Panama Papers: Onshore world can close offshore world – if it wants

One of the many tricks of the so-called offshore world and probably its key part, is that it is not offshore at all.

The Irish public got a brief insight into this back in the 1990s when the existence of the Ansbacher deposits was disclosed.

The deposits were funds belonging to a small number of mostly wealthy and well-to-do Irish individuals, including the late taoiseach Charles Haughey.

While legally the deposits were in the Cayman Islands, the money was in fact lodged in Guinness & Mahon Bank on College Green.

As the controversy over the deposits developed, it transpired that an Irish tribunal, equipped with significant powers assigned to it by the Oireachtas, could be told by a Cayman court that it had no right under Cayman law to get access to records linked to the accounts, even though much of the money had been lying in a bank that was within spitting distance of Dublin Castle.

It was a typical example of the inside-out world that offshore jurisdictions set out to create.

Members of The International Consortium of Investigative Journalists, which includes The Irish Times, have spent more than a year examining a cache of 11.5 million documents and records from Panama-based Mossack Fonseca, one the biggest providers of offshore services to individuals, companies and middle men who advise them.

The Mossack Fonseca firm is headquartered in Panama but access to its files shows that its biggest offering to its clients all over the globe is access to such locations as the British Virgin Islands, the Bahamas, the Cayman Islands and British Anguilla.

As well as being tax havens, these locations offer company formation facilities and company law rules that allow for near total confidentiality.

Their attractiveness is such that very significant financial sectors have developed with money flowing in from around the globe.

Easily replicable

Their attractiveness involves an easily replicable set of offerings that other jurisdictions could, and do, establish, in an effort to win a slice of the business.

However, these other jurisdictions tend not to do so well, and the reason is very simple: they are not embedded in the United Kingdom’s legal system.

British Anguilla, the British Virgin Islands, the Cayman Islands and so on, are all British Overseas Territories (Bots), entities that were described in a 2009 report from the US embassy in London to the US state department in Washington DC, as “far-flung possessions under British sovereignty that harken to the era when Britannia truly ruled the waves”.

The territories, according to the report which was subsequently leaked, were described by a foreign and commonwealth office official as being “remnants of the empire” acquired when the phrase “the sun never sets on the British empire” could be spoken without irony.

But in a sense the sun still does not set on the British empire.

All of which brings us to Parliament Square, London. On one side of the square is Big Ben, the iconic clock tower at the north end of the Houses of Parliament.

On the side of the square is the building that houses the judicial committee of the Privy Council, an entity established in the 1830s to replace appeals formerly heard by the king-in-council.

The judicial committee can hear appeals from the courts in the Bots as well as from Commonwealth realms such as Antigua and the Bahamas.

What this means is that the integrity of the UK’s legal system, and the robustness of its property laws, stand behind the contracts and companies based in the offshore remnants of the British empire.

The Panama Papers leak shows how the offshore world is used by kleptocrats, wealthy celebrities trying to reduce their tax bills through legal, if aggressive and highly confidential tax schemes; dodgy sanctions busters, and fraudsters of various sorts.

The leak also shows how the offshore world is used by reasonably ordinary punters who, for whatever reason, want to own their pub or house or farm by way of an offshore holding company, and do so using their local solicitor’s firm, or accountant.

We already knew that locations such as the Bahamas and the Cayman Islands play a huge role in the tax structures established by the world’s biggest multinationals.

What all of the “customers” involved in these dealings want is to be able to get as far away as possible from the taxes, disclosure obligations, and exposures to regulatory oversight that are key parts of western society, while retaining the integrity of the property rights that exist in the West by way of its laws, courts and other state-run institutions.

It is no use being the brother of a head of state and, by way of corruption, secretly accumulating dynastic sums of money if you can’t stash it somewhere safe.

Likewise, there is no point in committing your income to an aggressive tax structure if you are left worried that some official in some tiny, far-flung jurisdiction is going to divert your money into a secretive offshore company of his own.

The offshore world is classically parasitic.

But the fact that this parasitic world is dependent on the “onshore” world means that a more decent and civilised way of conducting business can be imposed.

The parasitic jurisdictions of the offshore world depend on the western, onshore world, and its laws, legal advisers, banks and accountancy firms, to survive.

If the onshore world wants to close the offshore world down, it can.

Alternatively, countries can pursue a policy of robust competition for business, and we can all race to the bottom.

Colm Keena is Legal Affairs Correspondent