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Martin Kenney on the Panama Papers: BVI has more corporate transparency than the U.S., UK

Martin Kenney appears on CBC NewsIn the wake of the Panama Papers revelations, the U.S. has (belatedly) announced that it will tighten checks on anonymous companies. The rules, which include requiring financial institutions to find out and keep records on the real owners behind the companies that use their services, aim to help U.S. law enforcement pierce the layers of anonymous shell companies that people can use to disguise their financial dealings around the world.

Yet it is shameful that it has taken the Panama Papers scandal for the United States to finally grasp and acknowledge the shortcomings of its own offshore industry (domiciled inside several of its own states). As a lawyer who specializes in the investigation of complex fraud and grand corruption cases, it’s amazing how many of our investigative trails lead to the United States, the self-appointed world leader in combatting money laundering.

Why the overt anger and hostility towards Uncle Sam’s offshore industry? Because as a lawyer whose law firm operates out of the British Virgin Islands (BVI), I am exasperated with having to defend the BVI against those who constantly snipe and accuse our territory of running a secretive, clandestine offshore industry. Listening to the world’s media, you would think that the BVI flaunts all and every international law designed to prevent tax evasion, money laundering — and any other criminal act you could imagine.

When the Panama Papers revelations broke, I was inundated with requests for media interviews from outlets across the globe. Many had one thing in common: a barely-concealed desire that I confirm their perceptions that the BVI was a series of little islands, cloaked in secrecy and bedevilled with acts of skullduggery. I lost count of how many interviews I did; we ended up in close to 100 outlets, including internationally-recognized radio, TV, and print titles.

Many journalists and TV anchors got a shock when I explained that the BVI was among the best regulated locations on the planet. There is — with limited exceptions due to non-compliance by a minority of rogue incorporators like Mossack Fonseca — access to information about an Ultimate Beneficial Owner (UBO) when a competent authority requested it, or where a lawyer could show wrongdoing and obtain the requisite court order. On 90 percent of the occasions when I have sought this data by court order in the BVI, it has been promptly disclosed.

And in all of these interviews, I pointed out the hypocrisy of the USA with its onshore tax havens — something only belatedly picked up by the media — in territories such as Nevada and Delaware. These are true “black holes” for fraud and asset recovery lawyers such as myself And I explained in detail how the Americans operated offshore entities, devoid of scruples, and in absolute privacy, with no legislative requirement to even know who the UBOs were.

Once I’d finished with the States, I moved on to the UK. Prime Minister David Cameron came under pressure after revelations that his late father had opened an offshore company in the BVI to conduct his business in a tax efficient manner (perfectly legal). Unlike the Prime Minister of Iceland, who was also targeted by the revelations from the International Consortium of Investigative Journalists (ICIJ), Cameron (correctly) kept his job.

Yet in the UK the newly-emboldened activists inside Jeremy Corbyn’s Labour Party were demanding that the BVI, the Cayman Islands and other former colonies be returned to direct rule by the UK, bypassing their democratically elected governments. You simply couldn’t imagine the hysteria back in the UK. It seemed everyone was baying for blood, and woe to anybody in London with more than a few hundred pounds in the bank, as they appeared to be in danger of being lynched!

And yet, a few hundred miles north of the UK capital sits another offshore service provider, that has found itself in danger of being blacklisted by Russia due to its nationals taking advantage of their offer to provide confidentiality (secrecy) to “hide” their assets. Where am I talking about? Bonny Scotland, where (it has been reported) they have been less than “organized” in maintaining UBO records so that they are readily accessible to competent authorities.

So two of the nations most horrified and affronted by the revelations of the Panama Papers revelations, have in fact, even worse and less-regulated offshore facilities under their own jurisdictions than the very Caribbean island that their media and politicians have been seeking to hang out to dry. The cynicism and hypocritical stances taken by these two behemoths of the capitalist world was not lost on those of us who have to practice and operate in this difficult environment.

My one concern in reading the U.S. plan is the wording: “The Obama Administration Thursday announced a series of actions to end the use of anonymous corporations in the United States and require disclosure of beneficial owners when foreigners deposit money or buy assets in this country.”

It’s unclear whether these new proposals will only close the loopholes to foreigners, or if they will apply to U.S. citizens too. I cannot believe that the administration would attack one group without the other, unless of course there is a vested interest within the U.S. for her own citizens to carry on enjoying the secrecy its own offshore facilities affords them?


Martin Kenney is Managing Partner of Martin Kenney & Co., Solicitors, a specialist investigative and asset recovery practice focused on multi-jurisdictional fraud and grand corruption cases |@MKSolicitors.

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  1. Cudos to you Martin, for pointing out these realities.

  2. The press and regulator reactions to the Panama Papers is overblown, it seems to stem from the fear of "them" vs "us"! Anonymous shell companies like any business tool serve a purpose, can they be misused? Yes! Does it warrant stripping all "foreigners" of the anonymous status of UBO, I do not think so. The Lexicon in an industry can pretty much explain the probable reaction. When the light is green, traffic moves with caution but when it's red traffic stops – in AML lexicon financial transaction that are clear to move ahead are "white" while those flagged for scrutiny & possible reversal are "black" – innocent but I am a black guy, there is no way I will teach that! That then is the underlying background for the "them" be "us" mentality in the industry which does not in itself help collaboration to clear the system of bad operators. I wrong an article on LinkedIn explain a cause for anonymous shell companies despite the pans papers, you can read it here

  3. A misleading piece (certainly the headline) and some great "whataboutism" at times from the author (perhaps consider working for the Russian govt?). Yes, the behavior of several US states and the abuse of certain UK entities (e.g. LLPs and misuse of nominees) illustrate the hypocrisy of both governments on the issue of shell companies and transparency etc. However, as many people reading this who conduct due diligence would probably agree, both the US and UK – as a whole are far more transparent when it comes to public disclosure of company records and the like. Compare the fact that you generally cannot find anything of use when looking at a BVI company in the public domain vs what you will typically find when looking at many US companies or a UK company (shareholders, officers, etc.). Also consider how accessible these records are – the BVI corporate registry is not exactly a paradigm of transparency, unless you think emailing a request and waiting a week to find out nothing is an efficient and modern way to present yourself to the world.
    The author ignores the basic reason people set up companies in the BVI and whether it is done with bad intent or not, the jurisdiction's opacity makes it look bad (as it would if you were using a Delaware shell or some UK LLPs), especially when that company is then used to hide ownership of assets in London and wherever else.

    The Crown Territories have rightly earned their reputation for their laissez faire attitude and for turning a blind eye to corporate crime being facilitated or committed on their turf and any public anger in the UK at getting them to reform is fully justified IMHO.

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