Impact of the Pandora Papers on UK law firms

By Neal Kok


https://www.icij.org/investigations/pandora-papers/


The Pandora Papers


The Pandora Papers is a collection of 11.9 million leaked documents that reveal the corrupt dealings of prominent figures, including world leaders, politicians, corporate executives, and billionaires. The papers were compiled by the International Consortium of Investigative Journalists (ICIJ) and publishing began on 3 October 2021. [1] With this evidence, such figures may be investigated, and if found to have unlawfully hid assets offshore and illegally avoid taxes, will be punished accordingly.


Of interest to UK law firms is that such individuals were found to have set up offshore companies to secretly buy property in the UK. This is amid concern that some of these property buyers are hiding money-laundering activities.


What is the law on offshore companies?


Each country has their own disclosure and tax laws regarding offshore accounts. In the UK, offshore evasion is defined as “using a location outside the UK to deliberately, and illegally evade UK tax. This includes: moving UK gains, income, or assets offshore to conceal them from Her Majesty's Revenue and Customs (HMRC); not declaring taxable income or gains that arise overseas, or taxable assets kept overseas; using complex offshore arrangements to hide assets, income or gains.” [2]


Impact on UK law firms


This episode should bring to the minds of commercial law firms that such money-laundering activities are more prevalent in the UK than previously imagined, and that they must accordingly embark on a robust system of ensuring that their clients are not entangled in such money laundering activities. This is to ensure that they are not complicit in money-laundering activities.


To counter this, firms must equip themselves to trace who the Ultimate Beneficial Owner of their clients is. The Ultimate Beneficial Owner is defined as a natural person who ultimately owns or controls an interest in a legal entity or arrangement, such as a company, a trust, or a foundation. [3] This is relevant to ensure that the natural person is a legitimate person who has legitimate funds for use, and not a front for illegal activities.


In response to the leak, the UK government also said that it will introduce tougher laws and enforcement on money laundering. [4] UK law firms therefore also have to be prepared for increased frequency of audits, or mandatory steps to clear a client. It will also have to be prepared to submit documents to the government when asked to assist in audits.





References:

[1] Investopedia. 2021. Pandora Papers Definition. [online] Available at: <https://www.investopedia.com/pandora-papers-5204914> [Accessed 22 December 2021].

[2] GOV.UK. 2021. How we tackle offshore evasion. [online] Available at: <https://www.gov.uk/government/publications/issue-briefing-how-we-tackle-offshore-evasion/how-we-tackle-offshore-evasion> [Accessed 22 December 2021].

[3] A Beneficial Ownership Implementation Toolkit. Inter-American Development Bank (IADB) and Organisation for Economic Co-operation and Development (OECD) (Report). March 2019. p. 51

[4] BBC News. 2021. Pandora Papers: Secret wealth and dealings of world leaders exposed. [online] Available at: <https://www.bbc.com/news/world-58780465> [Accessed 22 December 2021].