Back in April 2016, the Panama Papers were a leak of 11.5 million documents (or 2.6 terabytes of data). The papers detailed financial and attorney–client information for more than 214,488 offshore entities.
The documents, some dating back to the 1970s, were created by, and taken from former Panamanian offshore law firm and corporate service provider Mossack Fonseca.
While offshore business entities are not illegal in the jurisdictions where they are registered, and often not illegal at all, reporters found evidence that some Mossack Fonseca shell corporations were used for illegal purposes including fraud, kleptocracy, tax evasion and evading international sanctions.
The principal reporting on the papers focused on the law firm’s many connections to high-ranking political figures and their relatives, as well as celebrities and business figures. Among other things, the leaked documents illustrate how wealthy individuals, including public officials, can keep personal financial information private.
Initial reports identified five then-heads of state or government leaders from Argentina, Iceland, Saudi Arabia, Ukraine, and the United Arab Emirates as well as government officials, close relatives, and close associates of various heads of government of more than forty other countries. Names of then-current national leaders in the documents include President Khalifa bin Zayed Al Nahyan of the United Arab Emirates, Petro Poroshenko of Ukraine, King Salman of Saudi Arabia, and the Prime Minister of Iceland, Sigmundur Davíð Gunnlaugsson.
Brexit and a Bermudian Paradise
One could also make a credible case that David Cameron’s (prime minister of the United Kingdom at the time of the leak), naming in the papers also contributed to the Brexit decision less than two months later.
Then a year later came the Paradise Papers, most of which were from the offshore provider Appleby, which was founded in Bermuda. In total, that cache consisted of 1.4 terabytes of data. The files revealed the offshore financial affairs of some of the world’s biggest multinational companies and richest individuals and set out the myriad ways in which tax can be avoided using artificial structures. As with the Panama papers the reporting at the time predominantly focused on prominent individuals who were named in the files. This included the likes of the UK’s Queen investing in a Cayman Islands fund, Prince Charles’s estate generating substantial profits on a stake in his friend’s offshore firm. Then president at the time, Donald Trump’s cabinet members, advisers and donors reportedly having extensive offshore dealings and Formula One champions avoiding taxes on the use of private jets.
Understandably, these stories are focused on well known people so that they can more easily resonate with the readers and audience and go to generate more readership engagement and hopefully reader revenue in the form of donations and subscriptions.
Opening Pandora’s box of delights
In the last month we now have the Pandora Papers. The largest leak to date, containing 2.94 terabytes of data and coming from a much wider array of offshore providers than previous leaks: 14 in total. Locations range from Vietnam to Belize and Singapore, and to far-flung archipelagos such as the Bahamas and the Seychelles.
The reporting again through collaborations and consortia coordinated by the International Consortium of Investigative Journalists (ICIJ) has begun to trawl through millions of documents to reveal offshore deals and assets of more than 100 billionaires, 30 world leaders and 300 public officials.
The files contain details of secret deals and hidden assets of some of the world’s richest and most powerful people. The cache includes 11.9m files from companies hired by wealthy clients to create offshore structures and trusts in tax havens such as Panama, Dubai, Monaco, Switzerland and the Cayman Islands.
According to the ICIJ members, they expose the secret offshore affairs of 35 world leaders, including current and former presidents, prime ministers and heads of state. They also shine a light on the secret finances of more than 300 other public officials such as government ministers, judges, mayors and military generals in more than 90 countries.
The Pandora papers reveal the inner workings of what is a shadow financial world, providing a rare window into the hidden operations of a global offshore economy that enables some of the world’s richest people to hide their wealth and in some cases pay little or no tax.
There are emails, memos, incorporation records, share certificates, compliance reports and complex diagrams showing labyrinthine corporate structures. Often, they allow the true owners of opaque shell companies to be identified for the first time.
The files were leaked to the ICIJ in Washington. It shared access to the leaked data with select media partners including the BBC Panorama, Le Monde and the Washington Post. More than 600 journalists have sifted through the files as part of a massive global investigation.
The Pandora papers represent the latest – and largest in terms of data volume – in a series of major leaks of financial data that have convulsed the offshore world since 2013.
The 14 offshore service providers in the leak provide corporate services to individuals or companies seeking to do business offshore. Their clients are typically seeking to discreetly set up companies or trusts in lightly regulated tax havens such as the British Virgin Islands (BVI), Panama, the Cook Islands and the US state of South Dakota. Companies registered offshore can be used to hold assets such as property, aircraft, yachts and investments in stocks and shares. By holding those assets in an offshore company, it is possible to hide from the rest of the world the identity of the person or entity they actually belong to, or the “beneficial owner”. Importantly, and of interest to us at The Future Shapers, the assets an offshore company can hold is not limited to physical or tangible assets but can also include intangible assets such as intellectual property rights including patents, copyright, trademarks and design rights.
It is important to state that setting up or benefiting from offshore entities is not itself illegal, and in some cases people and companies may have legitimate reasons, such as security, for doing so. But the secrecy offered by tax havens has at times proven attractive to tax evaders, fraudsters and multinational companies.
Why is this of interest to The Future Shapers?
In June of this year, The Future Shapers undertook an investigation into the world of Research and Development tax credit claims in the UK. R&D tax credits were designed as a tax relief to encourage greater R&D spending and innovation. They work in a couple of ways by either reducing a company’s tax bill by an additional amount depending on the company’s allowable R&D expenditure or if a company is loss making over a period directly reimbursing a portion of the allowable R&D expenditure. This second option is known as the Research and Development Expenditure Credit (RDEC) scheme. RDEC was introduced in the Finance Act 2013 and enables companies with no Corporate Tax liability to benefit through a cash payment or a reduction of tax or other duties due.
Our investigation in June highlighted the abuse of the scheme and the boundary pushing tactics and behaviours of the agencies and advisors in the ecosystem.
In 2019, the Member States of the European Union (EU) spent over €306 billion on R&D. Much of this will have been in the form of tax subsidies, including research and development reliefs.
In the UK, R&D tax relief is worth around £8bn a year, and there is clear evidence of widespread abuse and fraud. However, changes to the scheme which would mitigate fraud have been shelved due to political difficulties involved in curtailing what is seen as a popular tax break. An industry of law firms and ‘advisers’ has sprung up encouraging companies to apply for R&D relief, regardless of whether or not the company is conducting any real R&D!
We have anecdotal evidence of some isolated examples of international shenanigans supported by the statements made in the March 2021 R&D Consultation relating to the use of overseas expenditure and companies.
How do the Pandora Papers fit in?
We would like to expose how fraudsters abuse the R&D tax credit system. We also believe that the research is likely to show that other R&D schemes across the continent are also being abused. In order to do this, we would need access to a tranche of files that could potentially detail companies’ intellectual property dealings.
Given that the majority of the 11.5 million files relate to company activities, the Pandora Papers offer an incredible data treasure trove that we can mine. The ICIJ have made the files accessible and can be found here.
For this we need your help. If you are interested in researching who and how companies are potentially abusing international innovation and research and development schemes, we’d be delighted to work with you. Please contact us here.