INTRODUCTION
According to Greek mythology, Pandora was the first woman on Earth. She was created as a punishment to mankind. Zeus wanted to punish people because Prometheus stole the fire to give it to them. A punishment unleashed on the people because they now have in hand a means of making their lives better, they now have the power of fire and in the mind of the gods that should remain in the realm of deities only. For reasons which are clearly beyond earthly understanding the gods believed that fire, a good thing, a valuable a precious resource, an empower form of energy was not good for the people and them having access to it demands punishment. In a similar way even if unintended, those who leak these papers, because of their potentially destructive impact, are suggesting the value we gain from the offshore sector is not good for us and we are going to keep punishing you until it’s no more.
THE PANDORA EFFECT
We should remain ever conscious of this as we navigate this latest expose of the private affairs of customers of offshore entities. There is no value accruing for The Bahamas and other similar jurisdictions. These leaks have the power to unleash great ‘evils’ on offshore jurisdictions such as primarily because these business transactions anticipate a high level of privacy and such a breach carries great reputation implications for customers and providers. In the aftermath of the Panama papers in 2016, as a jurisdiction, Panama is still reeling and picking up the pieces. Imagine the impact this will have if it turns out, as I suspect it may, to be again at the center of this new leakage. There should be no doubt that the work of the International Consortium of Investigative Journalists (ICIJ) carries the exact intent as the creation of Pandora, to unleash “violence” on offshore jurisdictions. It would be difficult and foolhardy to argue that there are no benefits accruing to the global financial system and to countries from these actions. There are unscrupulous and despotic leaders, tainted officials and well-placed individuals who consistently enrich themselves at the expense of their countries or organization or operate outside the confines of the law. However, it is not appropriate to see legitimate consumers of legitimate services be treated like casualties of war. A self-declared war on the secrecy and transparency of segments of the global financial system, operational effected like carpet-bombing with seemingly no concerns for who is charred in the process! The intention is clear, the approach crude and the results are potentially devastating for some countries.
According to one on-line publication, The Premium Times, “The Pandora Papers investigation lays bare the global entanglement of political power and secretive offshore finance. Based upon the most expansive leak of tax haven files in history, the investigation reveals the secret deals and hidden assets of more than 330 politicians and high-level public officials in more than 90 countries and territories, including 35 country leaders. Ambassadors, mayors and ministers, presidential advisers, generals and a central bank governor appear in the files.” This is a high stakes game, which is unfortunately unveiling some level of hypocrisy. When one consider some of the world leaders, who actively supported initiatives to undermine our jurisdictions one may be tempted to smile “poetic justice”, if only the matter was not as way more serious for us than them.
It is clear; the intention is to convey the idea that “these hidden assets' ' being revealed were so hidden because there are some nefarious qualities to them. We will no doubt readily agree that we do not, in any way, condone the use of offshore structures for illegal or illicit activities. Offshore jurisdictions, at varying amounts and with differing levels of efficacy, invest lots of time, effort and resources to protect their reputation. In the Bahamas, this is evidenced by the significant work and expense that goes into consistently enhancing the regulatory regime; the management of client relationship, observing KYC standards, applying risk-based approach, the country’s active involvement in cross border cooperation, signing on to and endorsing global initiatives to stamp out taxation abuse, money laundering and illicit activities. Therefore, one should not take lightly the fact that legitimate business and the wellbeing of an important industry and the livelihood of individuals are placed at risk by individuals who are seemingly as destructive in the financial space as drag net commercial fishing is to marine resources. Individuals doing legitimate business, leveraging legal tax planning strategies with the expectation of privacy should not have that expectation shattered in this very cavalier manner. It is certainly a double edge sword; however, it may be time for a collective call against the legitimacy of these operations highlighting the threat to the survivability of especially very small economies highly dependent on the success of their financial sector offerings.
BIG NATIONS COMPLICITY
In explaining the publication of the papers, The Guardian (UK newspaper) raised the following, “Has everyone named in the Pandora papers done something wrong? No. Moving money offshore is not in or of itself illegal, and there are legitimate reasons why some people do it. Not everyone named in the Pandora papers is suspected of wrongdoing. Those who are may stand accused of a wide range of misbehaviour; from the morally questionable through to the potentially criminal. The Guardian is only publishing stories based on leaked documents after considering the public interest. That is a broad concept that may include furthering transparency by revealing the secret offshore owners of UK property, even where those owners have done nothing wrong. Other articles might illuminate issues of important public debate, raise moral questions, shed light on how the offshore industry operates, or help inform voters about politicians or donors in the interests of democratic accountability.” This is a reasonable but frightening reality. Often in response to these issues, there is pressure to make adjustments. After the global outcry laws are proposed, legislations enacted with the attendant effect of eroding the competitiveness of a jurisdiction. Business shifts to “unsuspecting” onshore jurisdictions, the very same states whose leadership criticize the robustness of other jurisdictions system and champion the call for dismantling thereof. Assessment quickly proves how wrong they are when clients find it exponentially easier to make that shift and being able to do the damage there that they could not have in the criticized jurisdiction. Unfortunately, The Bahamas has too many examples of this and bear the scarring from her efforts to be seen as a good jurisdiction, in response to these developments. Over the last two decades especially, she has consistently experienced erosions in her financial sector. It is unfair. It should not happen and certainly not with efforts such as the now famous “journalists” leaks.
This largely illegal but tolerated activity of the ICIJ is but part of a developed worldview on small island states involved in the delivery of financial services. Its actions is an extension of the efforts and desire of G7 and G20, OECD and EU but clearly of a more clandestine and sinister approach. Sanctions work, they are effective in being disruptive as they shut off or potentially shut off normal access to the global financial system. This is disadvantageous to clients who pressures providers who in turn pressure policy makers. Never mind the initial strong statements and bravado, assess the effect of the ultimate responses over time and you will appreciate the fact that these groups always win. Listings are effective in that they name and shame jurisdictions leveraging the fact that adverse pressure arises with such categorizations. Despite being at great disadvantage and despite any sense of willing capitulations there is room for negotiation and reasoning when these measures are employed. There is no such space when there is an illegal exposure of clients’ confidential information, embarrassing individual and raising questions with political and reputational import. The game is clear, it is strategic and it is potentially deadly for certain jurisdictions, especially those in the region who do not have the protection of a metropole.
OUR RESPONSE
Maybe the time has come for there to be a very different approach to these debilitating leaks. Of course, one cannot or should not wish to ignore the enormous reputational damage that could ensue in instances where questionable relationships are revealed. With the best of effort and the most sophisticated application of risk management, AML/KYC procedures some things will be missed. That is the reality of life and part of the risk of the offshore sector. However, I believe that our stance should generally be to say to the world well there you have it in clear relief, the suppositions and innuendos need to be wasted here because we now are looking in a spectacularly consistent occurrence of legal, clean, legitimate, well vetted and superbly compliant to world standard relationships, structures and entities. Our responses going forward must not be impeded by the desire to be defensive. There is nothing to be defended when you articulate that you provide transparent and legitimate business, which then is exposed. The main issue at play is the disclosure, which was not anticipated.
The response should focus there but we should not be pulled into the trap of feeling there is a need to be defensive. Clearly, there are different levels of interest here and the realities on the ground may affect an entity different for the overall jurisdiction, for example, where it had weak systems of control and risk management. Policymakers should move painfully deliberately slow to respond to issues emanating from this. Rather than adjust and add additional regulations I believe energy should be invested in drawing attention to best practice and standards in evidence. This is not a time for despair or fear. It is a time to pay attention to the facts, to ensure that every aspect of this can be leveraged for positive gain and to appreciate the whole story. When Pandora opened her box due to curiosity not everything escaped. According to the myth, hope was left firmly resting in the box. The message here to all the players in the industry, practitioners, regulators and policymakers, is that there will be pain but there are also opportunities. There are opportunities to learn and grow from these events by being strategic and intentional in how we respond to the risks at play. Plan to capitalize on any opportunities available and seek to expand for the future. By doing this we have the potential to create our own version of a Pandora’s leak, one that unleashes a new era of understanding, growth and hope.
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© Hubert Edwards 2021
Hubert Edwards is the Principal of Next Level Solutions Limited (NLS), a management consultancy firm. He can be reached at info@nlsolustionsbahamas.com. Hubert specializes in governance, risk and compliance (GRC), Accounting and Finance. NLS provides services in the areas of enterprise risk management, internal audit and policy and procedures development, regulatory consulting, anti-money laundering, accounting and strategic planning.