“What is important to know is the origin of the money that the Mauritians have invested overseas…

It is not enough to say that it was a perfectly legal transaction”

Qs & As

* ‘ Avoidance of tax is not an offence. What is prohibited is tax evasion, which means concealing income or information from tax authorities’

By LEX


The Pandora papers, released by the International Consortium of Investigative Journalists shine a torchlight on practices of the wealthy “global elite” that use a variety of means (shell companies and trusts amongst others) to stash and hide their assets from public view in tax havens. If such monies have been legitimately acquired and due national taxes paid, citizens are entitled to use tax avoidance advice or assistance. There may be moral issues by some in the public sphere, but are there legal issues with such activities, much of which stem from the US or OECD to end up in far-away exotic island destinations? We ask Lex to shed some light.


* What are the Pandora Papers? And what do they reveal?

According to a paper published on 3 October 2011, the Pandora Papers investigation is the world’s largest-ever journalistic collaboration, involving more than 600 journalists from 150 media outlets in 117 countries. The investigation is based on a leak of confidential records of 14 offshore service providers that give professional services to wealthy individuals and corporations seeking to incorporate shell companies, trusts, foundations and other entities in low- or no-tax jurisdictions. The entities enable owners to conceal their identities from the public and sometimes from regulators. Often, the providers help them open bank accounts in countries with light financial regulation and high secrecy.

* How is Pandora Papers different from the Panama Papers and Paradise Papers?

The Panama papers relate to documents that were released on April 3, 2016, by the German newspaper Süddeutsche Zeitung (SZ), which dubbed them as the ‘Panama Papers’. The document exposed the network of more than 214,000 offshore entities involving politicians, public officials or close associates and entities from 200 different nations.

The Paradise Papers are a set of over 13.4 million confidential electronic documents relating to offshore investments that were leaked to the German reporters Frederi Obermaier and Bastian Obermayer, from the newspaper Süddeutsche Zeitung. The newspaper shared them with the International Consortium of Investigative Journalists and a network of more than 380 journalists. Some of the details were made public on 5 November 2017 and stories are still being released.

According to Indian Express, the Panama and Paradise Papers dealt largely with offshore entities set up by individuals and corporates respectively. The Pandora Papers investigation shows how businesses have created a new normal after countries have been forced to tighten the screws on such offshore entities with rising concerns of money laundering, terrorism funding, and tax evasion.

On the other hand, it’s important to note that all the papers are exposing those who have invested outside their country with a view to avoiding tax or to hide their wealth. Avoidance of tax is not an offence. What is prohibited is tax evasion, which means concealing income or information from tax authorities — and it’s illegal. Tax avoidance means legally reducing your taxable income.

* We understand that the Pandora Papers relate to the ultimate ownership of assets ‘settled’ (or placed) in private offshore trusts and the investments including cash, shareholding, and real estate properties, held by the offshore entities. Why are trusts set up overseas?

It is generally recognized that foreign-based trusts offer a number of advantages over domestic trusts. They have an extra layer of privacy. Foreign trust laws are generally designed to attract foreign investors and so are particularly favorable for the settler and the beneficiaries.

* Is setting up a trust in Mauritius, or one offshore/outside the country, illegal?

No. The trust is a mechanism that offers asset protection and confidentiality.

* The ICIJ itself says on the site for its Offshore Leaks Database, “There are legitimate uses for offshore companies and trusts. We do not intend to suggest or imply that any people, companies, or other entities included in the ICIJ Offshore Leaks Database have broken the law or otherwise acted improperly.” If trusts are not illegal, what is the investigation about and why the media hullabaloo?

The ICIJ itself provides the answer by stating:
‘ICIJ is publishing the information in the public interest. While many of the activities carried out through offshore entities are perfectly legal, extensive reporting by ICIJ and its media partners for more than five years has shown that the anonymity granted by the offshore economy facilitates money laundering, tax evasion, fraud and other crimes. Even when it’s legal, transparency advocates argue that the use of an alternative, parallel economy undermines democracy because it benefits a few at the expense of the majority.’

* If it has been known for quite some time that an abuse is made of offshore trusts for the purpose of serving as ‘secret vehicles to park ill-gotten money, hide incomes to evade taxes, etc’, why don’t governments take remedial action?

Whether it is offshore or trusts, many countries have introduced legislations with a view to attracting those who want to open a trust to invest in offshore companies in these countries by providing attractive packages like low tax rates and confidentiality.

A balance has to be struck though between the need of the country to attract investors and compliance with all international rules on illicit wealth and money laundering.

* Oliver Bullough is the author of ‘Moneyland: Why Thieves and Crooks Now Rule the World and How to Take It Back’ argues in The Guardian that ‘it was opposition from fund managers that stopped substantive reforms to Scottish limited partnerships after they were misused in the Moldovan Laundromat; and it is opposition from wealthy Americans that prevents light being shone on the corporate registries in Delaware…’ This would suggest that the big corporations and their wealthy owners have become more powerful than elected governments around the world; they set the rules, right?

Powerful countries that are rich can afford to set their own rules. Mauritius cannot. That does not mean that there are no rogue companies or politicians that would condone illegal investment without verifying the provenance of the wealth or the morality of the investors. Why do you think we are on the grey or black list of international monitors? Surely a culture of amassing wealth since a few years back and going only after political opponents have not helped.

* There is also the point that tougher regulations imposed by any one government will drive away the corporations and the billionaires to other, more lenient, jurisdictions and kill in the process an important and high earning job & foreign exchange-generating pillar of the economy. Which government would want to do that?

Mauritius has been placed on a black sheep list. What do we do? We beef up the legislation. But is that enough? If the institutions that are politically nominated are unwilling or incapable to investigate malpractices irrespective of politics, then what do we do? Legislation alone will not help.

Why, for example, has the ICAC been sleeping on the Angus Road case, but not so as regards the St Louis case?

* After the Panama papers were published, Britain promised to take action by, among other things, forcing the 100,000 shell companies that own property in England and Wales to reveal their true owners. It has not kept that promise. Not surprising at all, isn’t it?

The answer is given by Oliver Bullough who writes in The Guardian on 4 October:

‘At the core of the three great leaks – the Panama, Paradise and Pandora papers, as well as at the heart of many smaller ones – is one single tool: the shell company, which has been used time and again by powerful people to hide their activities from fellow citizens, tax authorities and law enforcement agencies. It is perhaps the most damaging thing ever invented, since it facilitates the theft of hundreds of billions of pounds a year, while defeating investigators – no matter how determined they are, or how powerful the country, cause or corporation they represent.’

* Many small jurisdictions have been listed as tax havens time and again and are referred to as the “usual suspects”. But from Oliver Bullough again we learn that ‘Britain’s corporate registry is a sink of unverified information, with loopholes so large that the largest money-laundering scandals of all time have passed through. Most EU countries are little better.’ It would seem the OCED and the European Commission do not go after them. Why is that so?

This is where the whole system of international monitoring hurts a country that is struggling to attract investors. Take the example of Mauritius. We have had the offshore sector set up for years. All of a sudden, the international governance monitors including the European Union decide that we are not compliant with rules and regulations that may expose the country to money laundering risks!

* Besides the current and former leaders featured in the Pandora Papers, there is also ex-UK PM Tony Blair and his wife, who saved £312,000 in stamp duty when they bought a London office through an offshore firm that they bought. However, Mr Blair had previously been critical of tax loopholes, which means that what he did may not be ethically correct, but perfectly legal, isn’t it?

This is the age-old debate between law and morality. Morality is concerned with a system of behaviour with regards to standards of right or wrong whereas the law is concerned with conduct that should be prohibited in the public interest.

* It could be the same story as regards those Mauritians who feature in the Pandora Papers, though it has to be ascertained whether the essential details are the same or not. Ethically incorrect, but perfectly legal in some cases? Or, ethically and legally incorrect in others?

What is important to know is the origin of the money that the Mauritians have invested overseas. It is not enough to say that it was a perfectly legal transaction. It was most improper for the minister responsible for the financial services to come and state in public that the blue-eyed boy of the Prime Minister had done nothing illegal. How does he know? Only an investigation can establish that. Who would dare investigate that blue-eyed boy?


* Published in print edition on 12 October 2021

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