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News - Published 24th May 2016

Panama Papers – Forensic Accounting insight

Menzies forensic accountants discuss the Panama papers

Gavin Cunningham, Forensic Services Partner was recently asked by “The Independent” to comment on the recently released “Panama Papers” and the naming of Emma Watson within them. A summary of his comments and thoughts on the subject of transparency appear below :

The Panama Papers – what’s all the fuss?

Release of the so called Panama Papers has highlighted the current debate about the right to access information concerning the business dealings and arrangements of corporations and high net worth individuals alike. Their release represents a small but significant victory for those seeking greater transparency in business and a boost for those of us employed to investigate fraud and trace assets. They give rise to the potential for a historical review of old cases if they can be used to uncover undisclosed funds or business interests. This should help tax authorities recover what is rightfully theirs, victims of fraud to follow the money and even help ‘victims’ in a divorce gain clarity of marital assets.

And so these latest disclosures extend our knowledge but it is still far from comprehensive – but then again why should it be ?
I see a basic distinction between a need to know who you are dealing with in business and a right to privacy as to your personal financial affairs. Using offshore companies set up in jurisdictions with minimal filing requirements does not in itself indicate anything beyond perhaps a desire for secrecy. It does not indicate you are doing anything untoward, only investigation of the individual circumstances can reveal that. It is the intent or purpose for which it is set up and then used that determines whether it is an acceptable practice. So, using a Panama company to receive income or hold assets does not in itself mean you are avoiding or evading tax. It is what you then tell the relevant tax authorities about such income or assets that determines your legal liability and whether tax evasion (criminal) or avoidance (legal) has taken place.

There is growing international pressure and initiatives driven through global quasi governmental organizations such as the OECD to curb the widespread practice of “tax tourism” – choosing the best location to base your company or yourself to avoid as much tax as possible. Collection of tax is fundamental to all developed economies and it is understandable that measures are being taken that protect all of us and fund the infrastructure on which we all rely.

The public outcry, fuelled no doubt by the accent of recent media coverage, is also understandable given that offshore companies are used by a tiny minority of people and those that do will include a small proportion of criminals, politicians and people engaging in tax evasion.

However, it is also understandable that some high profile celebrities, such as Emma Watson, have used the secrecy provided by such offshore companies to maintain their own privacy so that their home address or personal earnings are not known to the general public. I think this is not indicative of anything beyond an understandable desire for some personal matters to remain just that. After all, does each of us really want everyone else to be able to know where we live or how much we earn? In the debate on transparency it seems to me that maintenance of a personal right to privacy is the essential question and in the current mood the answer is far from certain.

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