The Pandora Papers leak: Everything you need to know

Yellow file marked Pandora Papers with tabs: Corruption, Crime and Offshore.

October’s colossal Pandora Papers leak has revealed a wide range of big companies and household names have been using tax havens to avoid paying their fair share of tax here in the UK. Company owners should view the unfolding investigation as a cautionary tale.

As governments all over the world continue working desperately to offset the adverse effects of the COVID-19 pandemic, there’s been a renewed focus on under-resourced public services and how they are funded.

That’s why so many financial institutions have come under fire over the course of the last twelve months for the ways in which they facilitate tax dodging amongst the global elite — and it’s also why last week’s Pandora Papers leak has generated a huge amount of publicity around the existing loopholes and lenient tax regulations that enable many high-earning individuals to evade domestic tax authorities by shifting their income overseas.

This quick guide is designed to help you understand exactly what the Pandora Papers are, why they’re significant, and what they mean for global finance and corporations moving forward.

What are the Pandora Papers?

Published in October 2021, the Pandora Papers leak is now considered one of the largest ever leaks of confidential financial documents, representing more than 12 million electronic documents obtained by the International Consortium of Investigative Journalists (ICIJ).

Those 12 million documents arrived in the form of more than 2,940GB worth of data — dwarfing the size of the similar Paradise Papers leak in 2017.

The leaked files originated from 14 offshore service providers that specialise in helping their clients to establish companies in low-tax and ultra-private legal jurisdictions. Those company service providers include All About Offshore Limited, Alemán, Cordero, Galindo & Lee, Alpha Consulting Limited, Asiaciti Trust Asia Limited, CCS Trust Limited, CIL Trust International, Commence Overseas Limited, Demetrios A. Demetriades LLC, Fidelity Corporate Services Limited, Glenn D. Godfrey and Company LLP, Il Shin, Overseas Management Company Inc, SFM Corporate Services, and Trident Trust Company Limited.

The ICIJ is subsequently protecting its news sources by protecting the identities of the whistleblowers responsible for the colossal data leak. But the data was received in Washington, DC. From there, more than 600 journalists from 140 news publications in 117 countries assisted in the ICIJ’s biggest-ever global investigation.

What have the Pandora Papers revealed?

Although the Pandora Papers leak has led to controversy surrounding an invasion of privacy for those involved, the journalists investigating the story have insisted the leaked documents are in the public interest because they have exposed a broad range of illegal activities — primarily tax dodging.

Above all else, the Pandora Papers have provided a lot of information about companies and individuals utilising so-called tax havens to avoid paying the correct amount of corporation tax or income tax on the money they’ve made.

You’ll also often hear of tax havens referred to as “offshore financial centres”, but they both amount to the same thing. Tax havens are financial jurisdictions that are based outside the regulated area in which a business or individual is located, that offer lower tax rates.

By basing companies in a tax haven rather than the main jurisdiction in which a company actually operates, and then hoarding income into that overseas account, tax authorities are unable to make companies pay the correct amount of tax — effectively saving big companies or rich people hundreds of millions of dollars.

In its initial report on the Pandora Papers, the ICIJ focused heavily on the Panamanian law firm of Alemán, Cordero, Galindo & Lee (commonly abbreviated as “Alcogal”). The findings revealed the law firm has created at least 14,000 shell companies and trusts in tax havens in recent years — but the Pandora Papers investigation has also led to accusations that several household names in the UK and worldwide have been involved in dodging paying their fair share of tax to HMRC by setting up offshore corporations and accounts.

For example, the Pandora Papers have revealed that the owners of more than 1,500 UK properties used offshore firms to buy the properties — including individuals accused of corruption.

The Papers also found the Qatari ruling family avoided £18.5m tax on a London mansion, that the King of Jordan spent £70m on properties in the UK and the US through secretly-owned companies, and one of Azerbaijan’s leading families successfully hid their financial involvement in more than £400m worth of UK property deals.

Furthermore, the Papers revealed that Sir Philip and Lady Green went on a property spree after off-loading the iconic BHS retail chain which went on to collapse shortly afterward, and that a prominent Tory donor Mohamed Amersi was involved in one of Europe’s biggest corruption scandals.

But with 12 million documents in the fold, it’s hardly surprising that this is just the tip of the iceberg. In total, the Pandora Papers implicate 35 current and former national leaders, 400 public officials from nearly 100 countries, and more than 100 billionaires of potential wrongdoing.

The list goes on and on — and the number of those under investigation will only increase as regulators and investigators continue to sift through the financial documents.

Many of these revelations have already led to official investigations from law enforcement, and are likely to end in court action and prosecution.

What should companies take away from the Pandora Papers?

Although 2021’s Pandora Papers are hardly the first major financial leak to occur over the course of the last five years, this investigation does appear the latest sign that both regulators and the general public are no longer willing to accept the exposure of tax loopholes by the global elite.

It’s critical to note that using offshore accounts is not illegal. There are many valid reasons to use an offshore bank account. Likewise, sometimes it makes perfect sense for a UK-based corporate entity to establish an offshore corporation.

But this is normally when that company has many trading interests in that particular market — and when a large company or high-earning individual sets up an offshore corporation in a country they would have otherwise had little to do with, that raises red flags.

Moving forward, regulators have indicated that those sorts of offshore corporations must be dismantled and prevented in the future through legislation, and steps are already being taken by lawmakers to introduce new laws.

After all, by allowing large sums of money to be moved into secretive tax havens, it not only becomes far more difficult for governments to fund public services through fair levies and tax payments, but global police forces are also prevented from uncovering misappropriations of funds, money laundering, and other illegal transactions that can (and should) be prevented.

Bearing that in mind, the key takeaway for companies in sifting through the Pandora Papers is to tread carefully. Although there are a number of corporate service providers across the globe offering company formation services in exotic offshore tax havens, regulators have got their sights set on eliminating large proportions of those services.

Companies keen on establishing a legal identity in an overseas jurisdiction must weigh the pros and cons carefully, ensure they’ve got an adequate rationale, and check with authorities and tax professionals within their own country to make sure what they’re doing is 100% legal and sensible.

Want to learn more about tax regulation?

Check out the Linnear COSEC knowledge centre to ensure your business stays up-to-date on the latest industry news, or get in touch to find out how our company secretarial services can drastically reduce your costs and free up your time to help you focus on running your business.

About the author

Nicholas joined in 2018 to set up the Company Secretarial Department in the group’s company formation divisions. After establishing the department, he was a key stakeholder in the development of Linnear CoSec. Prior to joining the group, Nicholas worked in a variety of client-facing positions at an international provider of corporate services, caring for a diverse portfolio of companies. He is a Chartered Secretary and Governance Professional, and holds a bachelor's degree in Politics as well as a Masters in Corporate Governance.

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