Monday 4 April 2016 11:01 pm

Panama Papers: HMRC gears up for Mossack Fonseca data leak fallout

Global tax authorities are gearing up to deal with the fallout from a leak of more than 11m files from Panama-headquartered law firm Mossack Fonseca – as legal experts warn that any entity with business dealings in the Central American country could potentially find itself receiving a knock on the door from HM Revenue & Customs (HMRC).

HMRC yesterday confirmed that it has requested access to the leaked documents obtained by the International Consortium of Investigative Journalists (ICIJ).

With the ICIJ report identifying 32,682 offshore companies relating to active clients in the UK, ranking it Mossack Fonseca’s third-top user after Hong Kong and Switzerland, HMRC will have no shortage of paperwork to sift through.

“Our message is clear: there are no safe havens for tax evaders and no-one should be in any doubt that the days of hiding money offshore are gone,” said Jennie Granger, director general of enforcement and compliance at HMRC.

Tax authorities in Austria, Sweden, Netherlands, Australia and a number of other countries are also thought to be investigating.

However, Polly Sprenger of Eversheds told City A.M. that anybody who had opened up a Panamanian corporate structure – legitimate or otherwise – should now be worried.

“Mossack Fonseca is an enormous firm and its documentation is almost certainly going to cover materials that its customers would prefer was not in the public eye,” she said.

Fiona Fernie, head of tax investigations at Pinsent Masons, urged anybody whose name could be caught up by the data leak to seek legal advice now, stating: “The costs of dealing with even the simplest enquiry of this type can run into five figures, so being able to demonstrate quickly that activity is legitimate will be key.”

Speaking to City A.M., Fernie added that, although any investigation by HMRC following the data breach would “unearth some people who are using these structures for secrecy rather than privacy”, it could also lead to “time-consuming and costly” investigations for those who are using such structures for legitimate reasons, such as some forms of estate planning or asset protection.

If the data breach reveals any links to corrupt money, the Serious Fraud Office (SFO) could also open an investigation. However, the SFO has declined to comment on the issue.

The leaked information spans almost 40 years, and shows that the number of offshore companies being incorporated peaks in around 2005 at 13,287 before dropping off to 4,341 in 2015.

Fernie pointed out that, because the data breach related to records that stem back over some time, it could also be capturing activities that were legal at the time but have since been outlawed. “There have been a lot of changes in the law,” she added.

HMRC released a flurry of policy papers towards the end of last year which were intended to introduce a range of new civil and criminal sanctions for those involved in evading tax offshore.

Many will be watching HMRC to see how it deals with the information it obtains. In November, the Public Accounts Committee slammed the UK tax authority for continuing to fail taxpayers, highlighting the relatively low levels of prosecutions secured for tax evasion.

However, a statement issued by HMRC highlights that it has brought in more than £2bn from offshore tax evaders since 2010, while its specialist offshore unit of its Fraud Investigation Service is working on over 1,000 cases.

Jessica Parker, partner at Corker Binning, added: “It appears from the statement released today that HMRC have no qualms about the manner in which the Panama Papers have come to light and plan on making full use of any intelligence it contains.”

The Mossack Fonseca data breach has exposed the offshore tax dealings of 140 politicians and public officials from around the world, including the prime minister of Iceland, associates of Vladimir Putin and the late father of David Cameron.