News and Publications

When errors hidden virtues – The Panama Papers case

Despite the usual remarks emphasizing that, by itself, keeping an account abroad is not a crime, in the people’s imagination, those who opt for holding an account outside Brazil do it with the purpose of deceiving the tax authorities.

O the last few weeks, the news in the newspapers, TV and radio stations was invaded by another explosive theme: the Panama Papers, scandal involving bank accounts and company in tax havens controlled by hundreds of politicians and businessmen of several countries, including Brazil. Despite the usual remarks emphasizing that, by itself, keeping an account abroad is not a crime, in the people’s imagination, those who opt for holding an account outside Brazil do it with the purpose of deceiving the tax authorities or protect resources obtained unlawfully.

It is not true. Even because, in case the generalizations in this field would be valid, it could be said that every Brazilian that opens a company or a bank account, even here in Brazil, would be practicing a crime, due to the huge quantity of “shell companies” and “phantom accounts” discovered in the several investigations of the Public Prosecution Service and the Federal Police.

With this, our intention is not to say that any exaggerations and simplifications at the time of disclosing technical subjects, are acts of bad faith by any party whatsoever. On the contrary. Our opinion is that such posture is a result of the confusion of concepts and generalization. Therefore, we would like to address the issue in a broader way, starting a brief history.

From the 1980s, the strengthening fight against transnational crimes (trafficking of arms, drugs and prostitution) made the security agencies of several countries to start working more closely and collaboratively. The tightening in the inspection and disclosure of information also ended-up exposing public officious tucked in scandals of fund embezzlement, which invariably would stop in the so-called tax havens.

In the late 1990s, the issue of the global control of money circulation entered a new level when organized groups of the US Jewish community managed to put in check the banking system of Switzerland. They did this by evidencing several cases of connivance with irregular confiscation of assets of Jewish families during the Second World War. The agreements entered into with UBS and Credit Suisse, in 1998, resulted in the return of $1.25 billion to the heirs of the Nazi victims, whose bank accounts have been confiscated.

Since then, the intensification of measures to the fight against money laundering and the concealment of equity no longer appear only in the agreements on security and fight against organized crime, but also started dominating the discussions in the forums on the global financial system. Especially within the OECD, entity that gathers the 34 richest countries in the world.

In such context, countries and territories that have in the financial intermediation one of their main sources of funding had to make adjustments. One of those adjustments was the increase of the degree of openness of information, without this affecting the bank and tax secrecy of the clients – an ironclad clause in the legal system of virtually all nations. This demand came from the United States, which government demanded to be informed of all bank operations made by its citizens abroad.

The legal framework of the measure was the Fair and Accurate Credit Transactions Act (FACTA), enacted in 2010. The order was eventually followed by the European Union, which leaders think even in drawing-up a ranking on the actuation and performance of the so-called tax havens, according to Marc Sanders, director of the Taxand consulting company, mentioned in a recent report of the newspaper “Valor Econômico”.

This measure, if implemented, will be very positive for the global financial system, because it would not only help to separate the “wheat from the chaff”, as well as would qualify the discussion on the use of more sophisticated mechanisms for equity protection ad portfolio diversification. But even before its large-scale adoption, some countries that have the financial intermediation as an important component of their industry of services, are already trying to look different.

We speak specifically of the islands of Malta and Madeira. More than anonymity and tax exemption, the managers of offshore funds based on those locations bet on competitive rates and transparency. At least this is what is proclaimed in the prospectuses of some consulting companies that operate in those islands. Perhaps, this may be the way for those who want to operate abroad, without taking the chance of being caught involved in scandals in which the public has difficulty in differentiating the right from the wrong.

Even because, at a time of tightening of the inspection by the government agencies and information leaks – which resulted in the Swiss Leaks, in the Luxembourg Leaks and in Panama Papers, just to name the most recent – as important as protecting the family equity is to do it in a sustainable way, also protecting the reputation.

Rodrigo Alonso Martins is a lawyer of the firm Ronaldo Martins & Advogados, CEO and Head of Wealth Planning Strategies of office the RIPOL Alliance Global Wealth Strategies.

A paradigm shift, taking the wealth management to a new era