When 2017 began, I did not envisage how my life would change. I live and work in the British Virgin islands (BVI), a location rapidly becoming famous due to the publication of the Panama Papers and more latterly the Paradise Papers.
What I hadn’t bargained for was the intervention of Hurricane Irma on 6 September. Irma devastated these small islands, earning herself recognition as the most ferocious hurricane to have ever visited the Caribbean. Around 80 percent of all homes, schools and other buildings were destroyed or seriously damaged by the winds which tore through and scoured our islands.
Many of my team lost everything in the storm. Our offices were severely damaged and our firm has had to fight hard to rebuild. Suffice to say that there is a lot of work still to be done, but the BVI is well on the mend. “Irmageddon,” as she has come to be known, did her worst but failed to take into consideration the indomitable spirit of the people of the Caribbean, and the BVI in particular.
The year got off to a flying start with January’s announcement by the Barbadian Chief Justice Minister, Sir Marston Gibson, for plans to set up a regional asset recovery group in the Caribbean. This initiative, the Asset Recovery Interagency Network (ARIN), would target criminals and their unexplained wealth. There is clearly some mileage in Sir Marston’s proposition and as a lawyer specializing in the investigation of international fraud and cross-border asset recovery, I was fully supportive of the measures.
However, the developing story in February revealed that Mossack Fonseca tax advisors considered Canada as an excellent place to hide assets. The story ultimately became known as the “Canadian Snow Washing” scandal, after it became apparent that the unscrupulous were hiding assets in my usually-benign home country. By falsely portraying that their wealth was derived from benign and “clean” sources it provided an immediate smokescreen. Toronto tax lawyer Jonathan Garbutt aptly described the process of making a company appear Canadian as “Snow Washing.”
March saw the Mossack Fonseca story take another twist with the authorities catching up with the firm’s founders, Jürgen Mossack and Ramon Fonseca, who were arrested in Panama City and the firm’s offices raided. In addition, the authorities appeared close to tying the firm to the Brazilian Lava Jato (“Operation Car Wash”). The investigation reads like a Who’s Who of South American countries, not to mention that added to the mix were investigations in the United States and Switzerland. The Panama Papers ramifications continue to rumble on to this day, with the recent announcement of the EU’s Fourth AML Directive forcing companies across the EU to disclose the identities of their ultimate beneficial owners on a public register.
The United States champions itself as a nation policing the rest of the world, preventing money laundering, tax evasion and foreign corrupt practices. Yet there is hypocrisy afoot. April saw the U.S.’s vaulted position take a hammering when the European Parliament released a report in March concluding that the United States was now a major “tax haven.”
When news of the Panama Papers scandal broke, the BVI came under extreme pressure and scrutiny. It seemed like the rest of the world, America included, wanted to close the BVI’s offshore company facilities for good. The fact that the US was being two-faced only added to the sense of hypocrisy felt by the Caribbean offshore world.
This Caribbean perception of the U.S. telling all to “Do as I say, not as I do” was added to later that same month. The Extractive Industries Disclosure Rule that would have required oil and gas and mining companies to annually disclose their payments to foreign governments, and intended to increase transparency and prevent back-handers, was dropped. The White House said the rule, which was slated to be effective next year, would have imposed “unreasonable compliance costs on American energy companies” and “placed them at risk of losing out to foreign competition.” By repealing the disclosure rule, I stated that the United States was in danger of losing the moral high ground.
May arrived with breaking news concerning Nigeria, a state that finds itself regularly connected to developing fraud concerns. In this instance it involved Shell, who had paid a reputed $1.1 billion to develop an oil field, approximately half of which allegedly ended up in the bank account of a company owned by a Nigerian government official. Whether these payments amounted to corruption by a major oil company remained to be seen. But this was precisely the sort of development that I had predicted a month earlier, with the US demise of the Extractive Industries Disclosure Rule.
Later in May I returned to one of my pet hates, grand corruption. My perspective is simple: the perpetrators of grand corruption are an A-List of kleptocrats who have pillaged their respective countries and their people of countless billions of dollars. In this instance it was the plight of the people in Venezuela which triggered my concern. I have long-advocated that grand corruption should be considered a crime against humanity under Article 7(1)(k) of the Rome Statute establishing the International Criminal Court. The Cambridge Dictionary a kleptocracy as “a society whose leaders make themselves rich and powerful by stealing from the rest of the people.” This definition fits the case of Venezuela perfectly.
July arrived, and I was once again perplexed by the apparent omission of civil asset recovery/forfeiture from the investigative list of solutions to the problem of grand corruption. The announcement that the UK’s National Crime Agency (NCA) would be hosting a team of specialist investigators from countries such as Australia, Canada, New Zealand, Singapore and the USA to target grand corruption grabbed my attention. From the various soundbites, it appeared that confiscation/forfeiture had been overlooked as a remedial route to right the wrongs of the corrupt. I said that confiscation/forfeiture acts sought to strip the “negative role models” of their power: i.e. money. By returning them to hollow men of straw, removing their lifestyles, it would send a message to others who might be tempted to follow in their unworthy footsteps.
Autumn saw Scotland finally picking up the cudgel in its fight against criminals who had successfully been using Scottish offshore entities to launder their illicit gains. In September the Scottish Parliament brought in new regulations [The Scottish Partnerships (Register of People with Significant Control) Regulations 2017] designed to frustrate any unscrupulous activity. I commended the Parliament for finally acting, drawing a line under this particularly detrimental issue.
The month continued with the publication of an academic article/survey produced by the University of Amsterdam. Its anti-capitalist thrust bemoaned the rights and responsibilities of businesses to try and minimize their tax liabilities. Once again Apple took a proverbial kicking. The inference constantly being implied was that tax efficiency was tantamount to committing fraud. It isn’t, and wasn’t. Add to this the claimed “innovative” means used to allow the academics to reach their conclusions, and very quickly you realized that the assumptions made were questionable at best: in particular their attack on the BVI offshore industry.
The Fall continued with my comments on the psychology of whistleblowing. I sought to differentiate between the various motivations for blowing the whistle, primarily for those who do so out of conscience and then those who do so for reward. Whatever their motivation, whistleblowing remains as a deterrent against unworthy activity and consequently the motive and desire to report unworthy conduct needs to be nurtured and embraced.
The Paradise Papers made their noisy autumnal appearance. Despite the best efforts of the media to paint them in the same scandalous light as the Panama Papers, I observed they failed to do so and described them as a damp squib. There is nothing wrong with minimizing your tax obligations legally. There was an absence of evidence incriminating those outed in anything other than an ethical argument that perhaps they should pay more in line with their earnings. I was roundly turned on by the anti-1% brigade, but that is the price you pay for voicing an opinion which is not in harmony with the Commentariat.
Such was the outcry, I responded by explaining that no matter what the ethical arguments, lawful tax avoidance cannot be intertwined with illegal tax evasion. Although I made the point that debate is healthy, it can be difficult to do so with those who consider themselves to be righteous.
The Holiday Season has now arrived. In December I offered my views about the EU’s publication of its rogue states list of those it says facilitate tax avoidance. I described the EU initiative as its very own “Santa’s Naughty List.” I also suggested that the idea was pointless and did nothing more than pay lip service to those appalled by the lack of taxes collected from Big Business. In addition, I questioned why the U.S. appeared to have escaped criticism, concluding that this was down to the EU picking its targets carefully and likening it to a bully. (I see that Tunisia does not appreciate being placed onto the EU’s naughty list).
This brings me to my concluding statement: 2018 will undoubtedly surpass 2017 in terms of initiatives designed to frustrate Big Business in its attempts at being lawfully tax efficient. The Panama and Paradise Papers have made this the hottest topic of all. Governments will have to change their collective stance to ensure that the big internationals pay more of what some see (the electorate) as their “fair share.” Failure to do so may cause them problems at the polls.
So, this said, all that remains is for me to wish everyone a Happy New Year. I look forward to sticking my head back up above the parapets in 2018.
Martin Kenney, pictured above, is Managing Partner of Martin Kenney & Co., Solicitors, a specialist investigative and asset recovery practice based in the BVI and focused on multi-jurisdictional fraud and grand corruption cases www.martinkenney.com |@MKSolicitors. He was selected as one of the Top 40 Thought Leaders of the Legal Profession in 2017 by Who’s Who Legal International and as the number one offshore lawyer for asset recovery.