Breakfast Briefing 29 April 2016

1. Advocate William Redgrave
Partner
Ed Shorrock
Director of Regulatory Services
The Panama Papers:
What now for
Jersey?
Breakfast Briefing
29 April 2016
Royal Yacht Hotel
St. Helier

2. What is in the Panama Papers?
Why are they such big news?
What has the effect been so far?
What can we expect?
Are central registries the answer?
What now for Jersey?
Contents

3. What is in the
Panama Papers?

4. 11.5m documents, 2.6 Tb.
40 years’ worth of records
Only 1% published so far
9 May: Database release of 200,000 entities
Panama Paper contents

5. Identifies 215,000 entities set up in 21 jurisdictions
Half the companies are BVI incorporated
Clients mainly introduced by banks and their
affiliates
Material includes identities of directors,
shareholders and UBOs
Panama Paper contents

9. MF - a law firm, but mainly an incorporation agent
and registered agent
Offered "virtual office" with fake email and fake
names for $1,500.
For $17,500, a “very sensitive” service: would find
a “natural person trustee” – pretend UBO of a
company, who would “sign lots of documents”
(Guardian, 8 April 2016)
What did MF do?

10. Prominent people identified
Current leaders of UAE, Ukraine, Saudi, Iceland
Former leaders of Iraq, Jordan, Qatar, Sudan, Italy
(Berlusconi)
Relatives of current leaders: Xi, Assad, Sharif, Zuma, Abbas,
Cameron
Relatives of former leaders: Annan, Thatcher
Close friends of Putin (Roldugin)
Jackie Chan
Panama Paper contents

11. Poor client due diligence
Identified in BVI FSC inquiries re sanctions:
Cowie – North Korea link not picked up
Alaa Mubarak – MF fined $37,500 for not identifying UBO of $1bn
company
Previously extensive use of reliance on introducers
and intermediaries, often abused
Panama Paper contents

12. MF unable to name UBOs on request, but improved
following law change in 2008:
2005-2008 – of 100 requests could only name 5
2008 – 2014 – law changed - of 500 requests, could
name 70
2015 – 90 requests – named all but one
Panama Paper contents

13. MF financial model based on volume
Typical cost to incorporate: US$1,000, of which
US$400 goes to government
Generates 50% of BVI government revenue
UK government encouragement for OTs and CDs to develop
own economies
Panama Paper contents

14. Why are they such
big news?

15. History of data leaks: BVI (2013), Luxembourg
(2014), HSBC (2015) and now Panama, the biggest
Sheer quantity of info, and prominence of
individuals
Staged release – clever PR
To many in IFCs, ‘revelations’ about products and
services are entirely unrevealing
Media encourages popular prejudice
Why such big news?

16. Attitude of MF co-founder attracted criticism:
MF had no responsibility for what clients do with the
offshore companies that MF sells
Blaming MF for what people do with their companies
would be like blaming a car factory “if the car was
used in a robbery”
Why such big news?

17. Effect so far

18. Resignation of Iceland PM and Spanish minister
Pressure on Cameron: #resigncameron
Tax return publication for MPs?
5 EU countries agree on 14 April to automatically
exchange UBO information for trusts and
companies – now expanded to all EU countries
Panama effects

19. MF offices raided in Panama and Brazil
US DoJ (and other prosecutors) ask to see
documents and consider local investigations
Acceleration of signing of Exchange of Notes
between UK and Jersey (12 April) re UBO
information
Panama effects

20. What can we
expect?

21. Another round of disclosures on 9 May with
searchable database of 200,000 companies, trusts,
foundations and funds
Extension of pilot initiative re automatic exchange
of UBO information - globally?
What can we expect?

22. “As a next step, we should also call for the development of a
system of interlinked registries containing full benefit [sic]
ownership information and mandate the OECD, in co-
operation with FATF, to develop common international
standards for these registries and their interlinking.
…we are willing to ensure the effective implementation of
the exchange of information standards and to deal with non-
cooperative jurisdictions on the basis of an international list
and through defensive measures.”
George Osborne to European colleagues, 14 April 2016
What can we expect?

23. Prospect of more blacklists? (Some EU countries
have voiced concerns)
More media pressure to “crack down on offshore”:
“He [David Cameron] needs to get tough with the treasure
islands and follow Charles de Gaulle’s example. When
Monaco refused a tax measure he requested, he forced them
to surrender by surrounding the kingdom with soldiers and
turning off their water supply”
Polly Toynbee, Guardian
What can we expect?

24. Increasingly widely held view that even basic tax
planning using offshore structures is unacceptable
Registers of trusts back on the agenda
Offshore registries of all entities to be public?
The level playing field argument – the US
What can we expect?

25. Significant announcements expected at UK anti-
corruption summit in May
Legislative developments in the UK
Offshore companies buying British property could be
forced to reveal their UBOs
Criminalisation of companies for failing to prevent
their staff facilitating tax evasion
What can we expect?

26. Are central
registries the
answer?

27. Policy driven by journalists and politicians seeking
to dominate the news agenda. The 5 Ps:
1. Panama
2. Press
3. Population
4. Politicians
5. Policy
Are central registries the answer?

28. The speed at which the steps take place is ever
increasing
Does this make for sound policy development and
implementation?
Politicians feel under pressure to act
What is in the interest of the public is not
necessarily in the public interest
Are central registries the answer?

29. Garbage in – garbage out
Most registries are passive, archiving repositories
of information
Where is the evidence that central registries are
effective?
Easy to promise returns from a policy not yet in
practice
Are central registries the answer?

30. A registry designed to achieve stated objectives
needs:
Leadership
Resources: Skilled staff, infrastructure, IT
Ability to verify documents being provided to it
Enforcement powers
Does the UK have this in place? Reliance on self-
reporting
Are central registries the answer?

31. What is the alternative?
Licensing, supervision and enforcement of CSPs
CSPs have the direct client contacts: CSP is a
private sector information collection agency,
delivering a public good at no public cost
Can only work within the context of a proper
regulatory regime
Costs of a publicly funded registry?
Are central registries the answer?

32. What is the evidence that CSPs are effective?
Little evidence that central registries do work as
there are so few!
2011-2012 study by Griffith University on CSP
performance
Headlines: Half of responses did not ask for proper
ID, 22% for nothing; IFCs better than onshore;
Corruption risks less of a deterrent than
terrorism risks
Are central registries the answer?

33. Transparency is not an end in itself, it is part of the
answer but access to this information needs to be
balanced against legitimate privacy concerns
Are central registries the answer?

34. What now for
Jersey?

35. All IFCs are affected by political/reputational
impact
Jersey has featured in Panama reports already:
Spanish minister case - featured Jersey BBVA office,
from library footage
Azerbaijani president’s daughters – MF Jersey
provided nominee directors for company holding UK
property – UK lawyers say they have
“no political connections”
Jersey

36. Risks to Jersey:
Pressure for CDs to adopt register of trusts? Public?
EU initiative to automatically share UBO information
even if not public
Impact on attractiveness of Jersey products
Cost implications of expanded registry
Jersey

37. Regulatory attention
FCA call to firms to investigate MF links
Could it happen here? P.42/2016 (Southern)
“directs the JFSC (i) to request the handover of any information
held by financial institutions registered in Jersey about their
dealings with….MF, and (ii) to ask what action the institutions
concerned are taking as a result of any significant issues or
relationships identified”
Jersey

38. “7 Guiding principles
In exercising any of its functions the Commission may take into
account any matter which it considers appropriate, but shall in
particular have regard to –
………
(b) the protection and enhancement of the reputation and integrity of
Jersey in commercial and financial matters;
(c) the best economic interests of Jersey; and
(d) the need to counter financial crime both in Jersey and
elsewhere.”
Jersey

39. Litigation?
9 May database release likely to include structures
with Jersey links
Creditors (private individuals and states) will be
searching it for illegally obtained / concealed assets
Reputational and commercial damage to
institutions and clients
Jersey

40. What to do?
You know if you have used MF
Assess due diligence and commercial rationale – be
proactive
Put yourself in the shoes of a creditor or journalist
Be ready to handle media and client enquiries
Jersey

41. Advocate William Redgrave
Partner
Ed Shorrock
Director of Regulatory Services
The Panama Papers:
What now for
Jersey?
Breakfast Briefing
29 April 2016
Royal Yacht Hotel
St. Helier
© 2016 Baker & Partners