The furore generated by the disclosure of the Panama Papers seems unreal, and in some respects farcical. It is assumed by commentators, such as Tom Bradby and Robert Peston (on television the 5th April), that the fact that a British citizen has deposited funds or assets with or through the law firm of Massock Fonseca itself suggests wrongdoing of some kind; in particular the innuendo is that the motivation for using its services is to conceal taxable assets or revenues from the tax authorities in the United Kingdom. The secrecy usually associated with such transactions is a factor pointing towards some kind of impropriety. Panama is labelled by commentators as a tax haven, as if that were sufficient to make the deposit of money or assets there by a British citizen immediately suspect. It is to be noted that thus far there is no suggestion that any of the clients of Massock Fonseca (including the Prime Minister’s late father) has engaged in any unlawful conduct or concealment.
It is commonplace for wealthy individuals to place their monies in different jurisdictions: they may do that for legitimate investment reasons, or for wholly improper purposes. But the mere fact of placing funds within a particular jurisdiction, which may happen to have a benign tax regime, cannot ipso facto be unlawful and thus call for an inquiry. If that were otherwise the case, the City of London would be the biggest tax haven in the world. Every day citizens of other foreign countries deposit funds and assets with law firms, banks, and financial institutions in the United Kingdom. There are procedures in place for checking on the legitimacy of such deposits. Nonetheless no one would claim that the procedures are wholly watertight. While the majority of the transactions may be lawful both in the United Kingdom and in the country of origin, there are likely to be some deposits which are questionable. Panama appears to have some regulations in place; one does not know whether they are any more or less effective than the United Kingdom regulations. The Netherlands Antilles is often labelled a tax haven. Yet a survey by the United States Treasury some years ago found that the regulations in place there for combatting money laundering, were more effective than the regulations in the United Kingdom. The short point is that politicians, the Treasury and commentators should be careful not to point the finger at Panama; we have had plenty of financial scandals of our own in the United Kingdom in recent times. So far Massock Fonseca is not said to have been guilty of any impropriety: all that can be said about the firm is that it has an impressive client list, including many prominent and very wealthy world leaders; and by the use of offshore companies it seeks to preserve the confidentiality of its clients and their assets.
It is being said that somehow the secrecy of the firm’s activities on behalf of its clients points to some kind of wrongdoing. This is complete nonsense. Every firm of solicitors, every bank and similar institutions are obliged to protect the confidentiality of their clients and customers. Even the Inland Revenue is obliged to keep information obtained from taxpayers confidential, and therefore secret. The idea that everyone’s tax and financial affairs, assets and wealth should be open to inspection by the world at large, only has to be stated for its absurdity to be seen.
There are many practical reasons why individuals may wish to keep their finances secret: some perfectly legitimate, some improper, some immoral but lawful. The fact that someone wants to preserve the confidentiality of his affairs does not without more make him prima facie a criminal.
Politicians and commentators should bear this in mind before they start expressing damaging opinions in Parliament or in the media. The Leader of the Opposition has called for an inquiry into the Prime Minister’s finances, based on the revelation that his late father made use of the services of Massock Fonseca some many years ago. As seems clear, the late Mr Ian Cameron was a successful stockbroker with an impeccable reputation. The transactions, lawful and legitimate at the time, were no doubt for the legitimate purpose of wealth preservation. There is no suggestion or evidence that there was any dishonest purpose. The behaviour of Mr Corbyn is a good example of the tendency of left wing politicians and others to engage in smear tactics based on invented impropriety. One might venture to ask: is he going to call for an inquiry into the finances of Vladimir Putin? After all, tax evasion seems to be a worldwide problem; and Mr Putin is seemingly linked to Massock Fonseca.
It is high time politicians, governments and commentators got real. Wealthy individuals and organisations have the freedom to move their wealth into jurisdictions which will better preserve and enhance it. Punitive rates of tax, or uncomfortable expropriation of established wealth, are not factors likely to encourage the wealthy to remain in the United Kingdom. Nor will inquiries into the affairs of large corporations and wealthy individuals, accompanied by opprobrium levelled against them, make them wish to stay here and pay unwelcome taxes in an atmosphere of hostility. They would certainly not stay to support Mr Corbyn and his colleagues who lose no opportunity to sneer at or denigrate ‘the rich’. Rather will they take their money to the Cayman Islands, the BVI, Switzerland, Bermuda, Luxembourg and other desirable places. That would result in an outflow of capital from the United Kingdom and a high risk of job losses.
The truth is that the economy of a modern state like the United Kingdom depends very much on the presence of successful corporations and entrepreneurs within it. They invest here; they provide employment; the economy benefits. Frighten them away with anti-wealth policies and taxes; and the nation will pay the price.
What the Massock Fonseca fiasco demonstrates is the huge amount of wealth being held ‘offshore’ globally. That happens to be one of the facts of modern economic life. If the object is to encourage offshore funds to come onshore, threats to take control of the BVI and the Cayman Islands are not helpful. One simply has to recognise the importance of ‘tax havens’ in the scheme of things. If Panama, the BVI and the Cayman Islands cease to operate as tax havens, other jurisdictions will gladly take the business and step into their shoes – with perhaps less effective regulation.