Australia: Mossack Fonseca, Panama and the implications for Australia

Key Points:

Australian corporate and individual taxpayers should be scrutinising their own offshore affairs and be able to effectively respond to regulatory scrutiny through strategic and measured means.

The 2.6 terabyte leaking of information from the law firm, Mossack Fonseca, in Panama (known as the Panama Papers) could be a significant issue for hundreds of Australian tax payers who may directly or indirectly have interests in offshore structures set up by the firm. These could include entities and trusts that the Panama law firm was instrumental in setting up in the British Virgin Islands (BVI), Panama, Seychelles, the Bahamas and Samoa. While the use of offshore structures in jurisdictions with high financial secrecy is in many circumstances legitimate they are susceptible to abuse by corrupt individuals or entities.

The Australian Taxation Office (ATO) is reportedly set to investigate over 800 Australian taxpayers who have been identified through the unprecedented leak of over 11.5 million documents to the International Consortium of Investigative Journalists. In addition to any tax implications, the ongoing release of data into the public domain is also likely to give rise to corporate governance issues.

ATO Investigations

Project Wickenby and Project DO IT have demonstrated that once the ATO has information about taxpayers, their service providers (including advisers) and their associates, they will use that information to cross-check data that it already holds about disclosed assessable income and high worth audits and, where appropriate, pursue investigations and enforcement action.  

These matters are being given widespread media coverage at the moment with ATO Commissioner, Chris Jordan, (chairman of the International Tax Shelter Information and Collaboration network) calling for greater international collaboration to combat tax evasion and "aggressive tax avoidance".  However,  the sting in the tail for Australian taxpayers may take years to eventuate, as was the case with Project Wickenby which included examples of matters going on for over a decade, and may go broader than tax issues.

The leaking of the Panama Papers will inevitably uncover Australian taxpayers who did not respond to the Project DO IT amnesty, which could create strategically complex issues for taxpayers.

The Commonwealth Government has for some time taken a cross-agency approach to dealing with offshore financial activities of Australians. Project Wickenby enabled the Commonwealth Government to exploit the powers and expertise of over eight agencies to advance its objectives. The Commonwealth has relatively recently set up the Serious Financial Crime Taskforce (SFCT) to, in effect, continue Project Wickenby's focus on tax evasion amongst other things and it held a meeting on Tuesday to co-ordinate a whole of government approach. That means that it is well equipped and resourced to undertake inquiries and investigations that would include compulsory production of information and interviews across a broad range of regulatory matters outside those of concern to the ATO.

Corporate governance issues

The Mossack Fonseca leak may give rise to less obvious, but no less important considerations for corporates, those with interests in corporations and their officers. It is not inconceivable, for example, that an interest in a listed entity may have been warehoused offshore that, when properly analysed, could rise to:

• the requirement to file substantial holdings notices under Chapter 6C of the Corporations Act;
• the inadvertent acquisition of a relevant interest in breach of the requirements of Chapter 6 of the Act; or
• a breach of a director's duties or a failure to disclose a material interest.

The implications of any of those things would need to be carefully considered in their relevant circumstances.

In addition, the activities of a previously unknown related entity may give rise to possible breaches of legislation covering money laundering, sanctions busting and foreign bribery and corruption and possibly criminal offences under the Criminal Code (Cth) such as fraudulent conduct and money laundering.

Such unknown and unexpected consequences may necessitate further due diligence to reassess previous corporate activity either because of already known corporate structures or in the light of information that may come to light over coming weeks.

What you can do now in response to the Panama Papers leak

Australian corporate and individual taxpayers who have been following the recent commentary on the leaking of the Panama Papers need to be proactive about their offshore affairs. This includes promptly scrutinising their own affairs and being in a position to effectively respond to regulatory scrutiny through strategic and measured means. Addressing the following matters in an independent manner will place you in a prime position to protect your interests:

• Identify whether you may have directly or indirectly used Mossack Fonseca to facilitate the set-up of offshore structures/ entities.
• Conduct a due diligence review/ investigation in relation to the creation of the offshore entities/ trusts/ structures utilised, including the collation and review of all relevant tax returns and corporate filings.
• Review your broader tax affairs in light of expected scrutiny by Federal authorities;
• Identify and review all correspondence (if any) with the ATO about offshore structures;
• Seek advice about what , if any, action or correspondence to Mossack Fonseca or others about the leaking of private and confidential information.
• Obtain an independent opinion of the likelihood of regulatory action and the potential financial consequence of amended income assessments.
• Consider from an informed position the merits (or otherwise) of making a voluntary disclosure to federal authorities.
• Prepare to respond to various overt and covert investigative tools which various authorities might use to investigate your tax affairs, including the preparation of action plans and understanding your rights and obligations.
• Do not become complacent because the ATO and/or its partner agencies do not act swiftly.

Key Points:

Australian corporate and individual taxpayers should be scrutinising their own offshore affairs and be able to effectively respond to regulatory scrutiny through strategic and measured means.

The 2.6 terabyte leaking of information from the law firm, Mossack Fonseca, in Panama (known as the Panama Papers) could be a significant issue for hundreds of Australian tax payers who may directly or indirectly have interests in offshore structures set up by the firm. These could include entities and trusts that the Panama law firm was instrumental in setting up in the British Virgin Islands (BVI), Panama, Seychelles, the Bahamas and Samoa. While the use of offshore structures in jurisdictions with high financial secrecy is in many circumstances legitimate they are susceptible to abuse by corrupt individuals or entities.

The Australian Taxation Office (ATO) is reportedly set to investigate over 800 Australian taxpayers who have been identified through the unprecedented leak of over 11.5 million documents to the International Consortium of Investigative Journalists. In addition to any tax implications, the ongoing release of data into the public domain is also likely to give rise to corporate governance issues.

ATO Investigations

Project Wickenby and Project DO IT have demonstrated that once the ATO has information about taxpayers, their service providers (including advisers) and their associates, they will use that information to cross-check data that it already holds about disclosed assessable income and high worth audits and, where appropriate, pursue investigations and enforcement action.  

These matters are being given widespread media coverage at the moment with ATO Commissioner, Chris Jordan, (chairman of the International Tax Shelter Information and Collaboration network) calling for greater international collaboration to combat tax evasion and "aggressive tax avoidance".  However,  the sting in the tail for Australian taxpayers may take years to eventuate, as was the case with Project Wickenby which included examples of matters going on for over a decade, and may go broader than tax issues.

The leaking of the Panama Papers will inevitably uncover Australian taxpayers who did not respond to the Project DO IT amnesty, which could create strategically complex issues for taxpayers.

The Commonwealth Government has for some time taken a cross-agency approach to dealing with offshore financial activities of Australians. Project Wickenby enabled the Commonwealth Government to exploit the powers and expertise of over eight agencies to advance its objectives. The Commonwealth has relatively recently set up the Serious Financial Crime Taskforce (SFCT) to, in effect, continue Project Wickenby's focus on tax evasion amongst other things and it held a meeting on Tuesday to co-ordinate a whole of government approach. That means that it is well equipped and resourced to undertake inquiries and investigations that would include compulsory production of information and interviews across a broad range of regulatory matters outside those of concern to the ATO.

Corporate governance issues

The Mossack Fonseca leak may give rise to less obvious, but no less important considerations for corporates, those with interests in corporations and their officers. It is not inconceivable, for example, that an interest in a listed entity may have been warehoused offshore that, when properly analysed, could rise to:

• the requirement to file substantial holdings notices under Chapter 6C of the Corporations Act;
• the inadvertent acquisition of a relevant interest in breach of the requirements of Chapter 6 of the Act; or
• a breach of a director's duties or a failure to disclose a material interest.

The implications of any of those things would need to be carefully considered in their relevant circumstances.

In addition, the activities of a previously unknown related entity may give rise to possible breaches of legislation covering money laundering, sanctions busting and foreign bribery and corruption and possibly criminal offences under the Criminal Code (Cth) such as fraudulent conduct and money laundering.

Such unknown and unexpected consequences may necessitate further due diligence to reassess previous corporate activity either because of already known corporate structures or in the light of information that may come to light over coming weeks.

What you can do now in response to the Panama Papers leak

Australian corporate and individual taxpayers who have been following the recent commentary on the leaking of the Panama Papers need to be proactive about their offshore affairs. This includes promptly scrutinising their own affairs and being in a position to effectively respond to regulatory scrutiny through strategic and measured means. Addressing the following matters in an independent manner will place you in a prime position to protect your interests:

• Identify whether you may have directly or indirectly used Mossack Fonseca to facilitate the set-up of offshore structures/ entities.
• Conduct a due diligence review/ investigation in relation to the creation of the offshore entities/ trusts/ structures utilised, including the collation and review of all relevant tax returns and corporate filings.
• Review your broader tax affairs in light of expected scrutiny by Federal authorities;
• Identify and review all correspondence (if any) with the ATO about offshore structures;
• Seek advice about what , if any, action or correspondence to Mossack Fonseca or others about the leaking of private and confidential information.
• Obtain an independent opinion of the likelihood of regulatory action and the potential financial consequence of amended income assessments.
• Consider from an informed position the merits (or otherwise) of making a voluntary disclosure to federal authorities.
• Prepare to respond to various overt and covert investigative tools which various authorities might use to investigate your tax affairs, including the preparation of action plans and understanding your rights and obligations.
• Do not become complacent because the ATO and/or its partner agencies do not act swiftly.