The Paradise Papers – The World’s Second Largest Data Leak Reveals Extensive Details of Offshore Wealth

The leak, which took place in 2016, is continuing to be investigated by the ICIJ and is rapidly gathering momentum, having already led to questions being raised in the House of Commons by Jeremy Corbyn about the importation of business jets in the Isle of Man in order to avoid tax during Prime Minister’s questions last Wednesday. Last night's BBC Panorama programme also shed some light on various investments made by the Queen's private estate, those connected to political parties and football club ownership. Individuals and entities are now braced for further "revelations" following the release of the Paradise Papers by the ICIJ on 5 November 2017. The question remains though, as with any of the offshore leaks, whether there is any wrongdoing, illegal or otherwise to be investigated or whether this is a further attack on the role of secrecy that some offshore investments provide.

In a statement responding to the theft and leak of its data, Appleby said:

“We take any allegation of wrongdoing, implicit or otherwise, extremely seriously. Appleby operates in highly regulated jurisdictions and like all professional organisations in our regions, we are subject to frequent regulatory checks and we are committed to achieving the high standards set by our regulators. We are also committed to the highest standards of client service and confidentiality. It is what we stand for. This commitment is unequivocal.”

“Appleby has thoroughly and vigorously investigated the allegations and we are satisfied that there is no evidence of any wrongdoing, either on the part of ourselves or our clients. We refute any allegations which may suggest otherwise and we would be happy to cooperate fully with any legitimate and authorised investigation of the allegations by the appropriate and relevant authorities.”

“We are an offshore law firm who advises clients on legitimate and lawful ways to conduct their business. We do not tolerate illegal behaviour. It is true that we are not infallible. Where we find that mistakes have happened we act quickly to put things right and we make the necessary notifications to the relevant authorities.”

What the Paradise Papers reveal 

Like the Panama Papers, the Paradise Papers identify those who have used law firms, trust companies and intermediaries to assist in the setting-up and maintenance of offshore investment structures. Although the suggestions in the media will often be of widespread tax avoidance and evasion, the raw data itself would not show this on its face, and would need to be further analysed in order to determine whether there may be any follow-up actions from tax authorities. Some analysis of the correspondence by the ICIJ poses questions over whether the intended facts of each structure are entirely borne out in practice. This will be the most important area for tax authorities to investigate further.  

BBC’s Panorama aired the first of its two part series on the Paradise Papers on 5 November 2017 and sought to identify individuals and entities who are named in the leaks which included the Queen's private estate, a senior Conservative funder, owners of UK premier league football clubs and an aide to the President of the United States. Part two will investigate the role of the Isle of Man in providing tax efficient structures for the purpose of purchasing of yachts and planes amongst other areas of interest.

It should be noted that it is not just private individuals and entities that could be affected by the Paradise Papers; news sources are reporting that there is also concern from governments.

Damage limitation 

Individuals and entities that have been or may be named in the Paradise Papers will obviously be concerned about the potential reputational fallout and should, in the first instance, seek specialist advice.  

 Beyond that, some or all of the following steps are likely to prove vital:

• Find out what information has been leaked.  Some of it may already be in the public domain, meaning the damage (if any) could be managed.
• Obtain copies of the leaked information and documents as soon as possible so that you can start to assess the potential risks. 
• If possible, put in place a media monitoring team so that you are immediately made aware of any adverse publicity.
• Make sure that your contact details are in the public domain so that journalists can ask you for comment before any allegations are published.  Any response to particular allegations can be agreed with lawyers ahead of time.  If it can be agreed that you have done nothing unlawful, it is often advisable to release a short statement to that effect.  
• Analyse whether the nature of the structure is still working as it was intended from a tax perspective.
• If the reality of the structure does not represent the desired factual scenario, seek advice to remediate and regularise the tax position.

Next steps

Individuals and entities that have used tax efficient structures in the past — whether on an individual or corporate basis — should seek professional advice as soon as possible in order to check that the structure was implemented correctly and is legally robust in its present form.  It will always be far more beneficial to review the structure ahead of time and make any necessary disclosures to the tax authorities on a self-reporting basis, rather than waiting for the tax authorities to discover it first, which can have implications on the applicable penalties.  

If you would like further information in relation to this topic please do not hesitate to contact Andy Brown.