What the “Pandora Papers” Prove Isn’t What You Might Think
Another day, another offshore data leak.
In October 2021, another massive data leak emerged, continuing a now-familiar pattern. This led the mainstream media to once again criticize offshore financial centers and the so-called “enablers” that support them.
We’re speaking, of course, about the so-called “Pandora Papers.” This leak encompasses nearly three terabytes of data – enough to print more than 1.5 billion pages of text. It includes around 6.4 million documents, nearly three million photos, over a million email messages, and almost 500,000 spreadsheets.
Media Sensationalism: Blowing the Leak Out of Proportion
In the breathless reporting we’d typically expect to see in a gossip column, we’re told by The Washington Post that world leaders and politically-connected billionaires have “Billions Hidden Beyond Reach.” Frankly, the coverage reminds us of that famous headline from a 2001 issue of Weekly World News, “Mini-Mermaid Found in Tuna Sandwich.”
The discoveries are titillating, but unlike a real mermaid (much less one in a sandwich), they’re not terribly surprising. For example, Russian President Vladimir Putin evidently had a secret relationship with a woman he put up in a fancy apartment in Monaco after she gave birth to his love child. A British accountant practicing in Switzerland used entities created in the British Virgin Islands to assist Jordan’s King Abdullah II in amassing a network of luxury homes in the United States and United Kingdom valued at more than $106 million. The king’s code name, incidentally, was “you know who.”
American billionaires Robert F. Smith and Robert T. Brockman were clients of a trust company in Belize, which was operated by the country’s former attorney general. Both individuals came under investigation by US tax authorities. In 2020, Smith agreed to pay $139 million to settle the charges against him. Brockman, meanwhile, has been indicted in what federal prosecutors call the biggest tax fraud in US history.
What the Leaks Really Show: Nothing New
The leaks follow in the footsteps of earlier leaks, dubbed the Offshore Leaks (2012), Luxembourg Leaks (2014), Swiss Leaks (2015), Panama Papers (2016), Paradise Papers (2017), and most recently, the FinCEN Files (2020).
Like the previous sensationalist exposés, the Pandora Papers reveal very little that anyone familiar with the context didn’t already understand. Dictators and other powerful figures in authoritarian governments have the opportunity to generate enormous sums of money coerced or stolen from businesses and ordinary citizens. The revolving doors between government and private business give billionaires access to current and former well-connected politicians. High taxes create incentives for those paying the most to find escape hatches, legal or otherwise.
Misunderstandings and Oversights: The Role of Onshore Companies
There’s a continuing media misunderstanding of the role of onshore companies in facilitating the processes they criticize. A case in point is a series of articles on the BBC News website analyzing the Pandora Papers. One article describes how “The Secret Owners of UK Property Worth Billions” used “anonymous companies based in the British Virgin Islands, a tax haven,” for this purpose.
Perhaps the authors of the article are unaware that the United Kingdom itself is chock-full of effectively anonymous companies. Just a few days before the Pandora Papers press coverage began, London’s Financial Times revealed that one former UK company officer was named in corporate records as Jesus, Holy Christ. His address was Heaven, his citizenship was Angelic, and his occupation was listed as Creator. The Times went on to remind readers that it takes about 15 minutes, an internet connection, and £12 to set up a UK company. As for identification, not even a passport is required.
Yet, it’s the British Virgin Islands – not the much larger and far more financially sophisticated United Kingdom – that the Tax Justice Network, one of the alphabet soups of non-governmental organizations pressing for further crackdowns on low-tax jurisdictions, calls a “notorious tax haven.”
Potential Political Motivations: A Question of Intent
Nor does the mainstream press make the connection – rather obvious to an informed observer – that the corrupt political leaders exposed in the leaks are almost never American. On the other hand, Vladimir Putin is almost always included. Indeed, the reporting on Putin’s supposed secret assets has been so pervasive over the years that they could hardly be considered “hidden.”
One could also be forgiven for thinking it’s plausible that the leaks originated from an intelligence agency with a political purpose or even to be politically destabilizing.
We have no proof that this explanation is accurate – far from it. But our take on the “offshore” world remains unchanged: “going offshore” is more important than ever. And as we regularly discuss, there are legitimate ways to do it that won’t get you in trouble.
Practical Advice: How to Safely Go Offshore
We do see hesitation on the part of some clients to venture offshore for fear that their data will be leaked. That’s a legitimate concern, but it’s one that’s relatively easy to deal with.
Virtually all the data leaks since 2012 have involved the world’s largest banks, law firms, and accounting firms. The Luxembourg Leaks in 2014, for instance, involved data purloined from accounting giant PricewaterhouseCoopers. Data stolen from the Swiss subsidiary of HSBC, the world’s sixth-largest bank, formed the centerpiece of the 2015 Swiss Leaks. The 2016 Panama Papers leak came exclusively from the offices of Mossack Fonseca & Company, once the world’s fourth-largest offshore services provider. Two major sources at the center of the Pandora Papers leaks are Morgan Stanley Bank and Baker McKenzie, one of the world’s largest law firms.
If you’re a billionaire and want to diversify your assets internationally, you might have no choice but to use a big multinational bank or law firm for professional assistance. Only a megabank with tens of billions of dollars in assets, for instance, could comfortably absorb deposits amounting to hundreds of millions or even billions of dollars.
But if you’re not a billionaire and are looking to “offshore” yourself, using boutique specialist firms, along with small but well-capitalized banks, can dramatically reduce the risk that details of your offshore dealings will wind up, say, on the front page of The Washington Post.
When it comes to blatant sensationalism like this, it generally only attracts attention if you’re a celebrity, billionaire, or foreign politician. Otherwise, it’s unlikely anyone will take much notice.
Need Help?
Since 1984, we’ve helped more than 15,000 customers and clients successfully build wealth protection plans and internationalize their lives. Second passports and citizenships play a big part in that. And for some, even expatriation.
If you’re thinking about a second passport, an offshore bank account, setting up an offshore company or buying foreign real estate, we can help. For an unbiased perspective on your options, please schedule a free no-obligation consultation with a Nestmann Associate. Click here to request a call.
