The Pandora Papers – Leaks, Loopholes and Lethargy
The release of the Pandora Papers (“The Papers”) at the beginning of this month has provided an opportunity for a comprehensive look to be taken at the underworld of the offshore industry and for government action to be taken to fight this. The Papers are the result of a large-scale investigative project by the International Consortium of Investigative Journalists, the Organized Crime and Corruption Reporting Project and media outlets in 117 countries. Transparency International UK is calling for the fast-tracking of legislation that would close the loophole that allows individuals to buy and sell UK property anonymously and by using companies registered in ‘secrecy’ jurisdictions. However, the speed at which both the US and the UK legislatures see fit to improve and utilise their legal frameworks to combat the problem remains to be seen.
Analysis of these confidential documents shows high-level officials, oligarchs and the globally wealthy using shell companies to move wealth offshore and to anonymously purchase property. These investigations come at a time when the world is edging slowly but ever closer to a global standard on corporate transparency. Over 300 politicians from 90 countries – including 35 former or current government leaders – are alleged to have evaded scrutiny and shielded themselves with anonymity. According to damning evidence from the Papers, corporate service providers and other private sector intermediaries continue to operate with little scrutiny and obligations in many countries. Lax rules and loopholes available in the financial sectors of even the more advanced economies have been open to extensive abuse. Central to it all are tax havens, such as the Cook Islands, British Virgin Islands and Jersey. The wealthy take their money there to protect it, but also to escape from rules, laws and taxes in force in their countries of residence. The wealth held in tax havens globally is eye boggling: Estimates range from £4.5 trillion to £35 trillion.
USA – world leaders
The Papers have exposed the US as one of the world’s leading ‘secrecy’ jurisdictions. Several states – including Delaware, Florida, South Dakota, Nevada and New Hampshire – have emerged as global hotspots for those seeking to hide their assets and minimise their tax burden. The Papers identified 206 US-based trusts in 15 different states that held assets of more than US$1 billion. Among them, some reportedly held assets linked to people or companies suspected of corruption or fraud. The current state of the law in the US is viewed by some as in need of tightening up: lawyers, investment advisors, accountants and corporate service providers are currently under no obligation to conduct due diligence on their clients, ascertain the source of their funds or to report suspicious behaviour to authorities. Since the publication of the Papers, the US Treasury Department is reportedly considering invoking action to close the secrecy loophole for trusts by issuing a rule implementing the landmark Corporate Transparency Act (voted in by the Senate in January 2021) that requires all trusts not expressly exempt by law to report their true owners.
Closer to home, the Papers went some way to proving what many have known for some considerable time, that the UK’s property market is a magnet for so called ‘dirty money’. The leaked data contains the names of high-profile foreign public officials, individuals accused of corruption and UK political donors who own more than £5 billion worth of UK property through anonymous companies. These revelations raise questions about potential loopholes in the UK’s property registration system and whether they prevent proper due diligence, even by a body such as the crown estate (run by commissioners for the benefit of the nation’s finances). The UK government has already sought to provide some measures but many believe that these are not being implemented with any sense of urgency.
Unexplained Wealth Orders
The Criminal Finances Act 2017 introduced Unexplained Wealth Orders (“UWO”). They are governed by sections 362A–362T of Part 8 of the Proceeds of Crime Act 2002. Nicknamed “McMafia Orders” (after the book and TV series of the same name) and available from January 2018, the use of UWOs has been extremely limited so far, having only been obtained in four cases as of summer 2021.
In one such case, Mansoor Hussain, a property developer from Leeds, was served with an UWO by the National Crime Agency (“NCA”). The NCA was investigating organised crime in the Leeds and Bradford area and they came to suspect Hussain of money laundering for the gangs. Hussain represented himself in talks with the NCA, supplying a 76-page witness statement and over 125 arch lever files of documentary evidence. Unfortunately for him, the NCA considered that the evidence provided by Hussain further bolstered their case and investigators were able to identify from it a larger property portfolio than was previously known. An out of court settlement was agreed on 24 August 2020 and the High Court made the recovery order on 2 October 2020. Hussain handed over 45 properties in London, Cheshire and Leeds, four parcels of land, £600k in cash and other assets with a combined value of £9.8m. Whilst this case garnered extensive publicity, this is a drop in the ocean compared to the figures of hidden wealth disclosed in the Papers.
Draft legislation for an overseas property transparency register
In 2018, the UK government published draft legislation in setting up a ‘register of overseas entities and their beneficial owners in response to the lack of transparency around owners of UK property and its potential for money laundering. 
The overview of the Act is to set up a register of overseas entities, including information about their beneficial owners (sections 3 to 28) and to make provision that, broadly speaking, is designed to compel overseas entities to register if they own land (sections 29 and 30). The Act, if brought into force, would make it a criminal offence to fail to comply with a notice to provide requisite information and knowingly or recklessly providing false information. Liability in this regard would attach to every officer of the entity who is in default. The government may well be lobbied to consider increasing the maximum penalty which, according to the Bill, is scheduled to be capped at a term of imprisonment not exceeding 12 months, or a fine, or both.
Draft reform of Companies House
In December 2020 the UK government launched its closed consultation on “Corporate transparency and register reform: improving the quality and value of financial information on the UK companies register.” It ran until February 2021. These measures will require primary legislation. According to the consultation paper, the Government will consider responses to this consultation in parallel with the other aspects of register reform and will confirm its plans by the end of 2021.
Wider action on money laundering has been set out in the Government’s Economic Crime Plan 2019 to 2022. The Ministerial Foreword to the UK government’s Economic Crime Plan 2019-2022, signed off by Sajid Javid (then Home Secretary) and Phillip Hammond (then Chancellor of the Exchequer) had high hopes: “We are resolute in our mission to protect the security and prosperity of the UK and ensure that the UK does not become a safe-haven for illicit finance. Delivering this response will ensure the UK is a world-leader in tackling economic crime.”
Judging by the glacial speed with which change is being implemented in this area of accountability, it may be some time before any positive and effective steps are taken.