1

Role of advisors and intermediaries in the schemes revealed in the Panama Papers

Willem Pieter de Groen

Centre for European Policy Studies (CEPS)

Study Group on Disincentives to tax avoidance or evasionEuropean Economic and Social Committee

14 November 2017

2Introduction

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

1975 1980 1985 1990 1995 2000 2005 2010 2015

Incorporated Inactivated Net

British Virgin Islands (54.2%)

Panama (22.1%)

Seychelles (10.6%)

Samoa (4.4%)

Bahamas (3.6%)

Anguilla (UK) (3.4%)

Nevada (US) (0.6%)

Other (1%)

Distribution of entities across jurisdictions (active)• 213,634 offshore entities

o/w 55,728 active• Decrease in offshore entities since 2013• 21 offshore jurisdictions• Approx. 90% active entities in BVI,

Panama and the Seychelles• Market share Mossack Fonseca 5 to 10%

Establishment of entities across time

Savi

ngs

Dir

ecti

ve

FATF

(2

01

2)

FATF

(1

99

0)

FATF

(1

99

6)

FATF

(2

00

1)

FATF

(2

00

3)

FAC

TA (

20

10

)

3Actors involved in offshore structures

Onshore

entities

Ultimate

beneficiary

owners

Offshore

entities

Fiscal

authoritiesSupervisors

Trust

companies

Banks

Advisors and

IntermediariesCompany

registers

regulatory obl.

client relation

fiscal relation

ownership

ownership management

substance

client relation

regulatory

obligations

reg. obl.

coordination

client

relation

regulatory

obligations

fiscal relation

fisc. rel.reg. obligations

client relation

Advisors and intermediariesUltimate beneficiary ownersPublic authorities

4Ultimate Beneficiary Owners (UBOs)Types of shareholders (active)

• UBOs often unknown (approx. 25% active entities)

• Hide behind foundations, bearer shares, nominee directors/shares

• High-net-worth individuals and companies likely to be the main UBOs

• Most UBOs (private persons) seem to be based in East Asia and Pacific (approx. 50%)

• EU share relatively small (approx. 8%), but still four times the share of North America

• Majority EU UBOs (approx. 54% - all entities) based in the UK, Cyprus and France

• Offshore structures used for money laundering, tax avoidance and tax evasion, but also for hiding/shielding of assets and crime financing

Private persons (41%)

Companies (15%)Mossack Fonseca (0.4%)

Trust and fiducary

companies (3%)

Support service providers (2.1%)

Accountants, tax advisors and lawyers

(0.5%)

Financial institutions (1.8%)

Nominee shareholders (4%)

Bearer shares (7%)

Foundations (3%)

More than one type (10%)

More than five shareholders (1.9%)

No (Foundation)

(3%)

Unknown (8%)

European Union (8%)

Europe & Central Asia

(8%)

South Asia (1%)

East Asia & Pacific

(50%)

North America (2%)

Middle East & North

Africa (6%)

Sub-Saharan Africa (2%)

Latin America & Caribbean

(15%)

More than one region

(8%)

Location of identified private shareholders (active)

5Roles of advisors and intermediaries

•Tax advice

•Investment advice

•Opinion letters

Advice

•Incorporation

•Domiciliation

•Statutes

•(Nominee) Directors

•Nominee shareholders

•Bank accounts

Creation•Management

•Administration

•Auditing statements

•Tax reports

Maintenance

•Representation

Enforcement

Advisors and intermediaries have many different roles, which can in many cases be performed by UBOs, non- or self-regulated professionals/institutions

Legal, tax, administration and finance expertise

6Role of intermediaries

European Union (13%)

Other Europe & Central

Asia (22%)

South Asia (0%)East Asia

& Pacific (33%)

Middle East & North

Africa (4%)

North America

(2%)

Sub-Saharan

Africa (2%)

Latin America & Caribbean

(17%)

Undefined (6%)

Location of intermediaries (active)

• Advisors are in most cases working in intermediaries (e.g. law firms, accountants, trust companies and banks)

• Intermediaries play pivotal role in creation of offshore structures• Requests for the offshore entities are predominantly from

intermediaries based in other Europe & Central Asia (22%) as well as East Asia and Pacific (33%)• EU intermediaries are responsible for about 13% of the entities

(e.g. UK, LU, CY)• Law firms and accounting firms facilitate

offshore structures, but since many of them are based outside onshore jurisdictions and/or not subject to legislative requirements, it is hard to capture them onshore

7Role of intermediaries

• Accounting and law firms are the main sellers, but there are many more such as trust companies and financial institutions

• The role of the Big Four accounting firms has been limited (0.15%)

Mossack Fonseca (10%)

Trust and fiduciary companies (20%)

Support services (13%)

Accountants, tax advisors and lawyers (30%)

Financial institutions (9%)

Undefined (17%)

Intermediaries bringing in clients (Active)

8Role of intermediaries

• Intermediaries serving EU citizen often located outside home-country (92%)-> other EU (47%) and non-EU (44%)

Location of intermediaries serving EU citizens (Active)

Home [excl. CY, LU & UK] (8%)

Cyprus (12%)

Luxembourg (17%)

United Kingdom

(7%)

Other EU (11%)

Switzerland (9%)

Hong Kong (10%)

Others (25%)

9Policy recommendations• Advisors and intermediaries that can be covered by (self-)

regulation in the EU should be encouraged to combat money laundering, tax avoidance and evasion

• Targeting the most essential intermediaries (trust companies and banks) could be most effective despite location

• Onshore jurisdictions should increase pressure on offshore jurisdictions to take appropriate measures, one of which could be to broaden the scope of international anti-money laundering standards (e.g. tax avoidance, tax evasion and hiding/shielding of assets)

• Implementation, compliance and enforcement of AML/CFT standards should be improved

• Compliance and supervision could be substantially improved when UBO financial information and identities are automatically and spontaneously exchanged between relevant national authorities

10

Reference: Groen, W.P. (2017), “Role of advisors and intermediaries in the schemes revealed in the Panama Papers”, Study, European Parliament, Brussels.

Contacts: Willem Pieter de Groen(+32)2 229 39 57 willem.pieter.degroen@ceps.eu

Disclaimer: Unless otherwise indicated, the views expressed are attributable only to the author in a personal capacity and not to any institution with which he is associated.