Offshore centers: Panama a Holdout to transparency

As the pressure on the U.K. grows to rein in offshore centers in its overseas territories and Crown dependencies, financial service providers there are saying they have implemented the global transparency standards that are lacking in Panama and elsewhere.

The facade of the Arango Orillac Building, home of the Mossack Fonseca law firm in Panama City, Panama, which is the source of a vast trove of documents detailing the offshore financial dealings of the rich and famous. – Photo: AP
The facade of the Arango Orillac Building, home of the Mossack Fonseca law firm in Panama City, Panama, which is the source of a vast trove of documents detailing the offshore financial dealings of the rich and famous. – Photo: AP

The IFC Forum, an organization representing a group of offshore law and financial services firms in British overseas territories and dependencies, noted in a statement that the publication of the Panama Papers has raised serious questions about global compliance with international regulatory standards.

According to the group, some jurisdictions have fallen markedly behind in the global efforts to combat money laundering and tax evasion.

But “it is wrong to bracket all small financial centers together as so-called secrecy jurisdictions,” said Richard Hay, counsel to the IFC Forum. Regulatory standards in British territories include the tracking of beneficial ownership.

They are judged by peer reviews and their information exchange regimes are “at the leading edge of global standards,” he said.

Financial centers in the British territories automatically exchange tax information with the U.K. and U.S. governments and are among the first adopters of the Organisation for Economic Co-operation and Development’s Common Reporting Standard, which extends tax information exchange to most other countries. They were also early signatories to the OECD’s Convention on Mutual Administrative Assistance in Tax Matters, a multilateral agreement providing for tax cooperation between participants.

As a result, they are ranked highly in reviews by the OECD, the main driver of international tax reform and tax transparency through its Global Forum on Transparency and Exchange of Information, and the Financial Action Task Force, the major anti-money laundering body.

“British [financial centers] are consequently amongst the hardest places in the world to evade taxes or launder money. These financial centers have laws and courts based on those of the U.K. and many lawyers and professionals educated, trained and qualified in the U.K.,” the IFC Forum said.

It called on all financial centers to adopt the information collection and exchange protocols endorsed by the international community and already used in British territories.

The notion that Panama does not have the same regulatory standards as other offshore centers is supported by the OECD, which described Panama “as the last major holdout that continues to allow funds to be hidden offshore from tax and law enforcement authorities.”

The OECD said it had constantly warned of the risks of countries like Panama failing to comply with international tax transparency standards.

“Just a few weeks ago, we told G-20 Finance Ministers that Panama was back-tracking on its commitment to automatic exchange of financial account information.

The consequences of Panama’s failure to meet the international tax transparency standards are now out there in full public view,” said OECD Secretary-General Angel Gurria. “Panama must put its house in order, by immediately implementing these standards.”

The Panama Papers showed a decline in the use of offshore companies and bearer share companies. According to Mr. Gurria, this is the direct result of the new standards of tax transparency, instituted through bilateral and multilateral tax information exchange mechanisms developed and promoted by the OECD.

Effective implementation of these standards is “the key to lifting the veil of secrecy once and for all and eradicating tax evasion,” he said. “The time has come to make sure that no jurisdiction can benefit from failing to meet their commitments.”

The next G-20 Finance Ministers meetings and the Global Anti-Corruption summit in London in May will be critical, Mr. Gurria added.

The U.S. has also attracted criticism in the wake of the Panama Papers revelations.

The Wall Street Journal, Financial Times and The Guardian all reported that the U.S. is attracting more “dirty money” in part because several U.S. states do not collect beneficial ownership data, something that has long been argued by practitioners in Cayman.

In a letter to the Financial Times, Anthony Travers, chairman of the Cayman Islands Stock Exchange, called on Prime Minister David Cameron to seek to raise the transparency standards in U.S. jurisdictions such as Delaware, Wyoming and Nevada in his next meeting with U.S. President Barack Obama.

“It is not for no reason that the Panama Papers reveal the increasing use of U.S. corporations,” he wrote.



  1. Don’t see the Cayman connection to the Panama scandal other than it concerns a close neighbor in the same business as we are – offshore finance. The big risk play for us here in Cayman is that a misguided professional in one of our major law firms can go berserk and sell confidential info to the public right here in Cayman. This could be fatal for Cayman. But then again the big firms operate using EI (eligible introducer) letters and there is hardly any real UBO (ultimate beneficial owner) info by the top dogs in Cayman. They are not stupid and won’t trust leaving a paper trail back to them. So you won’t see the big names like Goldman or JP Morgan around the place as owing anything in Cayman directly – only some numbered account or teacher’s pension association of Ohio (for example) or other nominee nonsense which does not trace back to the big fish. So we good – I think!!!!

  2. Clarence, thank you for giving us something to think about. “I poor as church mouse, but ah like ye style”
    I just hope everyone read your comments and read them well, back to front and front to back.


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