Another day, another offshore data leak.
Last week, in what’s become a depressingly regular ritual, following yet another massive data leak, the mainstream media lined up in its latest efforts to criticize the usual suspects – namely, offshore financial centers and the supposed “enablers” that allow them to function.
We’re speaking, of course, about the so-called “Pandora Papers.” The leak encompasses nearly three terabytes of data; enough to print more than 1.5 billion pages of text. It includes around 6.4 million documents, nearly three million photos, over a million email messages, and almost 500,000 spreadsheets.
And in the breathless reporting we’d ordinarily relegate to the gossip column, we’re told by The Washington Post that world leaders and politically-connected billionaires have “Billions Hidden Beyond Reach.” Frankly, the coverage reminds us of that famous headline from a 2001 issue of Weekly World News, “Mini-Mermaid Found in Tuna Sandwich,”
And the discoveries are titillating, although unlike a real mermaid (much less one in a sandwich), not terribly surprising. Russian President Vladimir Putin evidently had a secret relationship with a woman he put up in a fancy apartment in Monaco after she gave birth to his love child. A British accountant practicing in Switzerland used entities created in the British Virgin Islands to assist Jordan’s King Abdullah II amass a network of luxury homes in the United States and United Kingdom valued at more than $106 million. The king’s code name, incidentally, was “you know who.”
American billionaires Robert F. Smith and Robert T. Brockman were clients of a trust company in Belize operated by the country’s former attorney general. Both came under investigation by US tax authorities, although in 2020, Smith agreed to pay Uncle Sam $139 million to settle charges against him. Brockman, meanwhile, has been indicted in what federal prosecutors call the biggest tax fraud in US history.
The leaks follow in the footsteps of earlier leaks dubbed, in turn, the Offshore Leaks (2012); the Luxembourg Leaks (2014); the Swiss Leaks (2015); the Panama Papers (2016), the Paradise Papers (2017); and most recently, the FinCEN Files (2020).
Like the previous sensationalist exposés, the Pandora Papers don’t shock us because they reveal very little that anyone considering the overall context didn’t already understand. Dictators and other powerful figures in authoritarian governments have the opportunity to generate enormous sums of money coerced or stolen from businesses and ordinary citizens. The revolving doors between government and private business gives billionaires access to current and former well-connected politicians. High taxes create incentives for those paying the most to find escape hatches, legal or otherwise.
We’re also reminded of the continuing media misunderstanding of the role of onshore companies in facilitating the processes they criticize. A case in point is a series of articles on the BBC News website analyzing the Pandora Papers. One of the articles describes how “The Secret Owners of UK Property Worth Billions” used “anonymous companies based in the British Virgin Islands, a tax haven” for this purpose.
Perhaps the authors of the article are unaware that the United Kingdom itself is chock-full of effectively anonymous companies. For instance, just a few days before the Pandora Papers press coverage began, London’s Financial Times revealed that one former UK company officer was named in corporate records as Jesus, Holy Christ. His address was Heaven, his citizenship was Angelic, and his occupation was listed as Creator. The Times went on to remind readers that it takes about 15 minutes, an internet connection, and £12 to set up a UK company. As for identification, not even a passport is required.
Yet it’s the British Virgin Islands – not the much larger and far more financially sophisticated United Kingdom – that the Tax Justice Network, one of the alphabet soup of non-governmental organizations pressing for further crackdowns on low-tax jurisdictions calls a “notorious tax haven.”
Nor does the mainstream press make the connection – again rather obvious to an informed observer – that the corrupt political leaders exposed in the leaks themselves never are American. On the other hand, Vladimir Putin is almost always included. Indeed, the reporting on Putin’s supposed secret assets has been so pervasive over the years that they could now hardly be considered “hidden.”
One could also be forgiven for thinking that it’s plausible the leaks originated from an intelligence agency and were intended for some political purpose, or even to be politically destabilizing.
We have no proof that the explanation we posit is accurate – far from it. But our take on the “offshore” world remains unchanged. We still believe that “going offshore” is more important than ever. And as we recently suggested, there are legitimate ways to do it that won’t get you in trouble.
(In fact, the easiest way for most clients is to start by investing a little money into offshore stocks. It’s why we just launched the Global Stock Analyst, which you can learn more about here.)
We do see a hesitation on the part of some clients to venture offshore for fear that their data will be leaked. That’s a legitimate concern, but one that’s relatively easy to deal with.
Virtually all the data leaks since 2012 have involved the world’s largest banks, law firms, and accounting firms. The Luxembourg Leaks in 2014, for instance, involved data purloined from accounting giant PricewaterhouseCoopers. Data stolen from the Swiss subsidiary of HSBC, the world’s sixth-largest bank, formed the centerpiece of the 2015 Swiss Leaks. The 2016 Panama Papers leak came exclusively from the offices of Mossack Fonseca, & Company, once the world’s fourth-largest offshore services provider. And two major sources at the center of the Pandora Papers leaks are Morgan Stanley Bank and Baker McKenzie, one of the world’s largest law firms.
If you’re a billionaire and want to diversify your assets internationally, you might not have any choice other than to use a big multinational bank or law firm for professional assistance. Only a megabank with tens of billions of dollars in assets, for instance, could comfortably absorb deposits amounting to hundreds of millions or even billions of dollars.
But if you’re not a billionaire and are looking to “offshore” yourself, by using boutique specialist firms, along with small but well-capitalized banks, you can dramatically reduce the risk that details of your offshore dealings will wind up, say, on the front page of The Washington Post.
Then again, when it comes to blatant sensationalism like this, unless you’re a celebrity, a billionaire, or a foreign politician, no one is likely to care.
Keep that in mind as you consider your initial (or next) steps offshore.