Name and Shame

Tim Cochrane of Bain & Company, Financial Consultants has said that ‘Panama Papers’ created a ‘cloud’ over the Trust and Corporate service providers industry.


If Cochrane thinks the Panama Papers is a cloud, the Automatic Exchange of Information (AEoI) is a hurricane!


On April 3rd, 2016, 11.5 million documents of the personal identities and financial transactions of 214,488 offshore entities managed by Mossack Fonesca were leaked to the press. The disclosure blew the whistle on politicians, such as David Cameron and the Icelandic Prime Minister, as well as many sports stars and celebrities who had accounts with the Panamanian firm.


According to French economist Pickerty there are $9.6 trillion (4 times the GDP of UK) in trusts offshore and the OECD governments are united in wanting to bring this private wealth into the charge to tax.


It is now well understood that tax authorities around the world are looking to use the information received under the AEoI specifically to investigate trusts of a significant size, in which the settlor is still alive, and of which there is person of significant influence.


With this information tax authorities can raise a tax claim using the extended doctrine of sham and the powers provided under the exchange to track down tax evaders – even though the tax payer had good and robust professional opinions to say that they have nothing to fear – or hide.


Let’s take an example in the public domain. Bernie Ecclestone is known to have a network of trusts and offshore companies which were set up by his non-domiciled former wife Slavika. It is also well documented that his Swiss adviser, Luc Argand who worked for his ‘Bambino’ trusts worked closely with Bernie for many years and even on occasions worked in his office in the UK. It later came out that to ‘forestall an investigation by the Inland Revenue he had transferred $44 million into the German’s bank account in Austria.


Clearly HMRC could raise a tax claim on the basis that the trusts had their mind and management in the UK. But it could not do so because, it needs more detailed information.


But, with the introduction of AEoI, HMRC and all many other countries around the globe, will have sufficient financial information to raise a claim. With Bernie Ecclestone, it has all the other information it needs to raise a claim, but for others all that is needed is the identity and address of a person of significant influence. This is enough. Tax authorities will have enough to say that they have prima facie evidence of a lack of intention to create a trust using the extended doctrine of sham, or bare trust arguments to put in a tax claim which must then be countered by disclosing files and confidential papers to prove this not to be the case. This could take years of investigation at great cost.


But it will not be mean just paying the tax, governments want to stamp out the use of offshore trusts and intend inflicting massive penalties. The UK for example has introduced a whopping 200% penalty on top of the tax. If this were to be used against someone such as Bernie Ecclestone – despite his billions, he would be wiped out!


But the bad news does not stop with Bernie Ecclestone – tax inspectors have been told to ‘name and shame’ this means they have been ordered to caste around to bring into account everyone involved; advisers, bankers, Trust & Corporate Service providers, lawyers and anyone else.


So, what are the Trust & Corporate Service providers doing about? They do not want to get caught in the cross fire of litigation and damaged reputation.


Professional trustees are resigning in favour of family managed trustees; they want to de-risk their business. They would prefer to be the trust administrator operating under contract without the fiduciary duties of being a trustee rather than get caught in the cross fire.


It is an easy sell. The family gets control over the trust, its assets and the family dynamics, a win/win situation.


For now the restructuring is happening at the top end, but it will only be a matter of time before the change will gain in momentum to all trusts holding significant assets as the practical impact of the Automatic Exchange of Information starts to bite. In five years, I predict trusts with a person of significant influence will not exist.


Next week, we will look at what UHNW families are doing once in control of their own special purpose trustee.


If you would like to find out more on how to restructure your offshore trust, contact Caroline Garnham on or call on 020 3740 7422.


Or if want to read more order Caroline’s book ‘When you are Super Rich who can you Trust?’ and “Uncovering secrets; How to win Business from Private Clients’