A leak of around 12 million documents, known as The Pandora Papers, disclosed the hidden wealth, tax avoidance schemes and money laundering activities conducted by some of the world's most powerful people. The files exposed how individuals used anonymous and offshore companies to conceal their wealth, while highlighting the complexity of tax havens, shell companies and loopholes that are established to avoid heavy taxation.
This article looks to explain offshore entities and the role they play in financial crime. If you believe you are being investigated for tax evasion and money laundering, please get in touch with our dedicated team today.
What have The Pandora Papers revealed?
The Pandora Papers have shown how some of the world's richest and most powerful people hide their wealth in offshore companies and tax loopholes. A common example is owning a property (that is based in the UK), through a company or chain of companies based offshore.
Tax havens
Offshore countries are often referred to as 'tax havens' because it is simple to set up a company with very little or a total absence of corporation tax. Tax havens also enable the companies, and their owners, to remain hidden. The most well known tax havens are in the Cayman Islands, British Virgin Islands, Singapore and Switzerland.
People can avoid paying taxes by setting up a company in a tax haven, and while it is not illegal, it is often frowned upon. Some people choose to hold their money in offshore tax havens because they want to protect it from criminals, or from financial or political instability in other countries. Although it’s not against the law to have offshore bank accounts, property, assets and companies, they are known for moving around illicit funds because of their natural secrecy.
Offshore finance explained
In order to establish an offshore finance company, a shell company needs to be set up. A shell company is a company without an office or employees. It does cost money to create a shell company, and specialists are often paid by the super-wealthy to both establish and run these companies on their behalf. Such businesses tend to have paid directors, but these directors can be different to the person or people who are really behind the company.
According to the IMF (The International Monetary Fund), trillions of dollars are stored in offshore accounts every year, causing billions in lost taxes for governments.
The role of shell companies in financial crime
As the name suggests, the company is simply an outer 'shell' of a company, meaning it only exists by name and has no other physical presence or staff.
Why have a shell company?
Individuals use tax havens and shell companies to make it more difficult for their financial assets to be located and to have significant tax benefits. However, shell companies are also commonly used to hide a person's identity and provide a safe haven to conceal money obtained through illicit means such as bribery or drug trafficking.
While owning a shell company isn't illegal, what a person holds within it could be. For instance, if laundered monies are being stored in a shell company, this is obviously illegal, but to have a luxury property owned by a shell company is legal. A company that has a second entity in a tax haven may end up paying itself a fee as part of a transaction, which would enable it to record lower profits in its country of origin. This way, companies avoid huge tax bills.
Defending tax evasion and money laundering charges
Tax evasion is a deliberate move to avoid tax and money laundering is one of the most recognised ways to do so. If you have been accused of tax evasion, or failure to report or prevent tax evasion, it can cause severe reputational damage to your business. If found guilty, you could also face serious financial penalties or even a custodial sentence. As such, it is essential to get the best legal representation as early as possible to ensure that any proceedings are handled effectively and in line with your best interests.
Our team has years of experience successfully defending charges of financial crime, including those related to tax evasion and money laundering. Should you find that you are being investigated by an authoritative body, we will help you fully comply with the investigation while protecting your business.
Contact our Financial Crime Solicitors in Central London Today
If you have been charged with or are being investigated for tax evasion through shell companies and offshore financing, our financial crime team at Lewis Nedas Law can help to compile a successful defence for your case. Get in touch with our experienced solicitors by contacting us on 020 7387 2032 for 24/7 legal support, or fill in our online enquiry form.
