Panamanian Documents: Impact on Creditors

Panamanian Documents: Impact on Creditors

Author: Tim Pradhoe and Anna Gilbert

In early 2016, Panamanian law firm Mossack Fonseca leaked 2.6 million megabytes of electronic documents, including about 11.5 million documents and 4.4 million e-mails, which attracted the attention of the media, regulators, politicians and the financial community, and continued to do so. This collective response is consistent with the continuing public pressure on anti-tax avoidance measures. However, for creditors, the theft of this confidential financial information from the International Federation of Journalists does and will continue to create opportunities for asset recovery.

The online release of these data about offshore companies, including detailed information from officials and links to related companies, may unveil the veil of secrecy, which has long kept many offshore structures out of the public's sight. Some data, including names of offshore companies, jurisdictions, officials and names of related entities, are now available in the public domain through searchable online portals. Although the devil is still in the details, at least some details can now be found online.

For creditors seeking asset recovery, this information can accelerate asset tracing strategy, lead to the identification of hidden funds, and significantly reduce the cost of asset investigation, which is necessary for strategic and targeted litigation activities. Such initial structural information is usually sufficient for domestic courts in offshore jurisdictions to provide support to creditors seeking to freeze and seize assets and their professional advisers, and to require the identification of additional assets associated with a particular structure. Creditors can use this resource to explore and generate clues for asset recovery and enforcement.

In addition to increasing creditor identification and determining the scope of specific assets, increased pressure on transparency and disclosure will also produce results. This is not necessarily a new story for the wealth industry familiar with information requests from tax authorities and regulatory agencies. However, creditors are now expected to benefit from the movement to disclose information on beneficial ownership of assets.

Historically, it has been relatively easy to keep the identity of beneficiary owners secret through subsidiary structures (usually overseas or other financial confidentiality jurisdictions). This is in the process of change. In April 2016, more than 40 countries, including the United Kingdom, Bermuda, the Cayman Islands, Anguilla and India, signed information-sharing agreements on beneficial ownership of corporate entities. Because of the constitutional relationship between Britain and major Caribbean offshore jurisdictions, such as Bermuda, the British Virgin Islands and the Cayman Islands, there will be tremendous pressure in the offshore direction. Secret offshore centres, including the Cayman Islands, are also allegedly committed to developing global information-sharing standards to combat corruption, tax evasion and international financial crime. The Cayman Islands Secret Information Disclosure Act, which is due to be passed as early as this summer, will promote (rather than seek to prevent) law enforcement and financial regulators from discovering certain confidential information. The Government of the British Virgin Islands also plans to require its enterprise service providers to hold beneficial ownership information from 2017, thereby transforming qualified intermediaries holding such information into intermediaries on demand. This information will include details of the name, address, date of birth and passport number of the beneficiaries of the registered British Virgin Islands company. Although this information is intended to facilitate compliance with the requests of law enforcement agencies in the United Kingdom, it can be found through judicial channels.

Panamanian documents provide a timely opportunity for creditors seeking to recover assets from or through overseas jurisdictions. As a basic tool, these data can be used to support the tracking and identification of specific assets, whether or not there is court intervention. However, the leak has aroused international regulatory resonance. Proposals to facilitate the exchange of beneficial ownership information continue to build momentum in an atmosphere of increasingly strict confidentiality for banking and other trusts. If current trends continue, these opportunities may increase in the foreseeable future.

Tim Prudhoe and Anna Gilbert are offshore lawyers for Kobre & KimLLP.

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