In October 2021 the first tranche of 11.9 million records taken from 14 offshore corporate service providers were published by the International Consortium of Investigative Journalists (ICIJ). Three of the firms involved are based in the British Virgin Islands (BVI): Commence Overseas Limited, Fidelity Corporate Services Limited and Trident Trust Company Limited.
This data theft was not the first of its kind, having been preceded by the 2016 Panama Papers and the 2017 Paradise Papers hacks. Nor, following the recent Credit Suisse leak, will it be the last. The Pandora Papers differ in size and scope to the preceding hacks, but thus far appear to lack the explosive impact of the Panama Papers. That said, the documents disclosed are not without their highlights: they reportedly concern the offshore business affairs of 35 world leaders, more than 300 public officials and over 100 billionaires[i]. These figures must, however, be viewed in a wider context: the Pandora Papers contain information on more than 27,000 companies and 29,000 ultimate beneficial owners, which is more than twice the number of beneficial owners identified in the 2016 Panama Papers[ii].
This recent leak – likely theft – of data, as with those which preceded it, poses the age-old question of whether the public interest in publication overrides an individual’s right to privacy. There can be no doubt that the disclosure of confidential information can serve a public good and lead to positive social outcomes. For example, on 21 September 2021, Harald Joachim von der Goltz, 83, of Needham, Massachusetts, was sentenced in the Southern District of New York to four years in prison, and significant financial penalties, having pleaded guilty to charges of wire transfer fraud, money laundering, false statements and other charges[iii]. The investigation into Mr Goltz’s affairs followed the publication of the Pandora Papers. Additionally, the Panamanian Department of Justice has recently announced that money laundering proceedings will be commenced against 32 defendants[iv].
The argument for disclosure gathers momentum in light of the positive results described above, and the disclosure of assets belonging to corrupt politicians and their associates takes on even more significance in light of the recent tragic events in Europe, with Russia’s invasion of Ukraine. However, it is important to note that while such revelations are hugely significant, they are by no means representative of the overall picture. The question, therefore, is whether the ends justify the means. And that question must be considered in light of the inescapable truth that the information and documents leaked in the Pandora Papers were stolen. This was not a case of whistleblowing targeted at corrupt individuals and companies in the name of social justice. As with the hacks that preceded it, the ‘leak’ was an indiscriminate theft of confidential information relating, in main part, to the legitimate business affairs of those abiding by the law. On one view, the subsequent publication of that material amounts at its basest level to the dissemination of stolen property.
The use of offshore structures to hold wealth is not, in and of itself, a corrupt practice which justifies exposure. The position does not change simply because the reason for that structure is to reduce an individual’s tax liability, as long as the steps taken do not amount to unlawful tax evasion. Investigative journalism is of critical importance and the exposure of criminality is laudable. However, such investigations should be conducted in a responsible, confidential manner, and until a robust case of wrongdoing has been made out, publication of confidential information should be restricted.
Even if a strong case of criminality or other serious wrongdoing is established, can that justify hundreds of journalists trawling through the private, stolen property of others? Looking at it from another angle, a search of all the properties in the BVI – where our firm is based – without the property owners’ consent, may well expose individuals engaged in some form of criminality, but would that justify the indiscriminate search of all the ‘clean’ properties? Additionally, as was observed by the English Court of Appeal in Francome And Another v Mirror Group Newspapers Ltd. And Others -  1 WLR 892, it is open to the press to serve the public interest, if they so wish, by placing incriminating material in the hands of the police or other appropriate authority.
In any event, whether the disclosure and dissemination of confidential information is in the public interest can only properly be assessed on a case-by-case basis. The concealment of wealth by a corrupt political regime is a far more compelling argument for publication than, say, an unknown high net-worth individual’s lawful exploitation of a tax loophole, or a celebrity individual’s ownership of foreign assets. Yet it appears that such cases have been given the same treatment: publication. Worse yet, in many cases the lawfulness of the individual’s private affairs is not commented upon. As was recognised in Francome, the press is peculiarly vulnerable to the error of confusing the public interest with their own interest. Sensationalism sells.
The implications of stealing and the subsequent publication of confidential information are potentially wide ranging. Reputational damage can be catastrophic and permanent. There may not be an opportunity to mitigate the damage caused or to set the record straight. Even if such an opportunity presents itself, why should the individual or business be put in the unenviable position of having to justify their private, lawful actions? Contracts and legitimate business relationships may also be compromised. Service providers and their employees are portrayed as ‘facilitators’ of reprehensible business activities, even though a vast amount of the data relates to ordinary, legitimate business activities and individuals. Who decides how much collateral damage is justified?
Leaks of this kind ignore the fine line between what is lawful and unlawful. For example, in the UK data protection is governed by the Data Protection Act 2018. Companies in the UK can lawfully process an individual’s data for six reasons, including where there is a legitimate interest being served. This applies equally to those that examine and further disseminate stolen information. It has been reported that the ICIJ has spent a significant amount of time coordinating simultaneous reporting from 150 different media outlets in 117 countries[v]. Has the lawfulness of each publication been assessed by those qualified to conduct the appropriate analysis?
There is nothing inherently wrong with wanting to keep your personal wealth from the public eye, and to keep your private matters private. Why should money kept offshore be viewed any differently from money held in the UK? Most offshore jurisdictions have robust and well-developed anti-money laundering regulations, plus Tax Information Exchange Agreements and responsible, well-funded financial services regulators. Notably, of those jurisdictions that were ‘hit’ by the Pandora Papers hack, only one (Panama) features in the European Union’s blacklist of non-cooperative jurisdictions for tax purposes.
It is by no means certain that the publication of the Pandora Papers will result in the institution of criminal proceedings against the individuals who have been exposed. There have been examples of criminal investigations and convictions that followed the Panama Papers leak, but those are limited in number.
The subsequent public discussion has been principally focused on how the various jurisdictions involved should tighten or reform their regulatory controls. This is undoubtedly a useful discussion to have. However, there is little, if any, discussion on what action can and should be taken to ensure that hacking on this scale does not occur again, and how to identify the perpetrators of these thefts.
As the ICIJ Director Gerard Ryle has said: " we can’t be 100 percent certain about any data anymore.” Mr. Ryle said such concerns may prove to be a disincentive to using offshore structures[vi]. The net result is that anyone who engages the services of an offshore corporate services provider will not only have to accept that their confidential data may be stolen, but also that it may be published in the name of serving the public interest without any public denouncement of the theft. How can that be right?
Russia, BVI And Sanctions
In all this, much focus – often negative – has been placed on the offshore world and the use of offshore structures to hold wealth. The pariah kleptocracy that is Russia is an existential threat to world peace and security. So the offshore financial centres do need to invest resources to robustly enforce these sanctions, as do all right-thinking states, onshore or off.
Thankfully, the BVI has made, and continues to make, progress in addressing some of its historical criticisms. Between 17 March and 20 March 2022 the territory hosted the UK’s Minister for Overseas Territories, Amanda Milling, to discuss the implementation of sanctions against Vladimir Putin and his associates. UK sanctions apply to all British territories, including the BVI. The BVI Government is supportive of these measures and has declared that it will fully cooperate[vii]. Only time will tell the extent to which the BVI will be impacted, but the stance it has adopted is encouraging.
With thanks to Jamie James, barrister at Martin Kenney & Co. for his assistance with this article.
Martin is Managing Partner of Martin Kenney & Co (MKS), a specialist investigative and asset recovery practice based in the BVI, focused on multi-jurisdictional fraud and grand corruption cases. In 2014 Martin was the recipient of the Association of Certified Fraud Examiners (ACFE) highest honour: the Cressey Award for life-time achievement in the detection and deterrence of fraud. Ranked by both Chambers and Partners and Legal500, for the past several years he has been chosen as a global elite “Thought Leader” of the legal profession by Who’s Who Legal. http://martinkenney.com/
Jamie is a barrister for Martin Kenney & Co (MKS), asset recovery legal specialists based in the BVI. He joined MKS in March 2009 and has since worked on numerous international fraud-related insolvency matters, including complex discovery applications in jurisdictions including the Cayman Islands, Belize as well as the BVI.