Until the whistle blew by John Burbidge King

by Heather Dandridge  11-Apr-2016 at 10:32

Until the whistle blew by John Burbidge-King

"There's an unwritten rule at the firm—what we do away from Memphis stays away from Memphis." The Firm written by John Grisham and published in 1991.

John Grisham's best-selling novel (and film) The Firm all about the exposure by a newly qualified lawyer of the illicit activities of the fictitious Memphis law firm Bendini, Lambert and Locke. However, in real life, their activities would seem to pale into insignificance compared with the expose of the Panama Papers last week.

The Panamanian law firm Mossack Fonseca, the subject of the recent massive data breach disclosing 11.5 million files buried in 2.6 terabytes of data, is a treasure trove of global offshore financial activity, that will reverberate for many months. It has exposed the financial connections of 140 politicians in more than 50 countries, of Mossack Fonseca setting up thousands of offshore companies on behalf of its clients in 21 tax havens. Heads of state, government ministers, elected officials and others have availed themselves of the services of this Panamanian law firm. Some 500 global banks including HSBC, UBS and Coutts & Co have engaged Mossack Fonseca to act on behalf of their clients, to set up offshore tax arrangements.

The political impact has miles of road to run, regardless of any wrongdoing, as public perception of untoward behaviour takes hold. The Prime Minister of Iceland has resigned and David Cameron has taken a week to explain his personal financial affairs. Mr Putin has shrugged it off as another attack from the West; Chinese leaders have gone quiet while former President Mubarak of Egypt and others of a similar ilk are in languishing in prison.

But what is the big deal? Many of the world's major financial services players, leading law firms and insurers have connections to offshore tax havens, as do many companies, in the pursuit of legitimately reducing their tax liabilities. For many years, trust funds have been set up offshore to provide a licit service to clients from many tax jurisdictions.

However, these mechanisms also allow those less honest to evade or reduce tax liabilities and these have now become the focus of a number of national tax authorities. Presently only the big names have been revealed; not just global figures but others such as wealthy soccer players including from the UK; the leak has opened up more allegations against FIFA officials including the recently elected president.

The revelations of those who have used offshore mechanisms for illicit tax evasion will unfold over time as the authorities investigate. But far more serious is the use of offshore companies and instruments such as bearer shares to conceal the beneficial owners, not just of licit funds but also the proceeds of crime. Intelligence is already surfacing on drug barons, major crime such as the Brinksmat gold robbery, and more will appear as the analysis continues; be they organised criminals or high ranking political leaders, some of whom are in exile having salted away their ill-gotten gains stolen from their country, then laundered offshore so they can enjoy the fruits of their corruption in expensive lifestyles such as investment in property (London is a favourite), art and other high value goods.

The majority of global citizens pay their taxes but in the poorest countries, many do not earn enough to pay direct taxes but are forced to pay bribes to acquire the essentials of life that many of us take for granted; health services, education or even water. But those who can afford the services of Mossack Fonseca, and the many other similar firms, including private banks, are in a position to more efficiently manage or conceal their wealth. In many cases these activities are legal but of course draw the angst of the politics of envy of those less fortunate.

The lessons for companies are clear. According to a recent report in the International Business Times, 59% of the 604 chief compliance officers (CCOs) surveyed admitted their businesses adopted a culture of 'profits over prevention', with 44% of respondents indicating that addressing bribery and corruption was not on the board agenda. Furthermore, 40% of the compliance teams revealed anti-bribery and corruption is not one of their chief executives' top priorities, while 39% of CEOs did not openly support anti-bribery and corruption measures within their business.

It is increasingly difficult to hide illicit activity in today's networked world. All a whistleblower has to do is download the data on a memory stick, text or e mail a concern to an enforcement agency; or a miscreant simply sends an incriminating e mail to a wrong address. Tax evasion is a hot topic and its exposure may lead to the uncovering of other crimes such as money laundering, fraud and bribery.

Anti-bribery measures are not difficult; they require a positive mind-set towards doing good business; the process is value enhancing and provides protection to a company's employees, officers and other stakeholders. Given this massive Panamanian exposure - does any company director, CEO really want to cause damage to those in less advantaged countries by lining the pockets of greedy government and other decision makers? The Mossack Fonseca disclosures have so far highlighted the tip of the iceberg as more is revealed. It's time to get real and accept that crime really does not pay; it's likely to cause terminal damage to both organisations and individuals; what seems for some to be "the way of doing business" will ultimately wreck lives, theirs and their families too...

For further information on the Panama papers go to www.panamapapers.icij.org

John Burbidge-King
CEO Interchange Solutions Ltd
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