The law firm Mossack Fonseca in Panama City is at the centre of an international scandal
Relatively few UK expats may be directly caught up in the scandal of the Panama Papers, leaked from Panamanian law firm Mossack Fonseca, which revealed how the rich and powerful use tax havens to hide their wealth.
However, many of them could be affected if the knock-on effect is a clampdown on all offshore centres. Such centres, which include the Channel Islands and Isle of Man, offer savings accounts to expats who want to put their money with familiar UK banks but can’t use those onshore because they don’t live in the UK. They also offer investments and insurance tailored for expats.
Howard Bilton, chairman of theSovereign Group, which specialises in offshore trusts, said: “The banks in the main offshore centres are extremely nervous of taking on any clients who are not resident in their jurisdiction. That was the case prior to the Panama Papers but these latest revelations will make it even harder for expats.”
Already, the number of banks in the traditional offshore centres offering savings accounts for expats has fallen thanks to increased regulatory costs making it an unattractive business for the parent company. Add on years of low interest rates, and it’s understandable why many have shut up shop.
Justin Harris, managing director of international financial advisersChase Belgrave, commented: “It is vitally important that we do not allow the hysteria surrounding the recent allegations to adversely cloud our view of legitimate and prudent tax planning by expats. What remains to be seen is the impact this will have on regulations in the future.
“It would be a great shame if people living and working offshore were penalised and found it more difficult to access banking and investment services compared with their onshore counterparts.”
Mr Bilton added: “It is all very well saying that expats could hold their money in accounts where they live but there may be many reasons why an expat would prefer to bank elsewhere – stability; English law; familiarity; range of services and products and currencies.
“There could be any number of legitimate reasons for holding money offshore. The centres usually used by UK expats – the Isle of Man, the Channel Islands – are very respectable and well regulated. Just because an expat is banking offshore does not mean that the UK taxpayer is losing out or that the expat is doing anything legally or morally wrong.”
Richard Hay, counsel to the IFC (international financial centres) Forum, which represents law and accounting firms in British Crown Dependencies and overseas territories including the Channel Islands and Isle of Man said: “It is wrong to bracket all small financial centres together as so-called secrecy jurisdictions. British IFC regulatory standards, including on tracking of beneficial ownership, are judged in peer reviews and authoritative academic studies to be among the best in the world.”
While the Mossack Fonseca affair might have a knock-on effect on UK expats, Mr Bilton says that it has simply speeded up something that was due to happen anyway. By 2018 the Common Reporting Standard should be in place in most countries.
Mr Bilton said: “This will require all financial institutions, including banks and offshore service providers, to exchange informationabout anybody and everybody who does business with them who is not resident in their own jurisdiction.”
The CRS reporting obligations will create additional costs for the bank, which they will almost certainly pass on to the customer, according to Mr Bilton. The worst case scenario is that banks will decide to stop providing services for non-residents.
The Panama Papers
What are the Panama Papers?
A leak of 11 million files from one of the world’s most secretive companies, Mossack Fonseca – a Panamanian law firm that specialises in setting up offshore companies.
Why is it significant?
A host of celebrities, politicians and the global rich are linked to the leak. The files lay bare how at least a dozen world leaders have been using tax havens to hide their wealth. At least 72 current or former heads of state are implicated, including dictators accused of looting their own countries.
Is any of it legal?
There is nothing unlawful about the use of offshore companies. However, the disclosures raise questions about the ways in which the system can be used – and abused.
How is the UK involved?
Six peers, three Tory ex-MPs and “dozens” of UK political party donors are identified as holders of offshore assets. The files also contain new details of offshore dealings by the late father of British Prime Minister David Cameron.
More than half of the 300,000 firms said to have used Mossack Fonseca are registered in British-administered tax havens.
What does the company say?
Responding to the leak, Mossack Fonseca said: “Our firm has never been accused or charged in connection with criminal wrongdoing. If we detect suspicious activity or misconduct, we are quick to report it to the authorities.”