Tax havens: drive to name and shame may push innocent to the dark side

17 May 2016

George Bull

Contrary to much we’ve heard in the last week, not everyone who uses a 'tax haven structure' does so to evade tax or to conceal the proceeds of crime.

The courts recognise this. For example, in the case of Hamilton v Hamilton and Smith (decision published 13 May 2016) Mr Justice Henderson explicitly recognised that the primary intention in setting up a Liechtenstein foundation was to provide a source of offshore wealth for David Hamilton and his family, which would be available as an escape fund if the terrible events of David’s childhood – when he had to flee Nazi Germany to escape the Holocaust – were ever to be repeated or in other emergencies of a similar nature.

The judge was equally satisfied that tax evasion was not the sole, main or primary purpose of establishing the foundation. My colleague Andrew Hubbard returns to some of the tax features of this case. For my part, I’d like to explore the judge’s observations regarding the innocent motive in setting up the arrangement.

The inconvenient truth of innocent motives is frequently disregarded by those intent on portraying every company or individual with tax-haven connections as a criminal or tax evader. It’s becoming one of the classic flavour combinations of the day. Ham and eggs. Peaches and cream. Name and shame.

The Panama papers, organised as they are to facilitate public access, provide a larder full of ingredients for naming and shaming without regard to whether those named are guilty of anything more than a desire to protect themselves and their families or to preserve their privacy.

Another classic flavour combination of the current era is 'rights and responsibilities'. With the right of access to confidential information comes a responsibility to use and interpret that data wisely and justly. If the public at large, whether campaigners, media or ordinary citizens, choose always to jump to the worst of conclusions, they reinforce the case for keeping such disclosures confidential between governments, their tax-raising departments and police authorities or prosecutors.

Transparency may have odd properties. It is invisible but it’s not a cloak of invisibility. It has no physical substance, but it imposes a considerable weight of responsibility which must be borne carefully by those on whom it is conferred. In bringing to justice the fraudsters, criminals and tax evaders who also benefit from tax-haven structures, the rights, privacy and integrity of the innocent must also be respected and protected. This is one of the biggest arguments against the public disclosure of ownership and other details.

Recent events should remind us all of the possibility that full public disclosure of everything to everybody may drive the guilty, and the innocent intent on preserving their privacy at all costs, into a 'dark web' of the global financial system. Does that sound far-fetched? Think about this for a moment. We must not allow obsessions with public transparency to drive both the guilty and the innocent to the dark side.

For more information please get in touch with George Bull, or your usual RSM contact.