Are Offshore Structures and Tax Havens Illegal?

With the recent Panama Papers Leaks of the offshore law firm Mossack Fonseca raising the issue yet again, are offshore structures and tax havens illegal? 

By: Ringo Bones

Ever since the Occupy Wall Street movement of few years ago went global, most of the world’s richest one percent had been viewed with increasing suspicion and trepidation by the rest of us and with the recent Panama Papers Leak of the offshore law firm Mossack Fonseca, it is as if a global class warfare is on the verge of inability. But given that most of us average income folks could serve lengthy prison terms if we fool around with paying our taxes, are offshore structures and tax havens technically illegal? 

At present, using offshore structures to lessen one’s tax burdens is entirely legal. There are many legitimate reasons for doing so. Business people in countries such as Russia and Ukraine typically put their assets offshore to defend them from “raids” by criminals and to get around hard currency restrictions, while others use offshore structures for reasons of inheritance and estate planning. But why is it that some people who use offshore structures are viewed as crooks? 

In a speech last year in Singapore, the UK Prime Minister David Cameron said “the corrupt, criminals and money launderers” take advantage of anonymous company structures. The government is trying to do something about this. It wants to set up a central register that will reveal the beneficial owners of offshore companies. From June, UK companies will have to reveal their “significant” owners for the first time.   

The records were first obtained from an anonymous source by the German newspaper Sϋddeutsche Zeitung, which shared them with the International Consortium of Investigative Journalists (ICIJ). The ICIJ then shared them with a large network of international partners – including the Guardian and the BBC. The documents show the myriad ways in which the rich can exploit secretive offshore tax regimes. Twelve national leaders are among the 143 politicians, their families and close associates from around the world known to have been using offshore tax havens and a significant number of them are incumbent members and immediate families of the Beijing Communist Party. Ever since the news about the Panama Papers Leak went global, Baidu – The People’s Republic of China’s equivalent of Google and the only search engine authorized by the monolithic communist party to operate in Mainland China – had been blocking the story for frat that it may be just a “Western Plot” against the Beijing Communist Party.

A 2-billion US dollar trail leads all the way to Russian strongman Vladimir Putin via the Russian president’s best friend – a cellist named Sergei Roldugin – is at the center of a scheme in which money from the Russian state banks is hidden offshore. Some of it ends up in a ski resort where in 2013 Putin’s daughter Katerina got married. And despite the legality of the leaked documents, Russia’s official news agency had dismissed the revelations as a “Western plot” against Vladimir Putin. 

Among the other national leaders revealed by the Panama Papers Leak to have offshore wealth are Pakistan’s Prime Minister Nawaz Sharif, ex-interim prime minister and former vice-president of Iraq Ayad Alawi, president of Ukraine Petro Poroshenko, Alaa Mubarak – son of Egypt’s former president and the Prime Minister of Iceland, Sigmundur Davíỗ Gunnlsughsson. And what irked the international community most is on how Mossack Fonseca helped governments that are under imposed economic sanctions by the UN Security Council to still do business with impunity – like North Korea and Russia since the unlawful Donetsk Region annexation by the Putin regime.    

Mossack Fonseca is a Panama-based law firm whose services include incorporating companies in offshore jurisdictions such as the British Virgin Islands. It administers offshore firms for a yearly fee. Other services include wealth management. The firm is Panamanian but runs a worldwide operation. Its website boasts of a global network with 600 people working in 42 countries. It has franchises around the world, where separately owned affiliates sign up new customers and have exclusive rights to use its brand. Mossack Fonseca operates in tax havens including Switzerland, Cyprus and British Virgin Islands and in the British crown dependencies of Guernsey, Jersey and the Isle of Man.