Britain implicated in Panama tax-avoidance scandal

08 April 2016

AP

Mammon? The business sector of Panama City, source of the leaked Mossack Fonseca papers

Mammon? The business sector of Panama City, source of the leaked Mossack Fonseca papers

THE leaking of documents that show how clients of a Panamanian law firm have been able to avoid tax, has exposed the prominence of British tax havens in a “rotten system”, Christian Aid said this week.

The “Panama Papers”, 11.3 million documents leaked to journalists more than a year ago, but released only on Sunday, cover four decades of legal work by a company that specialised in setting up offshore businesses, Mossack Fonseca. The papers include references to more than a dozen current or former world leaders, and it is alleged that they expose a money-laundering ring involving associates of the Russian President, Vladimir Putin.

On Thursday, after several days of scrutiny and pressure from media and politicians, David Cameron confirmed in an interview with Robert Peston on ITV News that he had previously gained from offshore investments he had held with Blairmore Holdings, a Panama-based offshore company set-up by his late father. Mr Cameron and his wife sold their holding in January 2010, before he took office as Prime Minister.

Mr Cameron said that the investment was not intended to avoid tax, and that he paid income tax on the dividends, but no capital gains tax as the profit made from the sale was less than the couple’s annual tax free allowance.

There is no indication that any of the named individuals has done anything illegal, and Mossack Fonseca has vowed to ensure that those behind the leak are “brought to justice”.

The International Consortium of Investigative Journalists scrutinised the cache using journalists from more than 100 media outlets, including The Guardian and the BBC. The BBC reported that the leak had exposed how clients of the law firm were able to launder money and dodge sanctions.

The Prime Minister of Iceland, Sigmundur Davíð Gunnlaugsson, was accused of using an offshore firm in the British Virgin Islands to shield investments worth millions. On Wednesday, he denied reports that he had resigned, insisting that he had merely stepped aside for an “unspecified amount of time”.

The head of the Chilean branch of Transparency International, an anti-corruption organisation, resigned after being linked to offshore companies.

Also named in the papers is Sir Tony Baldry, a former Second Church Estates Commissioner. On Tuesday, he said that he felt no embarrassment: “I am more concerned that many different individual situations are being incorrectly linked, leading to potentially inaccurate reporting.”

 

Sir Tony, a former Oxfordshire MP, was a director of Westminster Oil Ltd, and its wholly owned subsidiary Westminster Caspian, from 2007 to 2012. The company was registered in the British Virgin Islands. This jurisdiction was chosen “because it has an independent legal and judicial system based on English Common Law, and the shareholders and directors came from a number of different countries, including the United Kingdom, the United States, and Kazakhstan,” Sir Tony said.

Asked whether one purpose was to avoid paying tax, he said: “There would never have been any UK tax liability in respect of Westminster Oil. The operations of the company were in Central Asia; a substantial majority of the shareholders were not UK citizens; the majority of the company’s directors were non-UK citizens from four different countries; and all board meetings of the company were held overseas.”

Asked about the morality of tax avoidance, he would comment only on his personal position. “I can state categorically that I have not at any time sought to avoid paying UK tax on any of my earnings, and have never had an offshore bank account. In the case of Westminster Oil, the director’s fees that I received were reported to HMRC with my other income, and tax paid on those fees in the proper way.”

Half of the companies named in the Panama Papers were incorporated in the British Virgin Islands. “This leak exposes the extent to which UK tax havens and UK-based intermediaries are at the very heart of this rotten system,” Christian Aid’s Principal Economic Justice Adviser, Toby Quantrill, said on Monday.

The charity is repeating its call for the Government to make public the owners of businesses in the territories (News, 14 June 2013). Legislation that requires British companies to disclose who owns and benefits from their activities will come into force in June.

A poll commissioned by Christian Aid and Global Witness, published on Sunday, suggested significant public support for greater transparency about the UK’s Overseas Territories. Of the 2046 people polled, 81 per cent agreed that: “All companies, whether they are registered in the UK or its Overseas Territories, should be legally required to reveal their ultimate owners.”

The two charities argue: “Anonymously owned companies are the main method used by tax evaders and the corrupt to hide their identity, and therefore hide their money. This theft of public money harms people all over the world, as it robs countries of funds they should be spending on their citizens, whether funding health services, education, or building roads. The effects are at best damaging, at worst catastrophic.”

In 2008, Christian Aid estimated that developing countries were losing as much as US$160 billion each year from tax avoidance — more than they received in aid.

Leader comment

Question of the week: Is it right to try to avoid paying tax?

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