In recent days, everyone has been talking about the Panama Papers. So far, media coverage has largely been on the revelation of the use of secretive offshore companies by various political personalities, celebrities and their family members to hide their wealth from prying eyes.
As regulatory and enforcement agencies all around the world move to investigate some of these matters, it may be tempting for an organisation or individual to want to take comfort from not having ever heard of Mossack Fonseca (let alone used their services) and not having ever been involved in the setting up of an offshore company, and therefore deduce that there is therefore little to worry about.
This however would be quite wrong.
First of all, the leakage of some 11.5 million documents from Mossack Fonseca has served to refocus the attention of regulators and enforcement agencies on the fact that offshore companies continue to be widely and extensively used as a means to hold assets securely and discreetly. Mossack Fonseca is not the only firm in the business of helping clients set up companies in jurisdictions with low taxes and strict secrecy laws.
Secondly, even if one had never been involved in the setting up of an offshore company, one could still find oneself on the receiving end of a very intrusive and onerous requisition for cooperation and information arising from an investigation initiated from somewhere else in the world.
Singapore is well known to have fairly strict confidentiality and financial privacy laws, but the authorities have regularly reiterated that such laws would never be permitted to be used as a shield against investigation or enforcement in relation to any wrongdoing, in Singapore or elsewhere.
In Singapore, there are various ways by which an organisation or individual might come under some exposure as a result of the leak of the Panama Papers.
- The Mutual Assistance in Criminal Matters Act establishes a regime by which foreign requests to Singapore for assistance in foreign criminal investigations may be processed and handled. The assistance may be provided in various ways and include the obtaining and onward transmission of information, as well as gaining physical access to premises where relevant information may be available. Significantly, in an appropriate case, confidentiality obligations and privacy law provisions do not present an obstacle to the rendering of such assistance.
- The Income Tax Act also contains provisions enabling the Inland Revenue Authority of Singapore (IRAS) to gain access to or otherwise obtain information and to transmit the information to its counterpart in a foreign country. In the not too distant past, IRAS would only provide such assistance if it had a domestic interest in the matter but this has no longer been the case since 2010. Again, confidentiality and privacy are not considered valid grounds for resistance.
- Organisations operating in regulated industries also have to grapple with industry specific regulatory requirements, which may include requirements to conduct checks on clients or customers before transacting with them. For instance, a bank or other financial institution may find itself coming under direct local investigation or inspection by the Monetary Authority of Singapore (MAS) if MAS suspects that there could be shortcomings in the way it has implemented its customer due diligence policies and controls. Existing MAS rules on client due diligence already make it quite clear that the offshore companies are considered to present greater risks and that additional measures (such as a thorough investigation into the ownership background) must be implemented to address those risks. If a bank or financial institution is involved, questions are easily raised as to the extent to which it ought to have known of the involvement of offshore companies and of the sufficiency of the measures it took in mitigation.
- There is also the general requirement concerning the reporting of transactions that might be reasonably connected with money laundering or terrorism financing. Unlike in some countries where only entities in specific industries are obligated to file suspicious transaction reports, in Singapore it is not widely known that the obligation to report suspicious transactions applies to any person who may have such information.
More revelations from the Panama Papers can be expected in the weeks ahead, and more organisations and individuals would come under scrutiny. It is therefore important to take the time to properly understand one’s potential risk exposure. Companies may cautiously re-assess their business projects (past, present and future) as well as their internal governance and compliance controls, in consultation with their legal counsel to ensure that they are able to react responsibly when a regulator or enforcement agency pays a visit.