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Panama Papers – 10 reasons people use a tax haven

Panama Papers – 10 reasons people use a tax haven

Panama Papers – 10 reasons people use a tax haven

This week’s big financial and political story is the 11 million documents obtained from a law firm in a tax haven – Panama – known as The Panama Papers.  These documents are ticking time-bombs for many of the people named.  They are wealthy people, heads of state, politicians and people in business.  Many have good reason for not wanting their offshore affairs plastered all over the media.  These range from embarrassment to risk of prosecution and imprisonment.

It is only right to point out that there is nothing illegal for most people to set up accounts, companies or business structures in somewhere they do not live. The legality can vary according to which country you live in or pay your taxes in.

Since there is so much interest in what motivates such actions, I will list 10 of the main reasons below.

1. Tax evasion (the illegal one)

This used to be the main reason people put money abroad – to hide it from their tax-man. These days such people find it hard to spend the money hiding abroad – ie to spend it without leaving a trace.2

2. Hiding the proceeds of crime

This could be bribes, robbery, drug-dealing or other illicit activities.  Tax havens often allow you to put your money into companies there with little checking on how you came by the money.

3. Tax avoidance (within the law)

Individuals and large international businesses have the legal right to arrange their affairs to reduce their tax bills.  As we know from Google and Starbucks, this is often done by routing transactions and the associated costs via low-tax countries.  These activities are within the laws of the countries involved, but have become the subject of public ridicule.

4. Spouse/partner issues

Either before marriage or once a marriage is on the rocks, a spouse may try to get some money off-side.  This is so they don’t have to share it in future divorce proceedings. Putting it into a foreign country, or maybe a foreign company with nominee directors can disguise whose money it is. See this story.

5. Currency restrictions

Many countries limit the amount of money you can transfer out of the country.  Money may be smuggled out and then lodged in a tax-haven to keep it hidden.  Or if your business has income Worldwide, then you might send some of your money straight to the tax haven rather than sending it home.

6. Bribes and commissions

I think we will see from the Panama Papers that a number of the people with money controlled via Panama were receiving money they couldn’t admit to at home.  They may have been serving politicians, sports administrators or business-people.  The money may be bribes for turning a blind eye, or commissions for securing a lucrative deal.

7. Valuable property transactions

People owning large houses, planes and yachts often have them held in other names, and registered in other countries.  Often using companies or trusts based in tax havens.  This used to be popular with expensive London properties to save on stamp duty when selling.

8. Hiding assets from creditors

If someone realises their business is going down the tubes, they may stash some money overseas for a rainy day.  This could leave them funds to spend should they be made bankrupt.  Of course this is illegal as well as immoral – if you are declared bankrupt you must declare all your assets, no matter where you have them.

9. Hiding your name

Offshore tax havens make it easy to hide your connection to money or property.  The use of nominee directors is common – where some locals are paid to be the directors or trustees.  They actually do what you tell them to, but your name doesn’t appear. (Remember ‘The Night Manager’?)  I expect the Panama Papers will include correspondence linking the people with the money to those who are fronting-up the companies or trusts.

10. Secrecy and commercial confidentiality

The secrecy offered by tax havens is attractive to many wealthy people and big businesses.  It may allow them to bid for or invest in projects without the person behind the money being known.  Sometimes there will be sensible and legitimate commercial reasons for this. I suspect however that some of the other 10 factors are also involved when people use these tax havens.

 

The Panama Papers story has been prepared over the past 8 months, and the repercussions will last for years.  As the information comes out and turns to confessions and prosecutions, we can expect this to be the gift that keeps on giving.

VIDEO on this story – see here http://tinyurl.com/HustonTV53

The #PanamaPapers story is being run by The International Consortium of Investigative Journalists – see http://panamapapers.icij.org

 

Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.co.uk or 028 9080 6080.

10 step guide to fraud protection

10 step guide to fraud protection

10 step guide to fraud protection

I recently met convicted fraudster Elliot Castro at a fascinating event run by the Northern Ireland Fraud Academy. Suppress that yawn – having a convicted fraudster on the platform answering our questions was far from dull.

The book of his life of crime (before he went to jail) is a good read. “Other People’s Money: The Rise and Fall of Britain’s Boldest Credit Card Fraudster” was written by Neil Forsyth & Elliot Castro.

Just like the wonderful Leonardo DiCaprio film about the real life con-man (“Catch me if you can”) Scottish Elliot Castro travelled the World on £2 million of other people’s money. In Elliot’s case credit card details obtained in a number of ways. Also on the platform were Jonathan Wilson, Head of Special Investigations at the bank AIB plc, and Charlie McMurdie – the woman who was until recently the Met’s Head of Cyber Crime. So we had former fraudster, victim and enforcer all there together.

Inspired by the talk, and aware from clients and daily professional life how easy it is to be conned, I have pulled together my top ten tips to help keep you safe from fraud. Further detail on each is after number 10.

  1. Don’t regard a high credit limit on your card as a badge of honour.
  2. Be careful what you share on social media.
  3. Your friend is NOT stranded abroad in need of your help
  4. When someone rings you, how do you know who they are?
  5. Phishing – be very careful what links you click in emails
  6. Online purchases – use just one card
  7. If someone phones you and says there is a problem with your card – they may be a crook.
  8. Online shopping in public wifi zones is risky.
  9. Make a bit more effort with passwords
  10. Be less trusting

Now I will go into why I gave these 10 tips.

 

  1. Don’t regard a high credit limit on your card as a badge of honour. If the limit is £10,000 and you never go over £2,000, then ask your card company to reduce your card limit. I do this. That way if a crook tries to book a business class flight to Cape Town costing £3,500 the purchase will fail.
  2. Be careful what you share on social media. I knew posting that I am on holiday could let burglars know to call at my house. What I didn’t think of was that Elliot Castro would use these times to phone your office and speak to a PA or colleague and persuade them to give him some useful information, like a mobile phone number etc.
  3. Your friend is NOT stranded abroad in need of your help. If you get an email from a known contact saying they are in some far-flung place stuck with no money for an emergency operation/ flight home/ hotel bill, its 99.9% sure to be fake. I get one of these every month or so ‘from’ a friend or client.       Nearly always they have had their BT email address hacked. Having a BT email myself I see regular things popping up on my phone or in emails tempting me to log in. Don’t do it. Once they have your email and password they can hack your email. And if you use part of that password in other sites your whole online life may be upset.
  4. When someone rings you, how do you know who they are? Just because they say they are from your bank, don’t divulge to them any of your security details. For example if they ask for letters 1 and 3 of your password, then in a month’s time ring and ask for letters 2 and 4…you can see how they could build up a picture! Elliot would sometimes work for weeks on a person’s case before he actually tried to use their money. If someone is from your bank you should be able to ring back on their published phone number (not the one the person gives you!) and speak to someone.
  5. Phishing – be very careful what links you click in emails. These emails are getting very sophisticated. For example HMRC will NEVER email you about a tax refund or tax bill to be paid. It is easy to be drawn into clicking a link and ending up in a fake website where you then put in your banking details, and overnight become very poor.       Always go to your online bank by either following a ‘bookmark’ on your computer or typing from fresh the web address you already know. Those extra seconds could save you a fortune.
  6. Online purchases – use just one card. The ex-detective advised that you keep just one credit card which you use for online purchases. Don’t use the others. Maybe also keep a low but suitable credit limit on it.
  7. If someone phones you (say when you are in your hotel room) and says there is a problem with your card – they may be a crook. This was one of Elliot Castro’s techniques. Ring up and say the card they checked in with has a problem, and Bingo – the guest gives you all their card details!
  8. Online shopping in public wifi zones is risky. The ex-detective warned that you could be attached to a proxy wifi-zone. In other words it looks legit but is taking a note as you browse of all your log-ins, passwords and card details – perhaps while you buy that fraud book by Elliot Castro on Amazon!.
  9. Make a bit more effort with passwords. Put an odd character in the middle. Instead of piggy1474runs try pi6%ggy1474runs. Avoid using things people might find like your date of birth, your child’s name or your current pet. (Imagine the Facebook post – ‘look here’s a snap of wee Spot after he came back neutered & sad from the vet.’ Crook guesses password Spot2013 )
  10. Be less trusting. Just because you hear a call centre in the background, it might just be a recording. If the girl calling you interrupts to ask her ‘colleague’ to “Get the porter to collect those bags” this does not confirm the girl works in your hotel. It just makes the call to you sound legit!

And finally I am sure you are wondering why Elliot Castro flew back to Belfast (where he once lived) to talk about his life before jail. The answer is that he has turned his life around and now advises the police and lots of blue-chip companies about how businesses can beef up their security and prevent the fraudster making off their or their customers’ money. I wish him all the best – we need his help.

Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.co.uk or 028 9080 6080.