Pandora Papers: What Lies Within This Box?​

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By BK​

The Story

Last Sunday, the International Consortium of Investigative Journalists leaked the ‘Pandora Papers’, a compilation of nearly 12 million confidential files from 14 offshore service firms worldwide. More than 600 journalists from 117 countries have been analysing and fact-checking the files from the 14 sources for over two years (Al Jazeera). Some 35 current and former world leaders and more than 300 public officials are featured in the Pandora Papers (BBC).
Several notable stories from this leak include:
  • Jordan’s King Abdullah II, a close ally of the US, has allegedly used offshore accounts to spend more than £70 million on luxury homes in the UK and US (Reuters).
  • The Azerbaijani President Ilham Aliyev and his family have been secretly involved in UK property deals worth more than £400 million (The Guardian).
  • Through the use of an offshore company, former UK Prime Minister Tony Blair and his wife, Cherie Blair, avoided paying £312,000 in stamp duty after purchasing a £6.45 million property in central London (BBC).
What it Means for Businesses and Law Firms

These papers reveal the extensive use of offshore services amongst the wealthy. These services are often used as a means to anonymously purchase real estate to minimise tax, hide assets and ‘cleanse’ illegal and dubious sources of wealth (often state monies gained from corruption and money laundering).

This revelation casts a lingering shadow on the recent G7 summit tax deal in June which aimed to curb the use of offshore services and, ironically, to make multinationals “pay their fair share of tax” in their countries of business operation. The extensive implication of two major signatories in the G7 deal, the UK and the US, will likely leave a sour taste on any future legislative entrenchment or execution of the deal.

The documents show how prominent and wealthy individuals have been setting up companies to secretly buy luxury properties in the UK - highlighting the UK government’s continued failure to introduce a register of offshore property owners, despite concerns some property buyers could be hiding money-laundering activities. Moreover, the US has also been revealed to be an offshore tax haven for the wealthy. Tax secrecy laws in states such as South Dakota and Nevada help them conceal and protect the assets of the wealthy (Forbes). The Financial Times notes that the documents reveal that more than $367 billion are sitting in trusts in South Dakota, “some of it tied to foreign individuals and companies accused of human rights abuses and other wrongdoing.” (Al Jazeera)

This revelation may benefit law firms in two ways. There is likely to be major political fallouts and regulatory crackdowns which may see law firms advising on future regulatory proposals and reforms. On the other hand, law firms may be enlisted by current or new clients to help them navigate the political and reputational fallout caused by revelations brought about by the Pandora Papers. For example, DLA Piper’s London office is currently representing King Abdullah II of Jordan at official requests to comment (Washington Post).

But there are reputational costs when law firms advise individuals companies engaging in controversial practices. See our Legal Profession This Week section below for a discussion on the impact on Baker McKenzie.