investigations – in the type of arrangements that are orchestrated on professional advice. with the intention of being fully tax compliant – although the sheer complexity and sometimes changing nature of UK tax law can sometimes result in a tax bill, regardless of whether it is successfully examined by HMRC .

Increasingly over the past six years, HMRC has adopted a tactic of mass-mailing “reminder letters” to UK residents it has identified as having offshore connections. The letters refer to unspecified information about offshore income, gains or assets and suggest there may be more tax to pay – in which case recipients are urged to self-disclose any omissions under the implicit threat of a tax investigation. The letters are a very efficient use of scarce resources for HMRC, but they depend on taxpayers knowing they have, or think they might have, done something wrong. Wealthy, sophisticated clients of companies like Appleby want to believe they’ve done everything right on the best advice – so little choice for HMRC with its nudge methods too.

Keen to try and uncover global financial wrongdoing in general, rather than just UK tax avoidance, the ICIJ and its partners at the BBC and The Guardian made another offshore talk in October 2021 – the “Pandora Papers”, c. 12 million leaked documents are said to come from 14 different offshore service providers. It is too early to be sure what will happen in the UK. So far, it appears to be following the Paradise Papers model of embarrassing those whose privacy has been violated rather than reporting obvious deliberate wrongdoing. HMRC will eagerly seek to acquire anything that finds its way to the ICIJ and again HMRC will quietly continue its pursuit of underpaid tax.

Often blind to the differences between the two leaks, disappointed journalists and politicians have blamed an imagined failure on the part of HMRC to make Panama Papers-style forays into tax abuse with the Paradise Papers. Now, with the Pandora Papers, an HMRC inundated with ever more offshore information must also deal with national distractions from the unwinding of COVID support measures and seek to recover billions of pounds of COVID support fraud. What HMRC needs right now is not more information but more investigators. News crews bombarding HMRC with raw information is no substitute for that.

About the Author:

Andrew Park is a tax partner at Andersen LLP in London, specializing in tax investigations, voluntary disclosures and tax litigation.


Esther L. Steinbach