12 May 2016

CAPITAL letters - Issue 13


The Panama papers, the Prime Minister and the media

What can the Panama papers teach us about the perception – and indeed misperception – of using offshore financial centres? And why does it matter?

On 3 April this year the first reports emerged, based on a massive hack (or more accurately, theft) of confidential information from Panamanian law firm Mossack Fonseca. What followed was a media feeding frenzy, which swept up senior political and business figures across the globe and, for the most part, removed any sense of balanced journalism.

At first glance, the coverage – of which there was much – could lead any innocent observer to think that those linked to Mossack Fonseca were uniformly corrupt, money-laundering tyrants. As a firm believer in well-informed journalism, I was keen to add an alternative perspective and to clarify some of the many inaccurate and misleading comments associated with the story.

On Wednesday 6 April I was invited to appear on BBC’s Newsnight to discuss the issue of privacy versus transparency in the wake of the unfolding Panama papers affair. While I strongly believe in the right to privacy – not least where widespread knowledge of wealth might lead to an individual being targeted for ransom or theft – the opposing view was presented by The Guardian journalist Polly Toynbee. Polly argued for almost total transparency, with the public having access to everyone's most private financial information, including what we earn and how much tax we pay. This is an extreme position and one not shared even by the OECD, which is no champion of privacy. The OECD’s position (I’m paraphrasing here) is that the point of transparency is to enable law enforcement, not public entertainment. The Newsnight encounter ended with me challenging Ms Toynbee to nail her bank statement to her front door if she was that keen on transparency.

It seems that airing the unpopular opinion – namely the validity of using offshore financial centres for a host of entirely legitimate business affairs – piqued interest from other journalists.  Two days later I was interviewed by the famously pugnacious John Humphreys on the prime slot of BBC Radio 4's Today (the agenda-setting news and current affairs radio show) to discuss the Prime Minister’s investment in the Blairmore Fund, which by then was rapidly turning into a potentially huge scandal.  “Tell me about David Cameron’s offshore trust” Mr Humphreys asked, to which my reply ("do me a big favour, don't ever use the term 'offshore trust' in relation to this investment again") and my insistence that the Prime Minister had done nothing wrong – led to a host of publications and broadcasters approaching me for comment. So I obliged.

My newfound reputation for being a combative lawyer saw me subsequently appear on two live TV interviews and 11 further radio broadcasts. Journalists repeatedly sought any suggestion that the PM might have misbehaved and questions were consistently phrased with the obvious aim of securing such an allegation. Ultimately, as I said to Naga Munchetty on BBC Breakfast – in a clip that has since been viewed about 4 million times on Facebook – the headline should have been “man makes modest investment and pays all his tax”. The very fact that this clip secured such a huge number of views (albeit fewer than clips of puppies jumping on beds or cats being spooked by cucumbers) suggests that there is demand for more balanced and informed debate.

My encounter with the media that week has made me realise how misled the media and the general public are in relation to globalisation in general and international finance in particular. David Cameron invested in an offshore hedge fund that had distributor status and that was, quite literally, a hopeless way of avoiding tax. Ironically, had the fund actually been domiciled in the UK then the tax outcome (if not the political one) would have been exactly the same. Incidentally, the Blairmore fund was managed in the Bahamas and then Ireland (hardly a shady tax haven) and the connection with Mossack Fonseca was tangential. This highly regulated collective investment scheme was about as far from a private family trust as you can imagine and many institutions, such as pension funds, were substantial investors.

Many of my interviewers on that day and since have asked the same question: “why was the fund offshore?”. The vast majority of hedge funds are run from offshore financial centres because of their business-friendly laws and the expertise of their service providers. Ireland, for instance, made a concerted effort to attract this type of business and has been very successful. There is nothing stopping the UK from trying to emulate this success, should it choose to do so.

It seems that many people in the UK (and the press) believe that the world of financial services should or does end at the English Channel and they struggle to understand why investments need to be “offshore”. When I said in one interview that “millions of people” in the UK invested in offshore hedge funds I was met with genuine incredulity.  Take a look at any typical pension portfolio, I suggested, and I bet you’ll find at least one offshore hedge fund in there. Pension trustees have a duty to diversify and spread risk and hedge funds are one of the tools they use. The response was that as those “millions of people” hadn’t knowingly invested in hedge funds then it was a different case to our Prime Minister.

So, there you have it; the whole problem summed up in one unintentionally revealing statement - as long as we remain entirely ignorant of how the international financial system is widely used for our benefit then we are blameless. It appears that Mr Cameron’s only crime was to know exactly what he was doing.



James Quarmby

James Quarmby

T:  +44 20 7809 2364 M:  +44 7958 776 759 Email James | Vcard Office:  London

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