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NEWS

Comments on the famous leak known as the Panama Papers


12/04/2016

Laszlo Varadi - General Manager, LAVECO LtdOver the last 15 years I have written more than 100 articles on the individual characteristics of different jurisdictions – primarily considered offshore - for the columns of the LAVECO Newsletter. You can still read these articles today on our website, www.laveco.com. For me, therefore, who has been dealing with this topic for 25 years, it comes as no surprise that there are currently several million active offshore companies, investment funds, insurance companies, banks and numerous other entities too complicated to mention here (trusts, foundations) operating around the world. The thoughts may appear a little boring, as I repeat what I have been saying for the last quarter of a century. As this was my professional opinion before, and I am still convinced of it, all I can do is say it all once more. In regard to the data stolen from the company Mossack Fonseca, I consider it important to make the following comments:

  • It is not illegal for anyone in the world to establish an onshore or offshore company. It is every person’s human right to decide in which country or territory of the world they would like to establish and operate their enterprise. By the way, even the media broadcasting the information do not argue with this point, and the experts from all sides of the argument are in agreement.
  • The offshore company is not synonymous with tax evasion and money laundering.  However, on this point we can see that a significant part of the media are publishing imprecise, false and distorted information in their articles. This is particularly sad when this comes from the mouths of people who are supposed to be experts. In the last week I have read an article consisting of 5 paragraphs which contained 5 serious basic errors. The author was a respected expert who to this day offers advice to the clients of a well known firm of consultants.
  • Despite this, it can not be denied that the owner of a company registered abroad, particularly in a low-tax country, may be incur an obligation to pay income tax in the country in which they are tax resident. This is a complicated question which a foreign company formation specialist has no influence over, as they do not write the laws and are not responsible for the company owner’s personal income tax return. Only the experts in the company owner’s own country (accountant, tax advisor, lawyer) can provide the necessary information on reporting, filing and taxation obligations. These regulations vary from country to country, and are stricter in some countries, while in others they are less so, if they exist at all. Russia, for example, has legislation regarding controlled foreign companies, whereas Serbia does not.
  • It is not out of the question that my name too appears somewhere in the mass of stolen Mossack information. It may well. Nor is it out of the question that there will be a Mossack II scandal. Because, if they stole from Mossack, no bank or financial institution in the world can be sure that it won’t happen to them. You only have to look at the earlier UBS scandal or the case of LGT Bank. It could be a hacker, but it could also be an insider; the human factor is always the weakest link. It looks like we might have to start getting used to these leaks, like the every day terror attacks in Europe. But even after the attacks on Paris and Brussels, life goes on. People do not allow themselves to be terrorised. And nor should they! In the question of leaks, either. Why not?
  • Because the decision makers of the world must have known earlier is exactly what role offshore plays in the international economy. Of the daily turnover of the world economy, which can be as much as 3000-5000 billion US dollars, more than 50% goes through offshore banks, insurance companies, brokerage companies and investment funds. The world’s 10 largest banks are present in all of the offshore financial centres, large and small. See for yourselves what big names you find whether you look in the island of Guernsey or in Panama. If they really wanted to do something to filter out suspicious transactions, they could have done it years ago. National banks or financial supervisory authorities oversee the commercial banks in the country of source. Most of the time, all that would be required to see which countries the suspicious transfers are going to would be a well set up software. For some reason, this has not been done in the last 50 years, so why are they so surprised that the offshore system is still working? Yes, thank you very much, it is still working and is responsible for the majority of the world’s financial turnover.

And finally, I would like to make a very personal comment. The basic act from which the Mossack leak originated was a serious crime: data theft, or the illegal use of data and business secrets.  These actions are prohibited by the laws of every country in the world. Presumably in Panama too. Somehow, it goes against my sense of fair play that not a single bar association in the world has raised an objection, even though Mossack itself is also a law firm. If private or business secrets can just be removed from a place whose main characteristic is supposed to be discretion, then the whole idea of placing trust in lawyers comes into doubt. And it has not just been removed from a secure place, but disseminated with the help of the media. I wonder if the journalists who processed the masses of data were aware of the fact that they were using material acquired using illegal means or methods. Whether they were aware or not, and whether they acted negligently or deliberately, I can’t help asking myself a question: isn’t the publishing and use of illegally obtained data a crime?

They wanted to catch someone carrying out a crime, and now it seems that the “whistleblowers” themselves have fallen under suspicion. Because this leak was a well-organised, pre-planned operation, financed by somebody, and whose exact goals have not yet come to light. It is simply not possible to bring together 400 journalists from all over the world and convince them to work together as “volunteers”. In reality, they are using the social justice codeword as a veil, as the whole process is being driven by malice, backed by a desire to make profit and acquire power. I honestly think it is a shame that these financial circles are able to take advantage of such unsuspecting and naïve journalists, who otherwise may be talented and full of good intentions.

 

László Váradi

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