As the media hysteria around the so-called Panama Papers begins to subside, it is time to consider what this episode has taught us, if anything – and that does not include the hardly stunning revelation that celebrities, politicians and wealthy individuals worldwide use offshore vehicles to hide their assets and avoid paying tax.
Firstly, the Panama Papers chain of events has reinforced the increasing realisation amongst companies that their internal data cannot always be protected. This was not, as originally reported, an intentional leak by a source within a law firm – a notion that seemed to make some high-minded journalists feel better about exposing the salacious roll call. Mossack Fonseca was criminally hacked. Many other multi-national companies have experienced similar breaches over the past few years, adding fuel to the fire of information security consultants who like to start their pitch with: ‘Don’t ask yourselves if or when you might be hacked; ask yourselves when were you hacked’.
Secondly, even when laws have not been broken – and in many cases they weren’t – an association with opaque jurisdictions can be enough to inflict serious damage. In the world of politics, it can be enough to topple a European premier and to prompt UK Prime Minister David Cameron to take the unprecedented step of publishing his personal tax information, albeit in an exercise in damage control. In the corporate world, my guess is that companies will want to review their corporate structures in the context of the reputational risk that now hovers over offshore jurisdictions, such as Panama and the British Virgin Islands. At a time when banks are almost looking for excuses not to onboard or to walk away from client relationships, their compliance departments may decide that even a whiff of offshore complexity is enough to raise question marks, if not red flags. This is ironic, since several of the largest banks were at the same time facilitating the creation of these offshore arrangements.
So if it’s not first and foremost a legal issue, is it a moral or political one? The first must be decided by you, the readers, but I am sure that political culture plays a part. Many have already commented how different nations and their press have reacted (or not) to the Panama story, highlighting differences in government structures as well as national or regional political culture. Here in the Middle East, the local press has covered the story internationally but has been muted when it comes to the regional players who were named – not surprising for a part of the world where one’s business affairs, such as shareholdings, are considered a private matter and are rarely debated in the public sphere.
But our view is simply that there is value in clarity – for companies and politicians alike – in helping to create trust and to avoid reputational harm. It remains to be seen whether the Panama Papers have marked a turning point when that idea begins to be realised.