Indignation and outrage. This has been the default response from people across the world to the allegations made in the so-called Panama Papers.
I am not surprised. The claims made following analysis of the 11.5m leaked documents from the Panamanian law firm Mossack Fonseca suggest that it might have been allowing its wealthy international clientele to commit tax evasion on a mighty scale.
Hiding assets from the authorities in the way that has been alleged is, clearly, illegal and brings back into laser-like focus the real and very serious global problem of tax evasion. As such, if it’s proven that the claims are true, those found guilty will be – or should be – brought to justice under the law.
However, while the Panama Papers case is deeply alarming, the way in which the wider world of offshore financial services is now being portrayed in the global media is not, in my opinion, a balanced or fair representation of the sector.
Sensationalism, as so often is the case in these situations, is overshadowing the reality.
Of course there might be a minor rogue element. Unfortunately, there is in all industries. But without question, in the vast majority of cases, the offshore industry only offers products and services that are wholly compliant and legal. These products and services are used by people who have no criminal intent and who are not and will not be under any suspicion of wrongdoing, but who are quite understandably seeking better investment returns, options and flexibility.
The fact is that there is now a new and wholly unprecedented era of transparency, openness and regulation in the offshore sector. Even the idea of “tax havens”, in the traditional sense, is now archaic thanks to what was once private financial information being routinely exchanged between all the world’s major tax authorities.
As many commentators have been keen to highlight, there are many questionable motivations why some individuals might want to put their cash in an offshore account – which is, of course, just an account in a jurisdiction different to the one in which the person currently resides.
But it needs to be pointed out that the offshore financial industry plays an essential and largely beneficial role in the global economy.
As the chief executive of a firm specialising in advising expats and globally minded investors, I can confirm that offshore accounts are used by our clients, and most firms in our sector, simply for their convenience.
They offer people centralised, secure, flexible and global access to their funds no matter where they live and no matter which country the individual moves to in the future. They also offer a wide choice of multicurrency savings and investment solutions.
Offshore jurisdictions simply enable those who are able to do so to use established legal international investment vehicles as part of an efficient and sound financial planning strategy.
Additional important advantages of such international financial centres include that they allow firms to avoid paying double taxation on the same income, and that they offer bona fide financial refuge for those in places where there is extreme currency volatility, skyrocketing inflation, confiscation of assets, and/or economic and political unrest.
While most so-called “tax havens” are now generally well regulated, cooperative, display a marked lack of secrecy, and provide a much-needed and in-demand service for individuals and companies globally, the Panama Papers claims do demonstrate that more work is needed in some areas.
To my mind, it is not “the biggest blow to the offshore world” as some analysts have suggested. Rather it should act as a catalyst to further bolster the efficiency, transparency and credibility of these important international financial hubs, the products they offer, and the industry as a whole. Indeed, this is vital as the global financial services market is going to expand like never before in the coming decades as the world becomes ever more globalised.